• Topiltzin Gomez

How do Main Street Small Businesses Come Back?

Updated: Aug 10


An employee at Go Buddha wears a mask while working behind the counter

It’s been over a year since an unexpected pandemic changed everything for Main Street. While slowed economic activity affected almost all businesses, quintessential Main Street businesses (restaurants, local gyms, retail) were most affected. According to a recent study by Datassential, over 10% of the approximately 780,000 restaurants that were operating at the start of the pandemic have permanently closed.


While most sectors gradually recovered from the economic shock, common Main Street sectors like retail, leisure, and hospitality are most affected and the slowest to recover. According to the Bureau of Labor Statistics, the February 2020 unemployment rate among leisure and hospitality workers was 5.7%. As of March 2021, that unemployment rate stands at 13%. For perspective, that means there are 2 million fewer people working in restaurant jobs now compared to pre-pandemic highs.


Putting Americans back to work requires a Main Street comeback. In this article, we analyze the forces that will accelerate or slow down Main Street’s recovery. We also discuss how Honeycomb’s Comeback Loan program can help businesses in your community lead us into a faster, more equitable recovery.


The Tailwinds Driving Recovery


If the spring air and warmer weather have you rearing to go out and spend, you’re not alone. Growing vaccination rates and economic stimulus from the federal government have consumer confidence up to the highest levels since the pandemic started. High personal savings rates speak to unmet demand later in the year too. According to the Wall Street Journal, the average American savings rate is 20.5%, the highest level to date since May of 2020.

And there are also some good signs for small businesses looking to launch or expand in 2021. With retail and office vacancies at high levels, retail rents are falling to their ”lowest price per square foot averages in at least a decade.” Moody’s Analytics predicts that retail rents will be 7.5% lower nationally throughout 2021. Locking in a lower rate on rent can give well-positioned businesses a foothold they didn’t think was possible pre-pandemic.


Business creation is up too. Business owners, whether launching their first concept or planning out their next location, are seeing the thawing economic conditions as a chance to make their move. After a decrease at the onset of the pandemic, small business creation has surged past pre-pandemic levels during the past year. According to the Census Business Formation Statistics, compared to pre-pandemic averages, seasonally adjusted small business creation rates are up 61% in the Accommodation and Food Services industry. In sum, we’ve got a large population of consumers eager to reengage with businesses, commercial rents at a relative bargain, and new business concepts waiting in the wings. Main Street should be poised for a quick bounce-back.


There’s just one problem, capital.

The Gating Item: Big Capital is slow to bet on Small Businesses


Outside of PPP (Paycheck Protection Program) and SBA Economic Injury Disaster loans, small business lending has slowed to a trickle. According to a recent survey of Senior Loan Officers taken by the Federal Reserve, 71% of Senior Loan officers reported tightening their loan standards in 2020 Q3. A recent article in American Banker put it more strongly, “It’s crickets in small business lending.”


Small business lending is procyclical, which means that when economic times are good, banks are eager to lend. But when the economy is down and uncertainty hangs in the air, banks pull away from making riskier loans towards safer investments. As you can imagine, small business lending is usually the first to go in a recession and the last to return during the recovery.


In fact, even though bank lending to larger businesses has nearly doubled since 2008, small business lending volume for loans below $1M never recovered to pre-Great Recession levels, according to a Wall Street Journal study of FDIC loan volume. Rather than fueling the recovery, banks struggle to reopen lending when small businesses and our communities need it most. If past recessions are any indication, it will be years before we see pre-pandemic levels of bank small business lending activity.


A bar chart showing the volume of commercial loans and mortgages on bank balance sheets from 2007 to 2019

It’s not just banks that appear to be pulling back on small business lending, online lenders have slowed or shut down their operations as well. Early in the pandemic, leading online business lender Kabbage froze its client’s lines of credit. Kabbage then halted lending and announced the sale of the company to American Express in August of 2020.


As the economy reopens, many small businesses may not be able to access the investment they need. A February study conducted by Goldman Sachs’ 10,000 Small Businesses initiative, found that the percentage of small businesses that were very confident about accessing capital post-pandemic was 30% compared to the pre-pandemic figure of 54%. Only 16% of Black-owned businesses in the study felt confident about their ability to access capital post-pandemic. If we don’t find ways intelligent to deploy capital to small businesses, we’re in for a slow, unequal recovery.


Local capital is key to improving access to funding


Here at Honeycomb Credit, we think that alternatives to bank loans such as Community Development Financial Institutions (CDFIs), community loan funds, and investment crowdfunding platforms are going to be a critical part of the puzzle. CDFIs have often been called to the front lines to help Main Street businesses recover, acting as nonprofit economic shock absorbers during the Great Recession. Because they had a stake in their community, they lent limited funds as larger banks hunkered down -- planting the seeds for future recovery. Unfortunately, CDFIs comprise a small fraction of the small business lending market. According to the 2021 Federal Reserve Small Business Credit Survey, an estimated 2% of small businesses have used CDFIs to access capital.

Luckily, CDFIs are not the only source of local capital out there. We think that loan crowdfunding, sometimes referred to as equity crowdfunding (even when referring to other investment vehicles) has a powerful role to play as well. Eight years ago, Congress passed the JOBS Act, a recession recovery bill that, among other things, made it possible for local businesses to publicly solicit investment through registered investment crowdfunding portals. The hope was that by turning everyday people into investors, we could create a more equitable, resilient capital landscape.


Since the first investment crowdfunding platforms came into existence in 2016, the industry has experienced gradual growth. Since the pandemic, however, as capital markets retreated, investment crowdfunding has been enjoying its biggest moment yet. Capital commitments in 2020 on investment crowdfunding platforms are up 77% from their 2019 levels. Everyday people making small investments in businesses are transforming from a niche strategy to a reliable way to keep capital flowing to the smallest businesses, even during an economic crisis.

We believe that investment crowdfunding is going to be a force to accelerate the recovery. Now is the time to prove it.


Honeycomb Comeback Loans - Leading the charge for restaurant revitalization


At Honeycomb, we’ve created a first-of-its-kind loan crowdfunding platform that allows small businesses to borrow capital directly from their customers and community. Over the past three years, we have helped hundreds of businesses run local investment campaigns whether it was to expand to a new location or to shore up working capital during the most stressful points of the pandemic. Just as critically, our work has helped businesses that have historically been excluded from traditional finance. 55% of the business owners Honeycomb has served are based in low-to-moderate communities, 25% are minority-owned and 49% are woman-owned. Now, we’re introducing Honeycomb Comeback Loans. This is a crowdfunded loan program designed specifically for the businesses and entrepreneurs that define Main Streets across the country. Whether their beloved concepts were forced to close permanently during COVID, they closed their business temporarily, or critical funding for their projects fell through, Honeycomb Comeback Loans help entrepreneurs rally local goodwill and turn it into capital. At the same time, this model gives everyday people the opportunity to contribute to the revitalization of their community, not just as consumers, but as investors.


If we are going to bring the thriving restaurant industry back, it will take all of us. Entrepreneurs willing to get up, capital sources willing to bet big on small business, and everyday people expressing their commitment to Main Street, not just as consumers, but as investors.

Learn more about Honeycomb Comeback Loans here. Learn more about investing in small businesses through Honeycomb here