Skip to Main Content

Fifth District Small Businesses Struggle With Operational and Financial Challenges

Regional Matters
April 14, 2022

The Small Business Credit Survey

Each year, the 12 Federal Reserve Banks conduct a survey of small businesses (firms with fewer than 500 employees) to provide timely insights on small business conditions to policymakers, service providers, and lenders. The Small Business Credit Survey (SBCS) asks about firms’ financial conditions, business performances, and access to and use of credit. In 2021, the SBCS was fielded from September to November and gathered nearly 11,000 small businesses responses from around the country. The challenges that small businesses faced in our district were similar to the challenges that firms faced nationwide, which are detailed in the national report on employer firms. This Regional Matters post focuses on responses from firms in the Fed’s Fifth District.

In 2021, the 1,104 respondent small businesses from Fifth District states included 428 responses from Virginia, 251 from North Carolina, 237 from Maryland, and 130 from South Carolina. Although they are included in the Fifth District response numbers and national reporting, the 58 total responses from the District of Columbia and West Virginia were too few to report separate state results.

Business Conditions and Challenges in the Fifth District

When asked about their businesses' recent profitability, 43 percent of Fifth District respondents reported operating at a loss, and 15 percent broke even at the end of 2020. Forty-two percent were operating at a profit, still well below the 56 percent of respondents who were profitable pre-pandemic.1 Notably, at the end of 2020, North Carolina was the only Fifth District state that had a higher percentage of firms that reported operating at a loss (44 percent) than making a profit (37 percent). Many firms not only reported operating at a loss, but also in 2021, 45 percent of district respondents reported revenue decline in the 12 months prior to the survey. Of all district states, Maryland had the highest share of firms experiencing revenue decline (48 percent). 

In 2021, Fifth District respondents identified supply chain issues (62 percent) and hiring/retaining qualified staff (57 percent) as challenges that hindered their operations. These findings are consistent with other surveys of large and small businesses, including the Fifth District business surveys and The CFO Survey.

With so many firms reporting revenue decline and operating losses, it is not surprising, perhaps, that more than half of respondents reported they were in poor or fair financial condition. However, the share of respondents who reported poor financial conditions in 2021 (16 percent) was slightly improved from 2020 (19 percent). Maryland had the highest share of firms that reported being in fair or poor condition (57 percent), while Virginia had the lowest (51 percent).

Actions Taken to Mitigate Financial Challenges

Firms more often sought financing to meet operating expenses, rather than expanding their business, which, according to the national results, is a shift from what firms reported before the pandemic. This aligns with the most common financial challenges in the Fifth District: uneven cash flows, paying operating expenses, and weak sales.

When seeking financing, many firms (nearly 70 percent) obtained funding that does not have to be repaid.2 Respondent businesses were also likely to use personal funds (60 percent) or cash reserves (56 percent) to fill funding gaps. While some firms preferred alternatives to debt financing, some chose to seek financing from financial institutions and lenders — which the SBCS asks more about.

Decline in Debt Financing Demand and Approval Rates

In the Fifth District, small business demand for financing continued to decline from years prior to the pandemic, going from 46 percent of firms seeking financing in 2019, to 38 percent in 2020, and trending even lower to 36 percent in 2021. Among district states, only South Carolina saw an increase in the share of firms seeking financing, which increased from 34 percent in 2020 to 44 percent in 2021. Of the firms that did not seek financing, many already had sufficient funding (49 percent), but others reported being debt averse (27 percent), or feeling discouraged (12 percent). Moreover, of those respondents who did seek financing, 33 percent were approved for the full amount of financing sought, and while some were approved for partial funds, 39 percent were not approved for any funds.

Funding Needs and Outcomes for Fifth District Respondents (n= 1,081)

Funding Needs and Outcomes for Fifth District Respondents (n= 1,081) chart

The survey results show that firms sought out loans and lines of credit (LOC) more often than other financing options. Firms applied to large banks for funding more frequently, but firms were less likely to be approved for loans from large banks compared to small banks or online lenders.3,4 For example, 48 percent of firms were denied any amount of funding from large banks, but only 40 percent were denied from online lenders, and only 35 percent from small banks.

Approval rates also differed depending on the product firms applied for. In the district, the vast majority (76 percent) of firms applied for a business loan, LOC, or a Small Business Administration (SBA) loan. Of those that applied for one of these, 45 percent of firms applied for an SBA loan, 39 percent of firms applied for a LOC, and 34 percent applied for a business loan. While the highest share of firms applied for an SBA loan, they also had the lowest approval rate out of all three financing products. Only 25 percent of firms were approved for the full SBA loan amount sought, compared to a 34 percent approval rate for a business loan and 39 percent for a line of credit. 

Among the firms that were denied financing, the most commonly reported reasons for denial were strict lender requirements (42 percent), insufficient collateral (31 percent), or weak sales (30 percent). Only about a quarter of firms reported low credit scores as the reason for denial. Simultaneously, 33 percent of respondent firms reported having credit scores that would categorize them as medium or high credit risk. In fact, the 2021 survey had a higher share of low credit risk respondents than pre-pandemic surveys.


Across the Fifth District, the SBCS results found that respondent small businesses continued to face challenges in 2021 as they balanced uneven cash flows and paid operating expenses while struggling with supply chain issues and hiring. At least in part to meet these challenges, a sizable portion of respondent firms relied on personal funds or cash reserves as a source of financing, and more than a third applied for debt financing through a lender. Of the firms seeking debt financing, almost half received partial or no financing, which will leave gaps that many small businesses in the Fifth District will have to fill. Additional SBCS survey findings will be released throughout the year, painting a more comprehensive picture of the small business journey to recovery after the pandemic.

This analysis uses the original 2021 SBCS data that was published on February 22, 2022. Slight data revisions are reflected in the 2022 SBCS data appendix. Overall findings remain consistent with this Regional Matters, and there are no trend reversals.


Profitability at the end of 2018, which was the last time this question was reported for our district.


Respondents were instructed to include PPP funds with funds that do not have to be repaid only if they received or expected loan forgiveness.


Small banks are defined as those with less than $10B in total deposits.


Online lenders/fintech companies are nonbanks that operate online.