The Federal Reserve Bank of New York and AARP have released a report that shows not all is well among older entrepreneurs as the economy pulls out of Covid-19.
In noting that four out of five small employee firms have owners who are age 45 or older, the Fed and AARP said that during the spring of 2020 more than 20% of small businesses closed with 25% of those having owners age 45 and up.
Although the total number of small businesses with doors open has rebounded somewhat according to the Fed and AARP, the number of active firms owned by those at least 45 years old is down 9% compared with a decline of only 2% for firms with owners under 45.
In the world of small businesses, approximately 80% of owners are older than 45, according to the report. It found that 25% of the business owners who are at least age 45 are concerned about their personal credit scores or about losing assets due to late debt payments.
The Fed and AARP found the number of active businesses owned by whites 45 and older declined 8% for the year ending in January 2021. The decline for Asian owners in the same age group was more than twice as steep, at 19%. The drop was 16% for Black owners and 11% for Latinos.
Interviews with small-business owners and data from the U.S. Census, the Federal Reserve”™s Survey of Consumer Finances, and Federal Reserve Banks”™ 2020 Small Business Credit Survey were used in compiling the report.
The vast majority of firms with owners 45 and older saw their year-over-year revenues decline, with 90% of Asian-owned firms, 85% of Black-owned firms, 81% of Latino-owned firms and 77% of white-owned firms losing sales. Half of the firms in the report that were still in business at the end of 2020 characterized their financial condition as being “fair” or “poor.”
The Fed and AARP found that almost 30% of firms overall said they didn”™t expect sales to return to normal until 2022 or later.
Claire Kramer Mills, assistant vice president at the New York Fed, said, “This illustrates the profound disruption the pandemic caused to small businesses and the stress it”™s placed on older business owners”™ financial health. A majority of older firm owners either reduced their salary or didn”™t take one at all, dipping into personal savings to cover business expenses.”
Nancy LeaMond, AARP executive vice president, said of older entrepreneurs, “They often have assets they can and do use to fund their businesses, but this can be very problematic. Accessing retirement funds is of particular concern since there is a shorter time-horizon to rebuild those accounts. “
The report concluded, “As surviving firms adapt to changing business conditions, our analysis indicates that many will be looking to repair both their business and personal finances. The experience of the pandemic creates opportunities for financial institutions to rethink how they can serve the financial needs of older entrepreneurs, particularly those owned by people of color, more effectively.”
