Utah Leads Together Small Business Bridge Loan Final Short-Term Impact Report by Utah Governor's Office of Economic Opportunity

Bridge Loan Program Impact Report

The Utah Leads Together Small Business Bridge Loan Program Final Short-Term Impact Report | December 3, 2020 +

Bridge Loan Program Impact Report

Dear Reader, Like any global pandemic, COVID-19, once it reached the U.S., spread quickly in Utah. Within a matter of weeks, most operations and activities in the state were impacted by the contagious coronavirus. The Utah Governor’s office of Economic Development (GOED) used state funding to launch the Utah Leads Together Small Business Bridge Loan Program during the last week of March 2020. The program issued $12 million in bridge loan funds to Utah small businesses in two different rounds. State funds earmarked for the loan program were later replaced with federal dollars following the federal government’s response to the economic impacts of the growing pandemic. In round two of funding, nonprofits were also eligible to receive bridge loan funds. The Bridge Loan Program, administered by GOED, was one of the first in the state and country to provide gap funding to small businesses. I’m proud of the GOED team, who mobilized quickly and effectively, working days, evenings and weekends, setting up online applications, providing communications, reviewing applications, establishing contracts, and awarding bridge loan funds within weeks. We know from bridge loan recipients that this fast action provided a lifeline to Utah small businesses, many of whom couldn’t have stayed in business without it. This comprehensive report explores the short-term impact of the Utah Leads Together Small Business Bridge Loan program. It provides an overview of how Utah businesses utilized the program to maintain their operations, explores what types of industries received loans and where these loans were distributed around the state, and summarizes data about the recipients. I hope you will find this report useful. We look forward to continuing to serve the needs of businesses in the great state of Utah. Sincerely,

Val Hale Executive Director Utah Governor’s Office of Economic Development

Bridge Loan Program Impact Report

Executive Summary

Impact on Utah’s Small Businesses | Distribution | Recipients

Bridge Loan Program Background

Key Findings

Impact on Utah’s Small Businesses

Bridge Loan Distribution

Bridge Loan Recipients

Overview | Business Age | Business Owned by Persons of Color | Business Owned by Women | Business Owned by Veterans

Conclusion & Recommendations

About the Sorenson Impact Center

Bridge Loan Program Impact Report

Executive Summary This report is the second and final in a series that examines the short-term impact of the The Utah Leads Together Small Business Bridge Loan Program. The Utah Leads Together Small Business Bridge Loan Program was deployed to provide gap funding to Utah’s small businesses and nonprofit organizations during the COVID-19 shut down. The funding was intended to be used as a bridge between local (city and county) and federal interventions, and was administered by the Utah Governor’s Office of Economic Development (GOED) in two rounds. A total of $12 million was awarded to 1,150 Utah based small businesses and nonprofit organizations, which included $11 million in state funds and $1 million provided by the WCF Insurance Foundation.1 The program’s impact was analyzed in two phases: (1) a statewide summary that focused on the overall distribution of resources throughout the state and across key industries, and (2) further analysis developed from a detailed qualitative and quantitative survey that asked the program’s recipients about:

• The length of time their businesses have been operating • Key demographics (Race, Ethnicity, and Gender of business ownership)

• Other sources of financial support secured • Funding uses, applications, and impact (e.g. payroll/ maintaining staffing levels)

This final report includes impact findings from both phases of the analysis, which have been synthesized by the Sorenson Impact Center, a think tank based at the University of Utah’s David Eccles School of Business.

Bridge Loan Program Impact Report

Key Findings

Distribution

Impact on Utah’s Small Businesses •

Nearly all Utah businesses that received Bridge Loans leveraged the support with other emergency funding opportunities.

•

Most businesses used the Bridge Loan to maintain business operating costs.

•

As a result of the Bridge Loan, two-thirds of businesses were able to keep or increase staff hours and avoid lay-offs or furloughs. However, about one-quarter of those businesses are now concerned they may not be able to do so over the long-term.

•

Since receiving the Bridge Loan, half of the recipients report having to reduce operations by 25% or less, and one-quarter of businesses had to lay-off or furlough some employees.

