COVID-19 is dramatically changing the economic landscape. Some industries are faring well while others are being devastated by the pandemic. Businesses are rapidly adapting to the demands and peculiarities of living within the constraints of a pandemic. Of particular concern to me is the plight of small businesses. In many ways, small businesses are the lifeblood of the American economy. Indeed, before COVID-19, various studies found that small businesses accounted for about 50% of private-sector jobs. Moreover, Americans highly value their right to start a small business – be it a local restaurant, a small retail shop, or an online business.
But small businesses historically have been adversely impacted by recessions in part because many small businesses operate on limited cash flow. This begs the question: how are small businesses enduring this now prolonged impact of COVID-19?
When COVID-19 began in the spring and many states shut down or substantially reduced various business services, it was clear that small businesses were skeptical they could survive a prolonged pandemic. For example, in an April 2020 survey of 5,850 small businesses across the country, Main Street America found that 75% of respondents reported that their business revenues had declined by more than half. And 66% of respondents predicted their business would be at risk of closing if the economic impact of the pandemic continued for 3 to 5 months.
Now we are more than five months into this pandemic and there appears to be no end in sight. Indeed, it appears that many states are pausing their re-openings while others are re-imposing restrictions they had lifted earlier. This would seem to have dire consequences for small businesses. But not so fast…
Despite the prolonged pandemic, it appears that small businesses are resiliently adapting to the changing economy and increasingly have reason to be optimistic. In late July, the U.S. Chamber of Commerce conducted a survey of the small business impact from COVID-19. The survey found that while 23% of the small businesses surveyed had temporarily closed in late May, 86% reported that as of July they were either fully (52%) or partially (34%) open. And there was a general finding of cautious optimism regarding the future of small businesses.
This sense of cautious optimism is the result of several factors. For one thing, the small business subsidies by the government appear to have helped to sustain them through the roughest part of the current COVID-19 recession. And certain industries are actually growing or, at least, sustaining themselves despite the pandemic. For example, e-commerce retail is growing and expected to thrive in the future — and a lot of small businesses heavily rely on e-commerce. More generally, the economy seems to be slowly recovering from the pandemic. For example, recent unemployment figures show the U.S. unemployment rate at 11.1% in June which is down from 14.7% in April.
We are obviously far from being out of the woods in terms of small businesses withstanding this pandemic. Many small businesses remain concerned about having to permanently close if the pandemic continues for a prolonged period of time. And there are recognized limits to the ability of the government to continue to subsidize small businesses under a prolonged recession. There is also concern about a second wave of the pandemic hitting in the fall or winter.
Moreover, certain industries and certain types of small businesses have been particularly hard hit by the pandemic. Studies have found that small businesses in certain geographic areas have been strongly hit by the economic impact of the pandemic, including those in more densely populated cities. And most studies have found that minority-owned small businesses have been particularly hard hit by COVID-19. In addition, studies estimate that many of the hardest-hit industries will not likely return to the levels of business that existed pre-COVID-19 for at least 5 years. This includes industries which involve a lot of small businesses such as restaurants, hospitality, retail and education. Finally, new business start-ups have also fallen dramatically since the spring – a trend that needs to substantially change for our economy to recover from this pandemic!
Despite all these challenges, it appears that small businesses are rapidly adapting to the new normal of running a business amidst a pandemic. Locally-owned restaurants have added curbside pickup and are gradually expanding the to-go portion of their business. Local retailers are also now frequently offering curbside pickup in addition to adjusting their hours, limiting the number of customers, and even offering special hours for their most vulnerable customers. Various small businesses are substantially expanding their online offerings. Small business manufacturers are adjusting their work environments to allow for appropriate social distancing through the creation of manufacturing pods. Small businesses generally are greatly expanding their work-at-home options and related support capabilities. And at least some new small business opportunities are being created amidst this pandemic – note the advent of COVID-19 disinfection services!
It is difficult to say what lies ahead for small businesses given the rapidly expanding number of COVID-19 cases in the U.S. and the associated burden it is creating on our healthcare system. But it appears that many small businesses are adapting to what now appears to be a pandemic prone economy. Ultimately, I remain eternally optimistic that our small businesses will withstand this pandemic — and other economic crises that may come our way in the future — and continue to be the lifeblood of the U.S. economy.