Small businesses from all around the world are closing their doors due to the COVID-19 pandemic. Large companies, especially those in the manufacturing, construction, food and hospitality industries, have already lost billions. The Economic Policy Institute estimates that more than 3 million Americans will be out of jobs by summer. As an entrepreneur, you may need to prepare for a potential recession and reinvent your small business.
Socioeconomic Impact of COVID-19
Millions of individuals and businesses worldwide are affected by the outbreak of the infectious disease COVID-19. Not too long ago, financial experts predicted a 2.4% decline in GDP for most major economies in 2020. However, these estimates were made before the novel coronavirus became a global pandemic. Its effects on the global economy may be more devastating than those felt during the Great Depression.
The global stock markets experienced dramatic losses over the last months. Although many central banks have slashed interest rates, investors fear the full ramifications of the pandemic. Its economic impact is largely driven by a fall in demand. People are losing their jobs, which in turn affects their income and buying power. At the same time, entire industries are falling apart.
From hotels and restaurants to event planning services, thousands of companies are suffering losses, and so are their employees. Nearly one in five households have lost work because of the recent events, reports National Public Radio. Furthermore, people are forced to stay home and maintain social distancing, which impacts the economy as a whole. Retail stores are closing their doors, trips are being canceled and airlines are cutting flights.
Some countries, such as Germany, no longer allow seasonal and harvest workers to enter their borders. Others, including Denmark and Hungary, have closed their borders to all non-foreign residents to help fight the spread of COVID-19. Italy, France and Spain declared a national lockdown after recording the highest number of deaths in Europe. These measures will result in revenue losses and dramatic shifts in consumer behavior.
Coronavirus Impact on Small Businesses
Several states in America and countries all around the world ordered nonessential businesses to close their doors. These challenges are even more overwhelming for small-business owners. Dining out, for example, was one of the first things on which consumers cut back in an attempt to adhere to social distancing. The only way for restaurants, cafeterias and other dining establishments to survive is to start making home deliveries.
According to the National Federation of Independent Business, the current situation is negatively affecting 23% of small businesses. Another 74% are not yet impacted, and 3% are experiencing positive results. Most business owners reported a decrease in sales as well as disruptions in the supply chain. The U.S. Small Business Administration will offer up to $2 million in loans to support nonprofits and small companies during these hard times.
A large-scale survey conducted by Goldman Sachs reports different findings. More than half of respondents said that their business will only be able to keep operating for three months or less. Approximately 96% have already been affected by the spread of COVID-19. Nearly 70% don't know how to access and apply for emergency funding.
More than 50% of small-business owners expect the economy to fall into recession over the next year. Considering that small businesses account for 99.9% of all companies in the U.S., it's easy to imagine the economic consequences of the COVID-19 crisis. A March 2020 survey revealed that 32% of small businesses are doing much worse, and 40% are doing somewhat worse compared to January 2020. Economic uncertainty, lack of capital and decreased sales were cited as the biggest challenges to business growth and survival.
Small-Business Closure Projections
The JPMorgan Chase & Co. Institute reports that the average small business holds a cash buffer of less than one month. Restaurants, for example, have less than 16 days' worth.
Small companies in labor-intensive or low-wage industries, such as construction, health care, retail and personal services, hold even fewer cash reserves than those in high-wage or capital-intensive industries like real estate and high-tech manufacturing. These businesses won't survive without financial help in the form of grants or interest-free loans.
The coronavirus outbreak will impact an already-weakened global economy. It's estimated that more than 15,000 retail stores will close their doors in 2020. Financial analysts expect to see an increase in the number of bankruptcy filings, as most consumers are currently trying to save every penny. Buying a new pair of shoes or a jacket is the last thing on their minds.
U.S. restaurants are expected to lose about $225 billion in revenue from closures. Some are trying to adapt to the current situation by offering takeout services or home deliveries. However, as unemployment rises and buying power declines, their future becomes even more uncertain.
