The Real Economy

Pandemic pressure on the middle market

May 14, 2020
Economics COVID-19 The Real Economy

COVID-19’s impact on the economy has been particularly disabling for the middle market, with smaller midsize companies bearing the brunt of the pressure, according to RSM data.

Smaller middle market businesses sought lending relief at significantly higher rates than their larger counterparts and appeared less able to shift to remote work, responses to the second quarter RSM US Middle Market Business Index survey questions show.

More than half of executives at companies with annual sales of $10 million to $50 million said they sought special financing to ensure liquidity amid the swift business downturn spurred by the pandemic, while 43% said they planned to do so over the next six months, according to the MMBI. Thirty-four percent of their larger middle market counterparts, or those with revenues of $50 million to $1 billion, sought this type of financing, while just 28% of them expected to do so in the next six months.

Problems securing loans for the middle market were underscored by difficulties around the rollout of the federal government’s Paycheck Protection Program under the CARES Act, which was quickly oversubscribed, making access to financing hard for applicants.

56% of both smaller and larger middle market companies assembled emergency response teams to communicate with employees. 

MMBI survey responses highlighted the growing pressure on middle market companies’ cash flows: within U.S. operations, 66% of executives overall said their companies lost revenue because of the pandemic, with smaller midsize businesses experiencing losses at a higher 74% rate, and 72% of them expecting to see revenue decline over the next six months. More than half of all middle market executives polled experienced disruptions to U.S. operations or production, marketing or sales operations, and supply chains, with the smaller cohort experiencing rates of 60% of higher.

Before the outbreak, more than two-thirds of middle market businesses had some employees working remotely, according to executives polled. Amid the crisis, a much higher 90% said some employees were working off-site, with a disproportionate 96% of those workers at larger middle market businesses, compared to 83% at smaller midsize companies. Among other factors, this disparity may highlight higher levels of capital investment made by larger companies toward technologies that facilitate remote work.

The crisis galvanized middle market organizations of all sizes to respond with unusual measures: 56% of both smaller and larger middle market companies assembled emergency response teams to communicate with employees. Thirty-one percent overall closed at least one U.S. work site, while roughly a third or more said they reduced the hours of hourly and salaried employees, and furloughed some hourly workers. Only 19% laid off hourly employees, and just 15% downsized salaried staff.

The vast majority undertook tactical moves that included asking sick employees to stay home, increasing workplace surface cleanings, ensuring that hand-washing stations were amply stocked with soap and paper towels, and reducing or restricting face-to-face meetings, among other actions.

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