•

Less than 2% of businesses who received a Bridge Loan report having to close permanently, and only 10% have closed temporarily. Nationally, the Census Bureau reports that 5% of small businesses expect to close permanently in the next six months.2

•

The US Census Bureau’s Small Business Pulse Survey found that Utah’s small businesses had less revenue decline than the national average, 30% of small businesses in Utah reported a decrease in revenue compared to 34% nationally, as reported in August 2020.3 About three-fourths of Bridge Loan recipients reported a revenue reduction of less than 50%.

•

Almost 80% of business owners strongly agreed or somewhat agreed that the Bridge Loan was able to reduce businesses’ financial strain, increase the owners’ ability to do what was best for their businesses and employees, and reduced the personal stress business owners felt.

•

Approximately 35% of businesses report that additional business grants with no repayment requirements would be helpful as they navigate the impacts of Covid-19.

A total of 1,150 loans were deployed across the state of Utah, including all but one county (Millard). 31.2% of loans awarded were for $10,000. The overall average loan amount was $10,443. Businesses in rural counties received 27% of available loans, with businesses in the food, beverage, leisure and hospitality, and retail sectors. The program reached the hardest hit industries in the state, including food and beverage, retail, healthcare, and hospitality and leisure. Approximately 52% of loan recipients had 10 or fewer employees, and 31% had 5 or fewer employees. Loans given to businesses in urban counties were more varied across industries, including healthcare, business services, consumer services, construction and trade services, as well as a large number of loans in the food and beverage industry.

Recipients Three-fourths of the businesses receiving loans have been operating for more than five years. Approximately 13% of businesses were owned by Black, Indigenous, or other persons of color. Woman-owned businesses received 33% of available Bridge Loans, and veteranowned businesses received 9% of the loans.

2 https://www.bloomberg.com/news/articles/2020-08-29/where-u-s-small-businesses-arefeeling-the-most-pandemic-pain

3 https://portal.census.gov/pulse/data/

Bridge Loan Program Impact Report

Background

Core requirements included the ability to demonstrate financial hardship or disrupted operations. Applications were scored by independent evaluators based on solvency, severity of loss, multiplier or supply chain roles, and impact on unemployment. The highest scoring applications were awarded the maximum allowable amount, with award amounts decreasing as scores decreased.

The COVID-19 pandemic has put a tremendous strain on Utah’s business and nonprofit communities. While the state enjoys a diverse economy, steeped in entrepreneurship, the impact of the COVID-19 pandemic has been swift and far reaching. On March 17, 2020, the state of Utah limited gatherings to no more than 10 people, closed dine-in services for bars and restaurants, and required personal care businesses such as hair salons, nail salons and massage parlors to close. In the following week Governor Herbert sent out additional guidelines and restrictions, including the “Stay Home, Stay Safe” directive4. These efforts were part of a nationwide public health response to the COVID-19 pandemic. Based on engagement with counties, chambers of commerce, state agencies, and a range of other stakeholders, GOED identified the need for a financial loan program targeted at small businesses and 501(c)3 nonprofit organizations. The primary objective was to rapidly address the short-term economic impact of COVID-19 in a transparent and accountable manner. Utah state agencies quickly mobilized to identify $11 million for immediate deployment. These monies were supplemented with an additional $1 million provided by the WCF Insurance Foundation.

This loan program was the first of its kind in the intermountain region (Utah, Colorado, Idaho, Wyoming, and Montana) with an explicit commitment to supporting rural communities. Specifically, a minimum of 25% of the program’s total funds ($4 million) was to be targeted at rural Utah businesses and nonprofits. The first round of the Utah Leads Together Bridge Loan Program was opened and closed by March 31st, 2020, just two weeks after the first public health restrictions in the state were implemented. The second round was completed on April 13th. The program reached 1,150 small businesses across the state of Utah, deploying almost all available funds ($12m) in just four weeks. While similar programs have been developed and deployed across the country, the efficiency and expediency of the program is exceptional. The short-term impact of the program on Utah’s small businesses was monitored and measured with help of the Sorenson Impact Center at the University of Utah.

Impact on Utah’s Small Businesses Overview & Methodology Following the distribution of Bridge Loans to Utah’s small businesses, an electronic survey was sent to 1,114 businesses that received support from the program. The survey was designed to better understand how recipients used these loans to manage the initial financial distress caused by the COVID-19 pandemic and economic shut down.

