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Can U.S. Small Businesses Maintain Optimism in 2021?

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U.S. small businesses have regained momentum in 2021 after facing severe hurdles in the pandemic-ridden 2020. The faster-than-expected reopening of the U.S. economy buoyed by the nationwide deployment of COVID-19 vaccine and a massive pent-up demand for both intermediary and final products  significantly ramped up small business activities.

Small Businesses Flying High

The National Federation of Independent Business (NFIB) Small Business Optimism Index rose 1.6 points in April to reach a pandemic-era high of 99.8 from 98.2 in March. Since November, the March reading was the first in which the index returned to its average historical level. Notably, eight out of 10 index components improved in April.

Per the survey, most of the small business owners are more optimistic about the U.S. economy and upwardly revised their expectations especially for the first half of 2021. Despite facing a lack of adequate skilled manpower, small business owners have decided to hire more in order to expand their businesses.

Notably, a historic-high 44% small business owners were unable to fill open jobs in April. This situation forced 36% of small business operators to raise both wage rate and other benefits as well as prices of their final products.

Per the Economic Average Report, released on Apr 21 by Yelp, nearly 146,486 new small businesses opened in first-quarter 2021, the highest in a year. Moreover, more than 50,000 small businesses reopened last quarter, the highest since last summer. Yelp data science vice president Justin Norman said that this is a sign that local economies are back on solid ground after a tumultuous 2020.

Importance of Small Businesses

Small businesses create a significant number of jobs in the U.S. economy. More than 50% of the newly created jobs in the private sector originate here. These people constitute a large part of customers for big businesses.

Moreover, small companies are a major part of the supply chain management systems of large companies for innovative and technologically superior inputs. Additionally, small businesses more often than not form a vital cog in corporate America's customer base.

Given their small-scale of operations, small businesses are generally cash-starved. These organizations operate on a thin profit margin and most new businesses are yet to achieve profitability. Therefore, the reopening of the economy will immensely benefit small businesses.

Stimulus Helps in Revival of Small Businesses

In March 2020, the U.S. government provided more than $800 billion to small businesses as part of the CARES Act, which ended in July.  In June 2020, the Fed initiated a lending program of up to $600 billion to small and mid-sized businesses. Under this program, businesses with up to 15,000 employees or revenues of up to $5 billion will get a loan in the range of $250,000 to $300 million for five years at floating rate.

On Oct 30, the central bank reduced the minimum loan size to $100,000 from $250,000 and decided to ease restrictions on debt for companies already participating in the Paycheck Protection Program.

Moreover, President Joe Biden's newly injected $1.9 trillion stimulus includes $15 billion in grants to small businesses, along with $35 billion in low-interest loans. The Small Business Paycheck Protection Program of $284 billion in loans will also continue.

Stocks in Focus

Year to date, small-cap specific indexes like the Russell 2000 and the S&P 600 have performed mostly in line with their large-cap peers such as the Dow and the S&P 500. However, a large number of small-cap stocks have skyrocketed so far this year. Several of them have more upside left for 2021.

Some of these lucrative stocks are Chuy's Holdings, Inc. (CHUY - Free Report) , Citi Trends Inc. (CTRN - Free Report) , Commercial Vehicle Group Inc. (CVGI - Free Report) , Covenant Logistics Group Inc. (CVLG - Free Report) , First Bank (FRBA - Free Report) , Heritage-Crystal Clean Inc (HCCI - Free Report) and Heidrick & Struggles International Inc. (HSII - Free Report) .

The chart below shows the price performance of the seven above-mentioned stocks year to date.

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