For the first time, our small businesses are leading the recession.
An article by Joel Mathis in The Week puts the crisis for small businesses in stark terms.
“Amazon seems to be doing well in the current crisis — it announced Monday it will hire 100,000 new workers for increased demand for delivery services. Mom-and-pop businesses, the kinds of establishments that make up the backbone of a community, stand to do much worse.
“Simply put: There is a good chance your favorite restaurant or coffee shop is going to close permanently because of the health restrictions recommended by the Centers for Disease Control. They simply can’t survive a couple of weeks — or longer — without cash flow. And the promise of federal small business loans is inadequate for entrepreneurs who fear they might not be able to pay the money back.
“That means the coronavirus lock down will do more than damage the economy — it will ravage local culture across the country by robbing us of businesses, owned by our neighbors, that make one town a little bit different from the next. It’s not just livelihoods that are threatened, but our very sense of community.
Instead, the government is looking at bailing out airlines, cruise lines and casinos.
Those industries are sources of employment for many Americans. We shouldn’t dismiss the need to help those workers. In 2008, America tried to rebuild the economy from the top down.
This time, let’s get creative and focus the bailouts on individual Americans and the communities where they live. This time, let’s build from the ground up.”
It is very important to support individuals right now, helping them get through tough and uncertain times and job loss. With so many social distancing restrictions, we are losing our service businesses.
If we want our jobs to come back, we need our small businesses to stay intact through this.
It is as important for our future to provide small business owners assistance right now as it is to make sure that every person has food and shelter.
Case Study: Mapping the Impact of COVID-19 Outbreak in Kansas City
Initial feedback to a survey sent out this week from our Kansas City community, KCSourceLink, provides the following pulse on how COVID-19 is already affecting small businesses:
75% reported needing financial assistance, nearly all reported loss of revenues and/or employee losses.
“As of right now we are losing at least 50% of our clients and looking at having to shut down completely. We are in-person service based which means we can’t work remotely. Our cash flow depends on clients coming in every day, there is no reserve.”
“We stand to lose everything as our margins are very small and expenses very high. We will already not be able to pay the rent or ourselves. The pressure to adapt quickly is immense. We could create a digital product but it would take time, money and energy. Right now we don’t feel we have any of those things.”
“Loss of all catering business. Lay off of all staff. No lending from banks or alternative sources to help us. We won’t be in business without capital help.”
Company characteristics:
- Average employees – 5.36 full time; 1.94 part time
- Average revenue – $123,733 (22 didn’t report any revenue at all)
- 60% female; 40% male
- 87% non-Hispanic; 15% Hispanic
- 78% white; 20% African American or Black, 2% Native American/Alaska Native
We also see that the number of firms with fewer than 20 employees in industries that have high concentrations of low-wage employees and most likely to be impacted by the closures (restaurants, entertainment, dentists, etc.) are also in our most distressed areas. KCSourceLink mapped the impact in the heatmap below.
Helping in the Short-Term to Speed Long-Term Recovery
Finding short term ways to provide continuing income for solopreneurs, small business owners and their employees will keep those folks from panicking, they’ll still be able to buy the things they need (which keeps other parts of the economy running) and when the world gets back to normal, they’ll be able to take advantage of the upturn, which will in turn spur a faster recovery.
And as always, a good job is the best way to ensure folks can meet their need for food, clothing, shelter, etc. Short term funding (grants) that we can get to small business owners NOW will make a difference.
An SSTI article underscores small business’ ability to weather a crisis.
“A report released last fall by JP Morgan Chase on the financial stability of U.S. small businesses in 25 metros “found that 29 percent of small businesses were unprofitable and 47 percent had less than two weeks of liquidity. The situation was worse — often twice as much — in communities with lower-than-average home values, college graduates, or majority minority populations.”
“The likelihood of a business having reserves varied by sector. Restaurants had the lowest median profitability (9 percent), followed by retail (11 percent). High-tech services companies (29 percent) and health care services (26 percent) were the most profitable. Of course, even sectors with an average cushion of more than two weeks may be tested by what promises to be a longer series of interventions.
“These findings shed light on current and future economic emergency actions for governments to consider. The low cash reserves of many small businesses suggest that even subsidized loans may be difficult for low-margin companies to access without further assistance — low cash on hand can negatively affect a lender’s assessment of the company’s debt capacity, as well as the company’s ability to simply cover closing costs. Perhaps the most important lesson is the need for urgency: even as Congress is laudably already working on a third assistance package, the fact is that a two-week window for getting assistance into the hands of a businesses is too fast for any intervention requiring a legislature.”
Also, “Small businesses—those with 500 or fewer employees—will be required to give employees two weeks paid sick leave (if they are sick or isolated because of the coronavirus health emergency or they have to watch a family member due to a school or child care closing) and up to 10 weeks paid family leave—but the government will reimburse businesses for the cost of that leave. Employers would get quarterly tax credits through 2020 to reimburse them for this expense. These would be in the form of credits against their quarterly federal payroll taxes—however, if the credit exceeds the amount the employer owes, the business would receive a check from the government.
This is great news for those businesses that can manage the cash flow of paying employees now who must be out sick, quarantined, or take care of children or family members. Of course, many businesses don’t have the cash to front that payroll expense if their business is closed or dramatically reduced. To take advantage of these funds, they’ll have to find the money to stay afloat.” Rhonda Abrams
Also, non-employer services businesses like hairdressers, shared-economy workers (like drivers for Uber or Lyft), house cleaners, etc., aren’t getting any federal relief and won’t, most likely, be able to pay off loans. This group may be falling through the cracks.
Case Study: Denver Partnership Provides Immediate Funding
We have worked with the Denver Downtown Partnership through our national SourceLink program for years. They have launched a fund:
“Today, March 19, 2020, the Downtown Denver Partnership joined with Denver Mayor Michael B. Hancock and Denver Economic Development and Opportunity (DEDO) to announce the Denver Small Business Emergency Relief Fund.
“The Fund, created in response to the economic impact of COVID-19, will provide relief to businesses that may have had to temporarily close, are struggling with paying rent and utilities, or have had to lay off staff. The $4MM fund will provide eligible small businesses with grants up to $7500 or microloans to support their stabilization efforts.
“In an effort to grow the Fund and provide even more support to businesses in need, the Partnership is asking those in the business and philanthropic communities to bolster the fund through additional donations.”
This is what we need now.
