At the beginning of 2020, small businesses ($100K to less than 10MM in annual sales volume) and middle market companies ($10MM to less than 500MM in annual sales volume) were coming off of a prosperous 2019 with optimistic outlooks about the future. Unfortunately, COVID-19 has dissuaded this optimism.

Barlow Research’s latest April Economic Pulse study finds businesses:

• Are substantially less confident in their financial condition
• Expect little capital spending and have depleted cash reserves
• Are likely to apply for additional credit
• Small businesses have been hit hardest by COVID-19. Only 27% reported an improved financial condition in the last 12 months, leaving 32% reporting a deteriorated financial condition and 41% remaining the same. When assessing the net difference (subtracting those with deteriorated financial conditions from those with improved conditions), we arrive at a -5% score. Given that the net difference for the first quarter of 2020 was +38%, this represents the largest single quarter drop that Barlow Research has seen in this metric. While similar trends exist in the middle market, their last 12 months have been slightly more positive.

It’s when assessing businesses’ future economic outlooks that true volatility surfaces. Expected overall financial condition dropped precipitously in the second quarter. Small businesses recorded a -16% net difference score (down from +40% in the first quarter), and the middle market decreased to -27% (down from +56% in the first quarter). These steep declines paired with decreased sales, profit and price expectations will drastically curb capital spending behaviors.

After years of soft demand for additional credit, the small business market now has a growing need. Twenty-eight percent have applied for additional credit and almost half expect to apply or were unsure. With most middle market companies having existing lines of credit, demand for additional credit has yet to see large increases. However, like the small business segment, many are expecting to apply for more credit over the next 12 months.

Barlow Research has proudly provided the voice of the business customer to the financial services industry for over 40 years. During these unprecedented times we will continue to provide current information to support our clients and the U.S. companies they serve.