The novel coronavirus (Covid-19) pandemic which has ravaged the whole world has negatively impacted small businesses both in the US and around the globe. When compared to other countries in the North American region; the US has recorded the highest number of coronavirus cases with 11,066,546 cases and 249,998 deaths.
Indeed, early on, a number of states in the US adopted several strategies to contain the spread of the coronavirus, including the closure of schools, places of worship, non-essential business places, restrictions on international flights, the introduction of social distancing, and even total lockdown in some areas. While these containment strategies may have tried in curtailing the spread of the Covid-19 virus, the effects of those same restrictions were quite drastic on small businesses in the US.
A recent study by Stanford Institute for Economic Policy Research (SIEPR) reveals that “the number of active business owners in the United States dropped from 15.0 million to 12.8 million, or 15 percent, from February 2020 to May 2020”. For many small business owners, the difficulty in transportation, lack of patronage, and loss of income for most consumers has increased the negative impact of the coronavirus on their business.
With the US government and private companies making efforts to soften the blow of the coronavirus pandemic on small businesses and employees’ through several aid programs like the Paycheck Protection Program (PPP) and Magic Johnson Enterprises, the question remains, is there truly any hope left for small businesses in the US, in the face of the rising coronavirus cases and a potential second lockdown?
In this article, we will highlight some of the major impacts of the coronavirus pandemic (Covid-19) on small businesses, their owners, and the US economy on a holistic scale.
Impact of COVID-19 On Monetary Transmission Channels
There are several channels of the economy being affected by the coronavirus pandemic, especially on the part of small businesses. On the surface, since the start of the covid-19 pandemic and the introduction of containment measures by countries and state governments especially in the US, small business owners have seen a drastic drop in both supply and demand numbers. Let’s analyze how the pandemic has influenced the drop in supply and demand of small businesses.
Reduced Demand By Consumers
A recently released study of small businesses by America’s Small Business Development Centers (SBDC) discovered that approximately 69 percent of small businesses in the US have already reported a massive decrease in demand due to the coronavirus pandemic. The study further highlighted that about 60 percent of small business owners are still of the opinion that demand for their goods and service may continue to drop.
The sudden drop in demand has in no small way affected the ability of small businesses to function and led to a severe reduction in liquidity and revenue of these businesses. In perspective, the increase in the loss of income by consumers, fear of contracting the virus, lockdown, and increased uncertainty in the economy which in turn reduces consumers’ willingness to spend money are some of the reasons behind the massive drop in demand.
These factors are further compounded by the continual layoff of employees and the inability of small businesses to pay salaries. Small businesses in industries such as accommodation, transportation, and food services are even more likely to be affected by covid-19 due to the sudden changes in consumer behaviors, the need for social distancing, and health restrictions. However, the majority of small businesses are at risk of closure and bankruptcy due to financial challenges.
Limited Labor Supply & Disruption to The Supply Chain
On the supply side, the majority of small businesses over the last few months have been faced with a reduction in their labor force. From permanent or temporary layoffs to the reduction in employees’ work hours due to the inability to pay salaries, there is a continual decrease in small business access to labor supply. On the other hand, the lack of labor supply may be due to the need for parents or employees to watch over their kids while schools are on lockdown.
Furthermore, the introduction of lockdowns and quarantine as measures to contain the spread of the coronavirus led to poor utilization of workers in their capacity. Another impact of the covid-19 pandemic on small businesses is the disruptions to the supply chain for most of these businesses.
A report by Deloitte revealed that around 30 percent of American small business owners across different industries reported disruptions to their supply chain as of June 2020. Also, the continued lockdown and the restriction on flights from high-risk countries like China limited the access of most small businesses to intermediate goods, foreign suppliers, and raw materials.
Challenges Faced By Small Businesses Due to Covid-19
It is no longer news that the covid-19 pandemic has created a series of challenges for small businesses around the US regardless of their size and financial power. Some of these challenges include:
Lack of Access to Capital
One of the biggest challenges faced by small businesses as a result of the coronavirus pandemic is their lack of access to capital to keep their operations afloat. The lack of access to capital has prevented thousands of small business owners from keeping their supply lines opens and making sure that their workers can transition to remote work.
According to a Facebook survey of 86,000 small business owners, while it is expected that two-thirds of closed small businesses to reopen in the nearest future, among the one-third who did not, 34% associated their permanent closure with their inability to foot operational costs or rent. In fact, 3 out of 5 business owners interviewed claimed that they were experiencing some difficulty with their business finances.
Cash Flow Shortages
One of the worries of most small business owners is the uncertainty of the coronavirus timeline and spread. In the early stages of the spread, many employers and individuals hoped that the spread would be minimal or that it would be a short-term health problem. While it is wise for businesses to save for rainy days, not many small business owners anticipated the long-term nature of the coronavirus and its impact.
A survey of approximately 5,800 small businesses observed the impact of the long-term nature of covid-19 on the cash flow of these businesses. Reports from researches conducted in March and April reveal that 75% of small businesses only have enough liquid cash to cover two months or less. On the other hand, only 47% have the financial capability to cover their operating expenses if the covid-19 virus lingers for more than four months.
Fear of a Second Wave
For most small business owners, there is the underlying fear of the occurrence of a second wave of the coronavirus pandemic. There is the worry of the possibility of the nation undergoing a second total lockdown. According to a July 2020 poll, 65 percent of small business owners indicated the fear of their businesses closing again due to an unexpected second wave of the virus.
Financial Support & Relief For Your Small Business
It would be pretentious of us to undermine the negative impact of the coronavirus pandemic on small businesses and the economy at large. With small businesses employing around 58.9 million people in the US, the impact of the covid-19 pandemic has drastically led to a fall in revenue, cash flow, and temporary and permanent loss of employment for millions of the American workforce.
However, with the government and private individuals creating relief programs to aid affected small businesses, there is hope for businesses in the US. And with the introduction of a potential coronavirus vaccine, there is surely light at the end of the tunnel for small businesses and their owners in the coming months.
If your business is struggling financially due to the pandemic or challenges due to severe debt, there is hope. The Reorganization Management Group provides financial solutions and turnaround services that offer businesses and their owners a choice when contemplating bankruptcy by providing debt relief and operating freedom.
With over 50 years of combined industry-related experience; we can help challenged business owners with the financial stress and uncertainty that is affecting all of us. Whatever your financial dilemma might be, we have the solutions that can save your company and establish a long-term strategy to help your business thrive.
We are the experts in this field so you can get back to being the expert in your field. Contact RMG today at 866.364.9161 and discover how we can make your business more successful and your life more rewarding.
