Can Small Business Recover From This Pandemic?
Small business is the life blood of America; they employ one out of two American workers. They are also the bedrock of many of our communities, from local manufactures to the café down the street. With the pandemic and resulting shut down, many small businesses have struggled to keep their door open. Small businesses typically cannot move to a work from home model like large enterprises can. They also have a harder time accessing credit to meet their needs. McKinsey, one of the top consulting firms globally, estimates that thirty million small business employees are at risk of losing their jobs — a higher share compared to large companies. Currently over 30 million Americans are on some form of employment assistance and the GDP is expected to contract 7 percent this year. All of this points to a deep recession that the US is currently in, which is disproportionally affecting small business owners.
Researchers from the University of Illinois, Harvard Business School, Harvard University and the University of Chicago recently released a study that shows 2 percent of small business have already permanently closed their doors. Economists estimate that the US has already lost 100,000 small businesses over the course of the pandemic. Not all sectors are feeling it equally however; the restaurant and tourism industries are particularly impacted. The National Restaurant Association surveyed its members and found 3 percent had gone out of business, a further 11 percent believe they will have to close permanently in 30 days if conditions don’t change. All across social media many people are posting tearful goodbyes to their local restaurants, bars and coffee shops. It is possible that the US today is facing more small business closures than any time since the Great Depression.
A large concern that many pundits and lawmakers have is that if small businesses fail in large numbers, big businesses will step in and take their place. This could result in reduced competition and end up hurting US consumers. With all of these challenges, both the US federal government and many State governments have launched programs specifically targeting small businesses. Federally, these programs are being run by the Small Business Administration — currently 4.9 million business have received emergency loans from them thus far. Below is a more detailed listing of available supports:
The Small Business Administration: On March 27, 2020, President Trump signed the CARES act into the law. This bill contains $376 billion in aid. The Small Business Administration is currently accepting applications for Economic Injury; more details can be found here. The following programs are available in addition to traditional programs offered by the Small Business Administration:
1. Paycheck Protection Program — You will receive a loan for retaining employees (note the deadline was extended from June 30 to August 8)
2. EIDL Loan Advance — A loan advance of up to $10,000 of economic relief
3. SBA Express Bridge Loans — If you currently have a relationship with an SBA Express Lender you may be able to receive up to $25,000 quickly
4. SBA Debt Relief — Provide a reprieve to small businesses on their loans
Your Bank: Try to work with your bank if you have outstanding debts with them, it can be in their interest to see you survive and repay the loan.
Your Insurer: If you purchased business interruption insurance you have probably heard that not many insurers are paying out. Currently State and Federal legislatures are looking at ways to get insurers to pay for people who have purchased business interruption insurance. Unfortunately, none of these measures have passed yet.
Where is the money going?
Many small business owners have grown frustrated with waits to get their money. There have also been questions around who is actually getting this money. A recent Washington Post survey found that the money has been unequally spread amoung States. When adjusted for size, West Virginia, for example, fared the worst. Whereas other states, such as Nevada, received a disproportionate amount.
There have also been questions on who specifically is receiving funding from the Small Business Administration. This week the administration released who had collected these loans, there were many Billionaire backed businesses and large food chains that received funding, which Small Business Administration Administrator Jovita Carranza claimed were exceptions.
Looking past the doom and gloom — how to thrive during the Coronavirus lockdown
However, it isn’t all doom and gloom, there are business that are finding ways to thrive in this new normal. There are businesses that are learning to thrive during these times. It is important that you remain nimble and flexible in your business strategy. Below are some of the things that others have done.
1. Online is king — many small business owners have been forced to go online. This is especially true for retailers. While you may think that you are not setup for online sales, it is easier than you may think. There are many e-commerce platforms that will allow you to move your business online rapidly and at a low cost. A great example is Shopify. They even have a page dedicated to helping you get online and respond to your customers. If you are not very technically inclined, you can go to sites such as Fiverr or Upwork to hire someone to do it for you. Moving online can help you increase your cashflow in a time where it has all but dried up for most. Once the pandemic is over, it may even provide a second source of income to your business that you never even knew existed.
2. Change gears and provide a needed service — with COVID-19 having upended everything there are certain items that are in short supply. The most obvious being anything related to Personal Protective Equipment (PPE). Many companies that have existing relationships and supply lines in China have been able to pivot to providing needed PPE. This is not, however, without risk, as there have been quality issues in some sourced PPE. Another great example is producing cloth masks. For example, Detroit Sewn Inc has had to triple its workforce to keep up with mask making demand.
3. Re-evaluate your business strategy and cut costs — Look to see if your business strategy is working and if you need to pivot using points 1 or 2 above. A good idea is to have a brainstorming session with your employees, to get everyone focused on coming up with a new strategy. If challenges remain, it is best to be open and honest with employees. Try to lead by example, with the top taking the pain first. Before you consider layoffs, examine perhaps a four-day work week. The goal should be maintaining your liquidity and nimbleness, while also positioning yourself for growth when the economic recovery begins.
COVID-19 has proven to be a massive challenge to small businesses all across America, but there are opportunities out there. Going through a downturn is never easy, especially one so sudden as this one. Try to take advantage of government aid programs as much as possible and work with your customers, employees and suppliers as well. Hopefully, you and your team will emerge with a shared sense of value after this crisis ends.
