Small businesses are the future of American economy but pandemic has jeopardized their success
The coronavirus has severely crippled the economy to the point that many businesses have had to file for bankruptcy among closures, and many others have had to furlough a multitude of staff resulting in a sudden spike in unemployment. Furthermore, the employment and job scene is undergoing a drastic change with business being forced to adapt to a new mechanism that involves working from home, and we may possibly be looking at remote working as the new normal. However, it's the smaller businesses that are struggling to survive during the pandemic, especially those with a smaller cash cushion and limited access to credit or funds.
The pandemic recession has been felt across all industries, causing even multi-national companies and franchises to incur losses. In the past few decades, franchising has accounted for fro 733,000 establishments and employing over 7.6 million Americans. According to a survey by the International Franchise Association, the pandemic has forced 74% of Franchises to pull the plug on operations. Small businesses are the hope for the future of the American economy, but as the pandemic rages on, its rippling effects point towards downfall, and at least tens of millions of jobs that they support could dry up.
Small Businesses
Small businesses form the core of the US economy, because they employ half of the total American workforce, represent half of the GDP and comprise 40% of total business revenue. The effects of the recession on small businesses depend solely on how they fare amid the economic crisis, the employment situation, how many businesses will see through the end, how many employees they can hire again, and how quickly they can retain their customer base.
The introduction of the CARES Act and federal aid including loans, grants, and state support programs, is helping many, but that doesn't mean they are completely out of the woods. Small businesses alone furloughed 11 million employees in April, which accounts for more than of the total 20 million unemployed that emerged from the private sector last month, per a national employment report by ADP.
Hourly employees have lost an average of $1,300 per month, and in the bigger picture, the country is losing $60 billion in monthly income, according to a report by financial magazine Barron's. So if there are no people to spend, companies will fail to hire employees and this will only turn into a vicious cycle. In New York, the COVID-19 pandemic has forced 100,000 small businesses to shut down permanently, according to Patch. Governor Andrew Cuomo said on May 22 that New York State would launch its own small business relief program with more than $100 million as loans.
Businesses owned by minorities
New research conducted by Global Strategy Group and endorsed by two civil rights advocacy groups, UnidosUS and Color of Change highlights the challenges black and Latinx small business owners are facing with regard to available resources, including but not limited to Paycheck Protection Program (PPP). Initially, small-business owned by minorities were struggling with structural barriers and narrow cash buffer, which had placed them at a disadvantage prior to the pandemic. But as the pandemic-induced financial crisis unfolded, experts issued warners about minority entrepreneurs having a tough time accessing relief funds and aids.
The research surveyed 500 black and Latinx small business owners between April 30 and May 12, and according to the findings, one in five applied for federal aid. Out of those that applied, only 12 percent said they received the full amount while 30 percent said they were still waiting to hear back from the authorities and 41 percent said they received no help.
Just over half of the minority-owned businesses requested for less than $20,000 in temporary funding form the federal government. 15 percent of the respondents said they had closed their businesses permanently, while 45 percent said they do not believe they will be able to sustain their business through the next six months of the current circumstances continue.
Self-employed businesses
Also among small businesses suffering from the ramifications of the economic downfall are those self-employed or sole proprietors. According to a 2017 census data, a vast majority of small business in the US, ie 25.7 million, are "non-employer" companies or one-person shops
They've been facing many obstacles during the crisis while struggling to keep their only means of livelihood going. They were unable to apply for the PPP until April 10, about a week after everyone else and barely four business days before the first round had exhausted funds. Instead of accessing $10,000 in instant money from the Economic Injury Disaster Loan (EIDL) program in the bill, they were only allowed to apply for $1,000. The majority of banks, including the prominent ones, initially only processed applications from existing business banking customers.
A lot of sole proprietors, says Axios, use a second personal bank account for business transactions and were hence at a disadvantage to being able to apply. Many had to also rush to file their taxes because of the requirement of a Schedule C tax to apply for the loans. At least 75 percent of the PPP loans are required to be spent on payroll, and this is tricky for sole proprietors because they spend a lot of their actual paychecks on fixed costs like housing or where they work. Furthermore, they can't use the loan money for retirement or health care benefits, either.