The Utah Leads Together Small Business Bridge Loan Program offered businesses and nonprofits5 with 50 or fewer employees “working capital to support payroll expenses, rent, mortgage payments, utility expenses, or other similar expenses that occur in the ordinary course of operations.”6 The program provided successful applicants with loans between $5,000 and $20,000 at 0% interest for up to five years.

The survey was sent on August 18, 2020, with a response rate of 32% (358 respondents), substantially higher than the 24% average response rate to email surveys.7 The robust dataset allowed the Sorenson Impact Center to confidently analyze the responses to a series of qualitative and quantitative questions. The results in this section are calculated using data from the 358 business owners who responded to the survey.

4 State of Utah (2020, March 27) Full Text: Governor’s “Stay Home, Stay Safe” Directive. Retrieved from https://coronavirus.utah.gov/full-text-governors-stay-home-stay-safe-directive/ 5 In the first round of funding, businesses were the sole beneficiaries of funding. In round two of funding, following feedback, this was expanded to nonprofits with 501(c)3 status. 6 Utah Governor’s Office for Economic Development (2020, April 23) Utah Leads Together Small Business Bridge Loan. Retrieved from https://business.utah.gov/utah-leads-togethersmall-business-bridge-loan-program/

7 http://fluidsurveys.com/university/response-rate-statistics-online-surveys-aiming/

Bridge Loan Program Impact Report

Leveraged Support

Use of Funds

The Utah Leads Together Small Business Bridge Loan Program was intended to fill any immediate gaps left by the delayed distribution of other emergency funding programs. Utah businesses that received bridge loans were able to leverage this support by utilizing a variety of emergency economic relief loans and grants made available through the federal government and other loan, incentive, or grant programs. Approximately 72% of Bridge Loan recipients received the Small Business Administration’s (SBA’s) Economic Industry Disaster Loan (EIDL) loan; 94% of businesses received the SBA Paycheck Protection Program (PPP) Loan; and 66% of businesses received other state loan/incentive/grant programs. While this sample only represents a fraction of Utah’s total small businesses, as of August 8, 2020, the SBA reports nearly $1.3 billion was distributed to Utah businesses through 20,808 EIDL loans, and $5.3 billion was distributed to Utah businesses through 52,275 PPP loans.8 9

Most Utah businesses used the Bridge Loan to maintain their payroll (30%); pay their business’ rent, mortgage, and/ or utilities (27%); and pay for other business operating costs. Approximately 20% of businesses managed debt obligations with the loans. Use of Small Business of Bridge Loans by Recipients

Impact on Business Operations Since receiving the Bridge Loan, 50% of businesses report having to reduce operations by 25% or less. Given the modifications businesses have made to ensure consumer and employer safety in line with Centers for Disease Control and other local guidance, these reported reductions in operations are to be expected. Less than 2% of Bridge Loan recipients report having to close permanently, and only 10% have closed temporarily. Nationally, the Census Bureau reports that 5% of small businesses expect to close permanently in the next six months.10

“This loan saved my business. We were on the verge of closure in March and without the bridge until the PPP loan kicked in, we would be out of business.”

Impact on Business Operations Among Recipients

8 SBA Disaster Assistance Update Nationwide EIDL Loans, August 8, 2020. Retrieved from: https://www.sba.gov/sites/default/files/2020-08/EIDL%20COVID-19%20Loan%208.8.20508.pdf 9 SBA Paycheck Protection Program (PPP) Report, Approvals through 08/08/2020, Retrieved from https://www.sba.gov/sites/default/files/2020-08/PPP_Report%20-%202020-08-10508.pdf

10 https://www.bloomberg.com/news/articles/2020-08-29/where-u-s-small-businesses-are-feelingthe-most-pandemic-pain

Bridge Loan Program Impact Report

“We had laid off all our employees. Once we received the loan we were able to start paying our employees and our bills.”

Impact on Employees As a result of the Bridge Loan, over 66% of businesses were able to keep or increase staff hours and avoid layoffs and furloughs. However, 24% of those businesses are now worried they may not be able to keep their employee hours the same and avoid future lay-offs or furloughs. Only 12% of businesses reported having to reduce all staff hours, and 20% of businesses reduced some staff hours. Based on a nationwide sample of 726 small businesses surveyed across various industries, the Kenan Institute estimated 18 million jobs at small businesses were at risk as a result of the Covid-19 pandemic and subsequent economic recession.11 Nationally, businesses with less than 500 employees provide more than 60 million U.S. jobs. Impact on the Employees of Business and Nonprofit Recipients Yes, we kept or increased all staff hours

“Had we not received the Bridge Loan we would have had to reduce hours or lay off employees, which would have fundamentally and negatively impacted our ability to deliver the services we provide to our customers.”

