Small business confidence has fallen to an all-time low after the election of former Vice President Joseph Biden, according to the Q4 CNBC|SurveyMonkey Small Business Survey.

With a confidence index reading of 48, Main Street’s outlook is now below where it was during the second quarter of this year (49), when lockdowns across the nation were increasing amid the first wave of Covid-19. That Q2 number had been the all-time low previous to the just-completed survey, conducted Nov. 10 to Nov. 17 among more than 2,200 small business owners nationally, using the SurveyMonkey platform.

Since CNBC began conducting the survey in 2017, the confidence index reached as high as 62, and had never dipped below the mark of 50 until 2020. While another surge in coronavirus cases continues to hit Main Streets across the nation, and a lack of progress on stimulus talks in Washington, D.C. exacerbates the issues faced by small business owners, key questions in the confidence index relate to the Main Street outlook on taxes and regulation, and the responses from small business owners are skewed heavily by their political leanings — the small business demographic overall has a conservative skew. According to SurveyMonkey, approximately 60% of small business owners identify as Republicans.

Fifty-three percent of small business owners said they expect tax policy to have a negative impact on their business in the next 12 months, while 49% said government regulation will have a negative impact. By party affiliation, the divide is stark. Among Republicans, 75% said tax policy will be a negative and 72% said regulations will be a negative. Those numbers drop to 15% (taxes) and 11% (regulations) among Democrats. These are the highest percentages recorded for the “negative impact” response in the four years of the survey.

Politics and small business

“The immediate shift in forward-looking sentiment that small business owners reported following the election reveals how deeply politics has become embedded in the public’s assessment of the economy, and in particular how divided the country is,” said Laura Wronski, research science manager at SurveyMonkey. “We’ve seen evidence of that every quarter, with Republican small business owners consistently reporting a higher degree of confidence than Democrats, but the election of Joe Biden is the first opportunity we’ve had to see whether that would flip if presidential power changed parties — and it did dramatically.”

Among Republican respondents, the small business confidence index score fell from 57 in the third quarter to 42; among Democrats, confidence jumped from 46 to 58. The lowest previous confidence reading from Republican business owners was in Q2 2020, at 54.

Overall, the survey finds 34% of small business owners saying Joe Biden will be good for small business, while 55% say he will be bad for small business. By party, 89% of Republican small business owners say Biden will be bad for business, while 86% of Democrats say he will be good for Main Street.

Wronski noted that part of the small business confidence being measured every quarter is owners’ assessments of what things will look like a year from now based on policy changes made at the federal level, and those questions are subject to a lot of uncertainty in any immediate post-election period, before the new administration takes power and before their policy agenda is fully fleshed out.

“We don’t yet know how Biden will work with Republican leaders to carry out his agenda, and we don’t even know what his specific policy proposals will be yet, so we’re really in wait-and-see mode, and that lack of certainty is always a tricky situation for small business owners to operate in,” she said.

Divided government can be good for Main Street

With the Senate races in Georgia still to be decided in January — and control of the Senate up for grabs — it remains to be seen how much political capital the Democratic Party will have even with the White House won. The stock market has continued to rally based on a belief that divided government is good for corporations, and will limit a President Biden’s ability to repeal Trump tax cuts. Small business experts and owners say there is reason to believe Main Street also will perform well under a divided federal government.

“If we do indeed end up with a Republican-controlled Senate, many feel that this is a win-win scenario,” said Tony Nitti, a federal tax partner at RubinBrown, who works with many entrepreneurs. “Clients viewed the election as a bit of a ‘Sophie’s Choice’: they preferred the stability and potential pandemic response of a Biden presidency, but wanted the tax regime of a Trump second term. With these results, there’s a bit of a ‘best of both worlds’ feel,” Nitti said, explaining that a Biden administration may address the pandemic in a more thoughtful and resolute manner, and that the Republican controlled Senate will keep any significant tax increases in check.

“In a divided government scenario, and the way things are shaping up in the House, it will be very difficult to raise taxes, and especially so on small businesses,” said Karen Kerrigan, president and CEO of trade group Small Business & Entrepreneurship Council. “The House margins will be so tight with respect to majority control.”     

Kerrigan noted that during much of the Obama presidency, the environment was one of divided government and it was one in which capital access increased for small businesses. “The Great Recession created opportunities for bipartisan collaboration, and one of those areas impacted was access to capital and the need to boost new business creation given the fact that more firms were closing than starting. The Obama Administration took an early interest and lead in making investment crowdfunding legal, along with other key elements of the Jumpstart our Businesses Act (JOBS Act), which has had a positive impact on capital markets to this day,” she said.

Kerrigan said small business owners are busy people, and unlike Wall Street, they do not necessarily follow the nuances of divided government. “During the campaign, they read or heard about Biden policies that could impact their business, from taxes to workplace regulation and more, and remain concerned about possible new costs on top of their current challenges. It is not surprising that their confidence in the immediate aftermath of the election has dropped,” she added.

But she expects the confidence gap to narrow, though it will take time, as more conservative business owners are able to absorb and process information about the new political reality and see that the actions taken by a divided government which do not reflect some of the more “intrusive policies” outlined in the Biden agenda.

Ravin Gandhi, founder and CEO of Chicago-based housewares manufacturing company GMM Nonstick Coatings said he is encouraged by the outlook. Infrastructure and a Covid-relief stimulus bill are both bipartisan needs, while taxes will likely remain lower on business, which will be helpful as the economy struggles to recover from the pandemic. He said the fact that Biden “barely beat” Trump, should also limit the left’s ability to over-regulate. And for any business that imports or exports — his uses overseas manufacturing — an end to Trump’s trade wars is a positive.

Covid lockdowns and small business

Small business owners widely support (83%) a new stimulus package from the federal government, according to the survey — including 76% of Republican respondents and 96% of Democratic respondents. Fifty percent of small business owners said direct payments to individuals should be included in any new stimulus; 42% said mortgage/rent relief; 41% said an extension of the PPP loan program.

But small business confidence decreased from last quarter solely because of the forward-looking factors including taxes and regulation, Wronski noted, not because of a crash in current business conditions, like the confidence index saw earlier this year when coronavirus restrictions were introduced.

“There is not going to be a national shutdown policy,” Kerrigan said. “President-elect Biden has a mix of advisors on the Covid-19 issue, with several communicating that our economy can continue to ‘stay open’ and it can be done safely with the right precautions. In addition, the majority of Democrat governors would also oppose this top-down approach.”

Small business owners’ assessment of current business conditions was at least stable from Q3 to Q4, and even ticked up slightly on some measures, including more business owners describing conditions as “good” and less describing it as bad. Those expecting greater revenue in the next year — and citing recent revenue and demand increases — were also more numerous in Q4, while the hiring outlook was more or less stable quarter over quarter.

“That’s pretty remarkable given how long so many businesses have had to operate while working from home, dealing with decreased demand, implementing new policies and safety procedures, and everything else they’ve had to handle thanks to the pandemic,” Wronski said.

The CNBC|SurveyMonkey Small Business Survey for Q4 2020 was conducted across more than 2,200 small business owners Nov. 10-Nov. 17. The survey is conducted quarterly using SurveyMonkey‘s online platform and based on its survey methodology. The Small Business Confidence Index is a 100-point score based on responses to eight key questions. A reading of zero indicates no confidence, and a score of 100 indicates perfect confidence. The modeled error estimate for this survey is plus or minus 2.5 percentage points.