Road To Recovery Is Uncertain For America's Small And Medium-sized Businesses

The prolonged economic impacts of COVID-19 are wearing on small and medium-sized businesses as owners report more uncertainty about when and how they may recover, according to a new report from Principal Financial Group ®.
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The prolonged economic impacts of COVID-19 are wearing on small and medium-sized businesses as owners report more uncertainty about when and how they may recover, according to a new report from Principal Financial Group ®. The Principal Financial Well-Being Index SM highlights difficulties particularly for those businesses in rural communities.

The research tracks how the latest surge of coronavirus infections is weighing heavily on small and medium-sized businesses and impacting how they're preparing for the near future. Principal ® has been following the impact of COVID-19 on these businesses - and how they're adapting - since last Spring, comparing results over time.

Small businesses see help on the way

While the country grapples with the resurgence of COVID-19 cases and restrictions, survey participants are more concerned and cautious about the economic outlook than in September of 2020 1. 46% of businesses surveyed reported to be fully operational with about one in every four businesses saying they're uncomfortable with their current cash flow situation. However, as they consider the next 12 months, 71% expect some level of improvement in their finances. Some attribute this cautious optimism to the vaccine and government support that may alleviate the situation.

Amy Friedrich, president of US Insurance Solutions at Principal, believes that while the COVID-19 vaccine will be a big help, it isn't going to be a quick and easy fix. "With just a few weeks of the new year under our belts, it's clear that 2021 will continue to be a bumpy road," said Friedrich. "Small business relief programs should continue to support stability but certain sectors may need more support to see any 2021 growth. Patience, creativity, and continued resilience will likely be key traits for businesses in what could be an uneven recovery year."

Greater challenges in rural America

The most recent survey results highlight discrepancies between how rural and metro small and medium-sized businesses are being impacted by the continued economic challenges of COVID-19. Less than a quarter of rural businesses reported being fully operational compared to almost half of metro respondents. A third of rural businesses believe their local economy is declining in comparison to 18% of metro businesses. And 61% of rural businesses feel unsupported or impartial to federal government policies or initiatives designed to help their businesses 2 compared to 36% of metro counterparts 3.

Rural business owners also anticipate recovery to take much longer with a majority saying it could take two years or more. Among metro business owners, the majority anticipates recovery within the next year. Despite these challenges, rural businesses are investing like their metro counterparts in driving their business forward amid the extraordinary circumstances - focusing on improving customer satisfaction (30%), offering a new product or a new line of service (22%), and creating or improving their website, apps and social media channels (15%).

Small businesses are facing big decisions

Throughout the pandemic, business owners have remained focused on the health and well-being of their employees. During this last survey, top priorities included the health of their employees and themselves (42%), supporting employees emotionally and mentally during this time (32%), and paying employees' salaries and benefits (29%).

Although 70% of the respondents said they made no changes to their benefits offering 4 (81% were businesses with less than 500 employees), many indicate they are shifting priorities in 2021 by adding or increasing benefits such as telehealth services (31%), Employee Assistance Programs (28%), and childcare support (27%). Due to these changes, some are considering pulling back other benefits. Those businesses with two to 499 employees are willing to decrease or drop long-term care insurance (15%), while their bigger counterparts - those with 500 or more employees - are willing to give up benefits such as hospital indemnity (18%).

"When employers listen to employees and adapt, there are naturally going to be trade-off decisions. Part of the work business owners do is effectively make these trade-off decisions - and continue to make them as employees' needs evolve and the environment changes," said Kara Hoogensen, senior vice president of specialty benefits at Principal. "Employers are making changes to best position their business and employees for success. These adaptations are just one more way small businesses are demonstrating their nimbleness and resilience during these unprecedented times."

To see more survey results, view the full report (PDF).

About the Principal Financial Well-Being Index SM

The Principal Financial Well-Being Index SM surveys business owners, decision makers and business leaders aged 21 and over who work at companies with 2 - 10,000 employees. The nation-wide survey, commissioned since 2012, examines the financial well-being of American workers and business employers. In response to COVID-19, the Well-Being Index was transformed from an annual survey to a quarterly pulse, offering three waves, revisiting questions and measuring sentiment regarding timely issues in the small and medium-sized business marketplace. The survey was commissioned by Principal and conducted online by Dynata from November 13-22, 2020. The research report focuses on providing a holistic perspective on key trends and timely issues in the small and medium business market.

Principal developed a dedicated portal for employers designed to help business handle the effects of COVID-19 and a challenging economy in the months ahead. To learn more visit Navigating Business Now.

About Principal ®

Principal helps people and companies around the world build, protect and advance their financial well-being through retirement, insurance and asset management solutions that fit their lives. Our employees are passionate about helping clients of all income and portfolio sizes achieve their goals-offering innovative ideas, investment expertise and real-life solutions to make financial progress possible. To find out more, visit us at

Dynata is not an affiliate of any member of the Principal Financial Group.Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Co. Plan administrative services offered by Principal Life. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities offered through Principal Securities, Inc., 800-247-1737, member SIPC and/or independent broker/-dealers. Referenced companies are members of the Principal Financial Group ®,Des Moines, IA 50392. Principal Global Investors leads global asset management and is a member of the Principal Financial Group ®.Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.© 2021 Principal Financial Services, Inc.

1 For businesses with less than 500 employees, the percentage went up seven points from 33% in September. 2 29% unsupported and 32% neither supported nor unsupported. 3 18% unsupported and 18% neither supported nor unsupported. 4 From March to December 2020.

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