Yes, we kept or increased all staff hours but may not be able to in the future No, we had to reduce some staff hours

No, we had to reduce all staff hours 0%

10%

20%

30%

40%

50%

While close to 50% of businesses receiving a Bridge Loan were able to avoid layoffs or furloughs, 26% of businesses had to lay-off or furlough some employees, and just 8% of businesses had to lay-off or furlough all of their employees. Impact on the Employees of Business and Nonprofit Recipients

Impact on Revenue and Financial Strain Approximately 71% of businesses receiving a Bridge Loan reported a revenue reduction of less than 50%, while 29% of businesses reported a revenue reduction greater than 50%. Overall, Utah’s businesses are demonstrating greater resiliency compared to the rest of the nation. The US Census Bureau’s Small Business Pulse Survey found that Utah’s small businesses had less revenue decline than the national average; 30% of small businesses in Utah reported a decrease in revenue compared to 34% nationally, as reported in August 2020.12

11 The Covid-19 Pandemic and Small Business Employment, April 2020. Retrieved from https://kenaninstitute.unc.edu/kenan-insight/the-covid-19-pandemic-and-small-businessemployment/

12 https://portal.census.gov/pulse/data/

Bridge Loan Program Impact Report

Impact on the Revenues of Recipients.

“It just really helped us keep the train running. In uncertain times, it was nice to know we had help” When asked whether the Bridge Loan Program was able to reduce businesses’ financial strain, the overwhelming majority of business owners reported relief. Almost 80% of businesses strongly agreed or somewhat agreed that the Bridge Loan reduced financial strain, increased the owners’ ability to do what was best for their business and employees, and reduced the personal stress business owners felt. This finding reflects the strong ecosystem of support business owners feel in Utah, which is consistent with numerous national outlets ranking Utah the best place for business. 13 Impact on the Financial Strain Being Experienced by Recipients

“The Bridge Loan allowed for the “breathing room” during the immediate impact weeks before things went back to somewhat normal as far as revenues and profits. It was pretty scary for a few weeks until we received money to help.” 13 https://business.utah.gov/news/category/accolades/

Bridge Loan Program Impact Report

Bridge Loan Distribution

Overview by Industry The majority of small businesses and nonprofit recipients fall within 5 different industries (60%) These include healthcare, food and beverage, human services, business services, and retail.

Overview

In total, 2,046 small businesses and nonprofits applied for the program and 56% (1,150) obtained a loan. Almost every small business or nonprofit that qualified for the program was able to receive a loan. Loans between the amounts of $5,000 and $20,000 were issued to small businesses and nonprofits that were impacted by COVID-19, with the majority of loans (31%) in the amount of $10,000.

The healthcare industry accounts for 19% of loan recipients (~$1.9 million), many of whom are dentists or mental healthcare professionals. Many of those in the food and beverage industry are restaurants and account for 13% of loan recipients (~$1.75 million). Small businesses and nonprofits in human services (i.e. hair salons and fitness studios) received 9% of loans (~$970,000). Business services is a highly varied category of companies that serve other businesses, such as management and consulting, or law firms; businesses in this category received about 9% of loans (~$960,000). Retail is the final industry in the top 5, and accounts for 11% of recipients (~$1.34 million). Utah’s fourth largest industry pre-COVID-19 , Education and Health Services, received many of the program’s loans in both urban and rural counties. Utah’s fifth largest industry, Leisure & Hospitality, received many of the Program’s loans in rural counties.

Percentage of Loans Awarded by Amount of Loan

Percentage of Loans Awarded by Industry 20% 15% 10%

Overview by Number of Employees

05% 0%

The program was designed for small businesses, defined as businesses with fewer than 50 employees. Over half of loan recipients had 10 or fewer employees (52%), and 31% had five or fewer employees.

