Mar 24, 2020

How COVID-19 Will Impact the Small Business Economy

Due to the fast-changing nature of COVID-19 programs and SBA COVID-19 programs, posts may become quickly out of date. Please check our COVID-19 section for the most up-to-date information on rates, terms, and other info for PPP loans/EIDLs. 

The coronavirus public health crisis has quickly spawned an additional financial crisis in the matter of a couple of weeks. The strong economy from just a month ago has completely evaporated as the US voluntarily halted its economy to address COVID-19 concerns. Any general economic recovery or “getting back to normal” is directly tied to halting the virus. However, a few small business sectors are in uniquely good or uniquely bad positions to weather the increasing shutdowns.

Shelter-in-place orders in California, Illinois, New York, and other states are in effect until at least early- to mid-Spring, with other states likely to follow. Many US small businesses do not have the cash on reserve to last for the month or more that these expanding orders will remain in place, and we see evidence of that in the more than 2 million unemployment claims expected to be filed this week.

And don’t count on those $1,000 checks to every adult American you may have heard about in the news to turn things around quickly. Congress still has not settled on a stimulus plan, and the devil may be in the details. There are proposals under which many higher earners would not receive a check and others in which people without children won’t get the checks. Further, those checks would not be sent for at least another 9 weeks.

Frankly, we’re on our own for a while. And though some “essential” retail sectors will be able to survive strongly through this uncertain economic downturn, others are looking at a bleak, prolonged dry spell. And we may be able to assess the economy’s recovery time and patterns by looking at past economic shocks.  

Small Businesses That Could Do Well During COVID-19

Right now, you probably wish you could pivot your small business to just selling toilet paper and hand sanitizer. You can’t, but your business sector may be one that is commonly classified as an “essential business” in areas that receive shelter-in-place orders.

Banks, convenience stores, grocery stores, laundromats or dry cleaning, many warehouses, and of course pharmacies, and other types of healthcare providers have generally been classified as essential. Those sectors could do brisk business, but it’s exceedingly important to take coronavirus workplace precautions for the safety of your staff and customers.  

Restaurants are also generally exempt from these orders, but only if they offer take-out or delivery. Eateries may need to partner with a delivery service

Construction and building are generally considered essential, so those businesses and their suppliers are likely to have opportunities. In urban areas, there is a sudden and enormous desire to house the homeless to prevent a spread among that population, so specialties like modular housing and trailer unit transport could see big demand in cities with large numbers of unsheltered people.

Small Businesses That Will Be Hurt by COVID-19

Any business shut down by stay-at-home orders is obviously in a terrible spot, with no real idea of how long that closure will last. But even in states and communities that have not been issued such orders, the business sectors of hospitality, tourism, and leisure are likely to see one of their worst years in recent history. If your business is related to port shipping, that industry may come to a standstill. Gambling, live events, and entertainment also have a bleak outlook. Take a deep breath and realize these measures are intended to save an untold number of American lives. 

And help is available. The Small Business Administration (SBA) is making billions in COVID-19 disaster loans available for small businesses, with Express Bridge Loans that could provide up to $25,000 in the short term, and other forms of disaster loans as high as $2 million. Additional relief will be provided to states that have declared a disaster. Congress may approve even more small business funding, but they tend to take their time. You can apply for a small business loan online and get working capital in as little as 24 hours.

What Small Businesses Can Do Right Now

There are other ways you can limit normal expenditures to get through the next couple of weeks or months. If you rent your business space, your landlord knows the situation and may be open to working out a short-term rent relief arrangement. After all, your landlord is certainly losing tenants right now and will hope to minimize the losses. Same goes for banks, which are also bleeding clientele, and may be quite receptive to deferring interest payments, extending more credit, or restructuring credit terms.

The Economy Under Previous Pandemics

Believe it or not, this isn’t the first coronavirus outbreak in the US. The 2003 Severe Acute Respiratory Syndrome (SARS) was also a form of coronavirus, as was the 1918 Spanish Flu. In assessing the economic impact of other pandemics, the Institute of Medicine’s Learning from SARS academic analysis found that China and Hong Kong took between 6 months to a year to return to normal economic footing, with far less impact on other nations.  The Spanish Flu outbreak was actually associated with increased wages and economic output, but the US involvement in World War I drove those increases. It may be more instructive to consider the 2014 Ebola outbreak, which was mostly contained to Africa. But the hardest-hit nation of Liberia saw a full 12% of its businesses close in a 3-month period in late 2014, according to the International Growth Centre.

There is no clear forecast for what will happen in the coming coronavirus economic downturn. But unlike recent recessions in 2001 and 2008, this situation is not driven by certain sectors being overleveraged or overvalued. The government shut down large swaths of the economy, by choice, to prevent the spread of a deadly virus. There has been no loss in consumer demand, and a small business loan or some sort of business financing could get you through until the nation has a clean bill of health.

 

How COVID-19 Will Impact the Small Business Economy

About the author

Joe Kukura
Joe Kukura
Joe Kukura is a San Francisco freelance writer whose work also appears in SF Weekly and SFist. He’s written financial advice for NerdWallet, tech industry analysis for the Daily Dot, sports content for NBC Bay Area, and good, old-fashioned clickbait for Thrillist.

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