Emergency Funding for Small Businesses
The SBA and other government agencies are offering financial support for small businesses affected by the COVID-19 outbreak. One option is to apply for an SBA disaster loan of up to $2 million. The funds may be used to pay wages, fixed debts and other expenses that cannot be otherwise paid because of the current situation. The interest rate is 2.75% for nonprofit organizations and 3.75% for small companies.
Some states and cities are running their own disaster recovery programs for small-business owners. Maryland, for example, is offering $130 million in loans and grants to small companies with 50 or fewer employees. Applicants must provide a short statement describing the economic impact of COVID-19 on their operations.
Small businesses that meet the SBA’s size standards and have fewer than 500 employees may qualify for the Paycheck Protection Program, which offers federally guaranteed loans covering up to two-and-a-half months of payroll.
If you operate in New York City, have one to four employees and can demonstrate that you've lost at least 25% in revenue due to the COVID-19 outbreak, you may qualify for a grant to cover 40% of payroll costs. NYC companies that meet these criteria and have fewer than 100 employees may apply for no-interest loans of up to $75,000. Applicants must be able to demonstrate their ability to pay off debt and have no outstanding tax liens.
What to Do Next?
These funds can help to some extent, but it's up to you to protect your business and minimize losses. Consider diversifying your distributor sources and communicate openly with your customers. Switch to digital tools and allow your employees to work remotely if your industry allows for it.
Think proactively and adjust to the constantly changing situation, even if that means making home deliveries, opening an online store or reinventing your business. Reach out to a financial adviser to help you understand which areas of your business drive the most value. Explore recession-proof business models and think about potential opportunities. If, say, you own a gym, you may shift to a digital platform and sell custom workout plans and fitness accessories for home use.
Connect with other small-business owners and local organizations in your niche. Share what you are going through, discuss your options and build connections. You never know when an opportunity will present itself. Keep an open mind, consider different scenarios and make a plan for what you will do if the current situation improves or worsens.
- Economic Policy Institute: Coronavirus Shock Will Likely Claim 3 Million Jobs by Summer
- Statista: Impact of the Coronavirus Pandemic on the Global Economy - Statistics & Facts
- National Public Radio: Poll: Nearly 1 In 5 Households Has Lost Work Because of Pandemic
- Goldman Sachs: US Small Business Owners Face Great Uncertainty; Over Half Say They Cannot Operate Beyond Three Months
- JPMorgan Chase & Co. Institute: Cash Is King: Flows, Balances, and Buffer Days
- CNBC: How Small Business Owners Are Coping With COVID-19 Pandemic: ‘It Was My Civic Duty to Be a Part of the Solution’
- U.S. Small Business Administration: Coronavirus (COVID-19): Small Business Guidance & Loan Resources
- National Small Business Administration: Small Business Impact Poll
- Maryland Department of Commerce: Maryland COVID-19 Emergency Relief Fund Programs for Businesses
- U.S. Chamber of Commerce: Coronavirus Emergency Loans
- City of New York: Assistance & Guidance for Businesses Impacted Due to Novel Coronavirus
- CNBC: Small Businesses Say Coronavirus Is Starting to Cause Supply-Chain Squeezes and Lost Sales
Andra Picincu is a digital marketing consultant with over 10 years of experience. She works closely with small businesses and large organizations alike to help them grow and increase brand awareness. She holds a BA in Marketing and International Business and a BA in Psychology. Over the past decade, she has turned her passion for marketing and writing into a successful business with an international audience. Current and former clients include The HOTH, Bisnode Sverige, Nutracelle, CLICK - The Coffee Lover's Protein Drink, InstaCuppa, Marketgoo, GoHarvey, Internet Brands, and more. In her daily life, Ms. Picincu provides digital marketing consulting and copywriting services. Her goal is to help businesses understand and reach their target audience in new, creative ways.