Business Food & Healthcare Service Beverage Industry

Percentage of Loans Awarded by Number of Employees

Human Retail Services

Bridge Loan Program Impact Report

Percentage of Unemployment Claims by Industry

Number of Loan Recipients by County CacheR

Box Elder

ich

Weber Morgan Davis Summit

Tooele

Salt Lake

Duchesne

Uintah

Wasatch

Utah

Juab

The industries supported through the program represent the hardest hit industries, measured by the percent of unemployment claims by industry from March 16 to May 9, 2020.14 Food and beverage and retail are the thirds and fourth largest industries to receive support from the program, and had the first and second largest industries by unemployment claims. The program’s first largest recipient industry, health care, had the fourth largest unemployment claims as an industry in the state. 15

Daggett

Carbon

Millard

Sanpete

Grand

Emery

Sevier

Beaver

Piute

Iron

Rural and Urban Counties

Washington

The program was designed to provide immediate financial assistance to small businesses and nonprofits across the state, with a goal to provide 25% of the loans to rural businesses and nonprofit organizations.

San Juan

Garfield

Kane

Total Loan Recipients

Rural areas in America have had a slower economic recovery since the Financial Recession in 2008/2009.16 The program specifically targeted rural communities, which make up 10% of the state’s population17, in order to account for the disproportionate economic impact of the pandemic on these communities.

Wayne

120 200

Urban Counties Small business and nonprofits in the four urban counties in Utah (Weber, Davis, Salt Lake, and Utah) represented 76% of the applicants and 72% of the recipients of the program. Among the loans given to small businesses and nonprofits in urban counties, the majority (61%) were issued to Salt Lake County businesses, followed by Utah County at 24%, Davis County at 10% and Weber County at 5%.

The rural loan goal was surpassed with 27% of loans awarded to small businesses and nonprofits in rural counties. Even when factoring in microbusinesses (under 10 employees), over 25% of loans went to rural counties. Out of 605 loans given to microbusinesses, 165 (27%) were for rural micro-businesses and 440 (78%) went to urban micro-businesses. In fact, loans were given to small businesses and nonprofits in every Utah county except Millard County. 18

Percentage of Loans Awarded by Urban County

14 Utah Department of Workforce Services (2020, June, 2) Unemployment Insurance Claims Data Shed Light on the Local Economic Impacts of COVID-19 Public Health Directives. Retrieved from: http://utaheconomywfsouth.blogspot.com/2020/06/unemployment-insurance-claims-data-shed.html 15 The second largest industry by unemployment claims is unknown, meaning the industry wasn’t reported for those claiming unemployment in this category. 16 United States Department of Agriculture Economic Research Service, 2014. https://www. ers.usda.gov/amber-waves/2014/october/rural-employment-in-recession-and-recovery/ 17 United States Department of Agriculture Economic Research Service, 2019. https://data. ers.usda.gov/reports.aspx?StateFIPS=49&StateName=Utah&ID=17854&AspxAutoDetectCookieSupport=1 18 Only one application for support was received from Millard County.

Bridge Loan Program Impact Report

Rural Counties

Percentage of Loans Awarded by Industry for Rural and Urban Counties

Small businesses and nonprofits in the 25 rural counties in Utah accounted for 25% of all applicants and 27% of the recipients of the program. Overall, 63% of those who applied in a rural location were given a loan. The distribution of loans within the rural cohort largely reflects population patterns among these counties. An exception to this is Grand County, which received 9% of loans given to rural counties. Grand County has a large tourism industry which has been greatly impacted by closures. Of the total number of Grand County loan recipients, 56% were in the hospitality and leisure or retail industries. Percentage of Loans Awarded by Rural County

Bridge Loan Recipients Overview Business owners that received Bridge Loans were representative of Utah’s business landscape. In addition to achieving geographic diversity across the state, loans also reached businesses owned by persons of color, women, and veterans.

Business Age Most businesses that received a Bridge Loan were wellestablished. Approximately 75% of businesses that received a loan reported operating for more than five years. Just a fraction of the recipients were new businesses, operating for less than 12 months.

Rural and Urban Industries The majority of loans given to businesses and nonprofits in rural counties were in food and beverage, leisure and hospitality, and retail industries, which have all been greatly impacted by the pandemic. In contrast, the loans given to businesses and nonprofits in urban counties were more varied across industries, with many loans in healthcare, business services, consumer services, construction, and trade services, as well as a large number of loans in food and beverage.

