Cash liquidity is a critical predictor of small business survival and growth. Cash balances held by a business provide a buffer to absorb unexpected shortfalls in revenues or increases in expenses. While access to credit or other resources can provide some protection, most small businesses have limited access to financing.  As a result, cash liquidity is often the first line of defense for a small business.

JPMorgan Chase Institute research shows that 50 percent of small businesses are operating with fewer than 15 cash buffer days – the number of days of typical outflows a business could pay out of its cash balance in the event of a disruption to inflows. Moreover, only 40 percent of firms have more than three weeks cash buffer.

Graph showing both the distribution of cash buffer days in 25 metro areas

Distribution graph showing both the distribution of cash buffer days in 25 metro areas. Most firms had limited cash liquidity. 50 percent of firms had less than fifteen cash buffer days and only 40 percent had more than three weeks.

Source: JPMorgan Chase Institute

Small business cash buffers vary substantially across local economies. The 18 cash buffer days held in reserve by the median small business in San Francisco, San Jose and Seattle is over 60 percent higher than the 11 cash buffer days held in reserve by the median business in Atlanta and Orlando. Differences in industry mix and the costs of doing business across metro areas do not fully explain the variation in cash buffers.

Our data asset leverages a universe of 1.4 million small operating businesses that use Chase Business Banking deposit accounts and allows us to estimate cash buffers by metropolitan area.

Cash Liquidity in 25 Metropolitan Areas

                      Metro Area                             Median Cash Buffer Days          Share with <14 cash buffer days   Share with >21 cash buffer days 
San Francisco 18 40% 43%
San Jose 18 39% 44%
Seattle 18 40% 43%
Portland 18 42% 40%
Austin 16 43% 40%
Chicago 16 44% 40%
New York 16 44% 39%
Columbus 15 45% 38%
Denver 15 45% 37%
Houston 15 46% 37%
Indianapolis 15 46% 37%
Los Angeles 15 45% 38%
San Diego 15 45% 38%
Dallas 14 46% 37%
Detroit 14 47% 37%
Las Vegas 14 48% 36%
New Orleans 14 47% 36%
Phoenix 14 47% 37%
Sacramento 14 48% 35%
Miami 12 52% 32%
Riverside 12 53% 31%
San Antonio 12 51% 32%
Tampa 12 52% 30%
Atlanta 11 54% 28%
Orlando 11 52% 30%

The wide variation in the liquidity of small businesses across metro areas highlights the potential for place-based policies that support the liquidity needs of small businesses. Additionally, policymakers and advocates could support the small business sector by increasing their focus on helping small business owners manage liquidity and improve their financial resilience. Cash flow management is challenging for small businesses even in a regularly functioning economy. In those conditions, a combination of increased access to credit and trusted guidance to help owners better manage their cash flows can be critically important in helping small businesses build and maintain larger cash buffers. In the face of a large and fast-moving economic shock, policies that quickly provide cash liquidity may be most responsive to the limited cash liquidity many small businesses face.