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Small Businesses Will Need More Help After Coronavirus Pandemic

As businesses close across the country, experts say that the most important thing policy makers can do is help them preserve their ability to reopen.
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As small business owners face an uncertain future, economists emphasize that preserving this community will be essential to a speedy economic recovery. One of the most important things to help hiring bounce back in the months to come, they say, is to maintain the local shops and restaurants that employ approximately 40 million people nationwide.

The faster they can reopen, the faster everyone can go back to work.

While there is no standardized national response to the coronavirus, most state governments have coalesced around the solution of social distancing. This has included aggressive moves to shut down the local business community, with many governors pushing through orders such as Massachusetts’s ban on all dine-in restaurants and bars until April 17 and all non-essential businesses until April 7.

As we reported recently, this has already taken a heavy toll on small and local businesses. 

Typically a sector of the economy with relatively little cash on hand, the quarantines have caused many local businesses to lose most of their customers. Businesses forced to shut down entirely have seen no income whatsoever. Nevertheless, overhead bills, including rent and debt payments, continue to come due. The result, as we wrote, led some analysts to predict that financial pressures would force anywhere from 20% to 50% of all small businesses to close within 90 days. As we wrote:

Rent, debt, fixtures, taxes, payroll, service contracts, utilities, insurance and more all add up to a monthly overhead budget that is very difficult to scale back during difficult times. While a business can take drastic steps, like laying off staff and physically turning off the lights, most of its bills still have to be paid...

For small businesses, without the cash reserves or easy lending of a wealthy corporation, there is no such thing as taking a “pause.” The government has asked business owners to shut down for several weeks while doctors get the coronavirus under control. Experts say that’s longer than the average local flower shop, bookstore or neighborhood deli has. When a business with 19 days of cash on hand is ordered to close for 30, there’s little chance it will ever reopen.

This was before Congress passed the stimulus bill, known as the CARES Act, a $2.2 trillion economic rescue package aimed at all sectors of the economy. Yet this was also before a wave of jobless filings caused leading economists to forecast a near-term unemployment rate higher than that of the Great Depression. Moreover, many small business owners say that the aid passed by Congress is both insufficient and difficult to get. Some have reported that their attempts to file failed against a confusing, error-riddled system. Others say that the CARES Act, with its emphasis on heavy borrowing and limited debt forgiveness, simply won’t be enough to help businesses that already operate on low margins.

“It seems like it is a fairly comprehensive bill,” said Talia Glass, owner of Allium Market in the greater Boston area. “The biggest thing that businesses need right now is we need to be released from paying rent. We need to be released from paying taxes. I just filed my payroll this week and I didn’t get anything saying, ‘Hey your business taxes are going to be zero.’”

“To most small business owners, including myself," she said, "the idea of taking on more debt to further solve this, if you really think about it, the idea of kicking the debt can down the road is not a super appealing way of handling this crisis. We need relief.”

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According to economists, saving America’s small business community will require several stages of intervention, but it will first and foremost have to focus on this relief. Specifically, small businesses need to be put in the best possible position to bounce back once the quarantine ends.

This is a challenge because public health experts still have no consensus on when that should happen. Every day that passes with businesses shuttered only escalates the misery and humiliation of unemployment, and drives small businesses further to the end of their resources. Yet there is no clear sense of how to help anyone plan for a future that no policy makers or doctors yet fully understand.

In the face of this unknown, most experts now recommend shifting focus away from helping businesses stay open and toward helping them preserve their institutional capacity.

“Paying furloughed employees salary is critical,” said Anat Admati, a professor of finance and economics with the Stanford School of Business, “so they can come back to their jobs and allow viable businesses to return to operation quickly.”

“Easing the burden of rent and other expenses during forced closures or severe but temporary dip in demand would also help,” she said. “In some cases it might also be possible to re-purpose personnel and possibly space to handle virus-related needs, for example using hotel rooms for people who need isolation or training more personnel to help in providing healthcare and assistance to those in need.”

Business owners say that they can survive and reopen if they can keep their basic operations intact. This means not only keeping access to staff and paying rent, but also maintaining their basic contracts with vendors. Without those contracts, back-end vendors have begun closing in droves as well, dismantling the supply chains that shops and restaurants depend on.

“We are now getting calls from cheesemakers that are about to go under… They don’t have anywhere to sell their cheese because the distributors are like, ‘nobody’s buying from us,” Glass said. “And now it’s harder to get stuff when you do need it because the distributors have laid off most of their drivers, because most of their clients have shut down.” 

This kind of preservation will be essential to helping small businesses survive not only the quarantine but the aftermath as well. Small businesses that have to rebuild will face significant costs and challenges, from re-hiring and retraining lost staff to restocking the shelves, to finding new physical locations entirely. This will make the recovery process for those businesses (and the workers they employ) slower. It will force under many that could otherwise have survived.

The Brookings Institute calls this the “bottleneck,” the coming crunch during which many small shops and restaurants will be killed off by a combination of quarantined customers and limited resources. While the CARES Act does not distribute the zero-interest loans endorsed in the linked piece (currently small businesses can apply for emergency lending at a 3.75% rate), it does give out a massive, immediate access to liquidity.

Noting that “the fate of retail is inextricably entwined with the lives of our cities,” and calling the coronavirus quarantines “a sobering bit of truth about the fragility of small businesses,” Brookings reiterates the need to preserve capacity for small businesses to operate. The authors advocate solutions such as restructuring leases to make them more manageable and helping small businesses to pool shared resources.

This is essential, they urge, not just to help businesses reopen quickly but to prevent them from being pushed out altogether. “Without a massive intervention, the pandemic crisis will accelerate [business closures]. This will consolidate the grip that corporate retailers such as Amazon,  (AMZN)  Walmart  (WMT)  and Target  (TGT)  have on the trade, and push out what small businesses are left.”