Percentage of Loans Awarded by Business Age

Bridge Loan Program Impact Report

Businesses Owned by Persons of Color

Businesses Owned by Veterans While the US Census reports approximately 5.4% of Utah’s residents have veteran status, 9% of business owners receiving Bridge Loans reported veteran status.22

The distribution of Bridge Loans was somewhat representative of Utah’s overall population with regards to race and ethnicity, and favorably representative in terms of Utah’s business ownership rates by persons of color. Approximately 13% of the businesses receiving loans were owned by Black, Indigenous, or other persons of color. Out of this 13%, 34% of business owners identified as Hispanic, Latinx, or Chicanx, and 27% identified as Asian. 2016 population estimates indicate approximately 21.2% of Utah’s population identifies as Non Hispanic Caucasian, but only 7% of Utah businesses are owned by a person of color.19 20

Percentage of Loans Awarded by Veteran Status

Percentage of Loans Awarded by Race and Ethnicity

Conclusion and Recommendations The Utah Leads Together Small Business Bridge Loan program was effectively deployed in an incredibly short amount of time to support small businesses and nonprofits across the state of Utah. The program was executed with the principles of accountability, transparency, and fairness firmly embedded in the application and decision making processes.

Businesses Owned by Women Approximately 33% of businesses receiving Bridge Loans were owned by women. This figure is on par with female business ownership in Utah; slightly less than 15% of businesses in Utah are owned by women, and another 15% of businesses are jointly owned by men and women.21

The program reached many of the hardest hit industries in the state, including food and beverage, retail, healthcare, and hospitality and leisure. It was deployed with an intentional focus on both rural and urban small businesses and nonprofits, and successfully reached all but one Utah county (Millard), including some of Utah’s hardest hit areas. Recipients of the program also included owners representing the demographic make-up of Utah and its business community. The program reached 1,150 small businesses and nonprofits before federal or other local funding became available.

Percentage of Loans Awarded by Gender

19 https://gardner.utah.edu/wp-content/uploads/RaceandEthnicity_FactSheet20170825.pdf 20 U.S. Census Bureau 2015 Annual Survey of Entrepreneurs 21 U.S. Census Bureau, 2015 Annual Survey of Entrepreneurs.

22 https://censusreporter.org/profiles/04000US49-utah/

Bridge Loan Program Impact Report

Utah Businesses Need Additional Support As businesses continue to respond to the challenges of the current economic environment and plan for their long-term futures, additional support from the State of Utah can help business owners weather ongoing strain. Survey results indicated that about 35% of businesses could benefit from additional business grants with no repayment requirements. Approximately 18% of respondents reported business loans for payroll and business loans with no requirements on the use of the loan would be helpful moving forward. When asked what would be helpful navigating the “new normal,” business owners commented: “Low interest loans for significant capital improvements to prepare for an extended period of new normal operations, including construction loans to expand our footprint to facilitate distancing, upgrades to HVAC filtration, and UV sanitizing.” “Since the impact of the pandemic is long term, help with day to day operating expense while revenues are significantly lower than normal would be a great help.” “Loan forgiveness and marketing assistance would help.” “We have adapted substantially during this crisis and expect business conditions to continue to evolve. A long-term, low interest, bit of help could allow us to preserve 30 to 40 jobs.” Based on this initial short-term analysis of the Bridge Loan Program, the program’s far-reaching effects have been experienced across the state. As Utah’s decision-makers continue to seek out innovative ways to support small businesses, they may wish to consider using these initial findings which demonstrate the effectiveness of the state’s early effort to deploy loans quickly and efficiently to those most affected by COVID-19.

About the Sorenson Impact Center Sorenson Impact Center (SIC) is an applied academic thinkand-do tank focused on solving social problems through the use of data, evidence, and innovation. Housed at the University of Utah David Eccles School of Business, the Center works with public, nonprofit, and private sector stakeholders across the globe to develop and implement outcome-driven solutions to problems. Our staff of 25 includes experts in data science, finance, policy, investment, and social services. These professionals are augmented by the talents of 50 graduate and undergraduate students from diverse disciplines. Together, the Center works with clients to marshal capital for social good, empower data-driven programs, break down silos across sectors, and equip the next generation of leaders with social purpose. 11

Bridge Loan Program Impact Report