Payment company Square is expected to take a big financial hit because of the coronavirus pandemic.

The company will collect far less from its largest group of customers, small and medium-size businesses, which pay fees based on their sales. Some of those are restaurants, bars, and shops that are either closed or in crisis, and therefore handling fewer transactions.

As a result, Square could see as much as a 61% drop in first-quarter revenue, according to Mark Palmer, an analyst with investment bank BTIG. Although the company should be able to survive the pandemic, it will be painful, he says.

“It can withstand a downturn,” Palmer says. “With that said, we are anticipating that the company is going to see a very steep drop.”

Square, led by CEO Jack Dorsey, is among the many tech companies that are largely dependent on small and medium-size businesses—the most vulnerable segment in the wake of the pandemic. For example, Yelp, which sells advertising and other services to restaurants and local service providers like electricians and plumbers, has similarly suffered, prompting it earlier this month to lay off 1,000 workers and furlough another 1,100.

Dorsey, who is also CEO of Twitter, hasn't said whether Square will follow suit in cutting its workforce. During a recent investor call, the company said it plans to slow hiring, reduce travel, and pause on adding new real estate.

The company declined to comment for this article.

But Brett Huff, an analyst at investment bank Stephens, expects that some cost cutting is coming. “We do expect them to tighten their belt,” he says, suggesting the company could cut contractors, sales commissions, or possibly even lay off workers.

What is clear is that the losses for small and medium-size businesses are mounting. And while they're starting to reopen in a few states, any nationwide recovery will take some time.

Square makes money by collecting fees on every sale by merchants and through subscriptions for additional software for managing functions like inventory and payroll. It also offers small-business loans through Square Capital as well as Cash App, an app that gives consumers the ability to transfer money to each other.

In February, Square said that it would collect $1.34 billion to $1.35 billion in first-quarter revenue. However, soon after, the company cut its guidance because of the epidemic to between $1.30 billion and $1.34 billion. The company's latest outlook still represents a 36% to 40% increase in revenue, a far rosier picture than some analyst projections.

Furthermore, Square had originally predicted that it would collect $5.9 billion to $5.96 billion in revenue during full-year 2020. But it later withdrew that forecast and promised to provide more details about it when it reports first-quarter earnings on May 6.

Square's shares are down nearly 30% from their peak in February, when the stock traded at $85.70.

A slowdown in Square’s business could let competitors gain ground, BTIG’s Palmer says. For example, mobile payments company Clover may be able to use the deeper pockets of its parent company, financial technology provider Fiserv, to push ahead during the crisis.

In 2019, Clover processed more than $100 billion in payments, growing at a clip of 40% year over year, according to Fiserv's leadership. BTIG's Palmer says that slightly trails Square, which last year increased its total number of transactions by about 25% to $106.2 billion.

Square may be able to counter that threat by creating additional features in its products. It introduced one that lets customers who order restaurant food online chose to pick up their meals at the curb and another that lets them get their food delivered to their doorstep without any physical contact with the delivery person.

Square is also helping its struggling business customers survive by giving them discounts. In April, it waived the fees for its products that help those customers track invoices, pay employees, and send email marketing pitches. It also refunded subscription fees it collected from them in March and delayed payments for customers that borrowed money through Square Capital.

Square also hopes to help customers by distributing small-business loans through the federal government's emergency Paycheck Protection Program. But it's unclear whether Square actually granted any loans before the program ran out of its first round of money.

“They want to do everything they can to keep these customers afloat,” says Jason Kupferberg, Bank of America analyst. “The problem for Square would not only be that they have a merchant whose sales are down, but what if that merchant goes out of business? That’s the worst possible outcome.”

But ultimately Square should emerge from the pandemic, albeit bloodied, three analysts agreed. Palmer pointed to Square’s cash reserves. At the end of 2019, the company had $1.05 billion in cash and cash equivalents, giving the company a relatively large safety net. Additionally, last month, the company announced plans to borrow up to $1 billion.

“Their balance sheet is actually in very good shape,” Kupferberg says. “They could comfortably endure two years of a major downturn.”