October 7, 2020
As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.
COVID-19 is a public health crisis—but it’s also been a crisis for small businesses. The business disruption caused by the pandemic and associated lockdowns forced many businesses to shut their doors—some permanently.
But six months into the pandemic, things are slowly starting to improve—and businesses are finding ways to innovate, pivot their business model, and keep moving forward despite the challenges of COVID-19.
Let’s take a look at how small businesses have fared during the pandemic, how they’re faring now, and how small business owners are changing their operations and strategy to grow and evolve their businesses during the pandemic (and beyond):
While there was no way for small business owners to anticipate a crisis like COVID-19, one things the research is clear on is just how financially unprepared the majority of small businesses were for the pandemic—and the ultimate impact of COVID-19 on their businesses.
According to recent research from McKinsey, nearly one-third of businesses surveyed were either operating at a loss or just breaking even prior to the COVID-19 crisis (those numbers were even higher in sectors with slimmer operating margins—like the restaurant industry, where nearly 40 percent of small businesses were operating in the red or at break-even). And a survey published in the Proceedings of the National Academy of Science of the United States of America (PNAS), which was conducted between March 28 and April 4, just a few weeks into the coronavirus pandemic and corresponding lockdowns, found that the median business with more than $10K in monthly expenses only had two weeks of cash reserves at the beginning of the pandemic—and only 25 percent of businesses had enough cash flow to cover operating expenses for two months or more.
While 72 percent of businesses believed they’d be able to bounce back and stay open through 2020 if the COVID-19 outbreak lasted one month, the number of businesses that expected being able to keep their doors open through December dropped to less than half (47 percent) if the outbreak stretched to four months.
While a huge majority of businesses were ill-equipped to deal with the economic fallout of COVID-19, small businesses—which typically don’t have the financial resources many large businesses have access to—were hit especially hard. But the federal government stepped in, drafting the Coronavirus Aid, Relief, and Economic Security Act (more commonly referred to as the CARES Act), which provided much-needed financial assistance and working capital to small businesses across the United States in the form of the Paycheck Protection Program.
The Paycheck Protection Program is a federal loan program administered by the U.S. Small Business Administration that provided small businesses loans to small businesses to help cover certain operating expenses, including payroll expenses, rent, and utilities. If small businesses used their PPP loans on approved expenses, the SBA would forgive up to 100 percent of their loan amount—essentially turning the small business loan into a grant.
According to a report from the Congressional Research Service, “as of August 8, 2020, the SBA had approved, after cancellations, 5,212,128 PPP loans totaling over $525 billion.”
Small business owners were also able to get financial support through the Economic Injury Disaster Loan program (EIDL), which provided emergency loans and cash advances to small business owners impacted by COVID-19. According to the Congressional Research Service report, “as of August 23, 2020, the SBA had approved 3,573,856 COVID-19-related EIDL loans, totaling over $188.0 billion.”
While these loan programs have been exhausted, they provided the short-term financial support millions of small businesses needed to continue operations during the pandemic—and without these resources, many more businesses likely would have been forced to shut their doors for good.
Another impact COVID-19 had on small businesses had to do with job losses.
Job losses were particularly sharp at the beginning of the pandemic. According to the research published in PNAS, businesses reported, on average, a 39 percent decline in employment from January to the time of the survey (those numbers exceeding 50 percent in certain industries, including retail, food services, personal services, and hospitality). This resulted in millions of US workers either facing furloughs or layoffs; at the height of the lockdown in April, unemployment in the US hit an all-time high of 14.7 percent, with the number of unemployed Americans rising by a staggering 15.9 million (the sharpest month-over-month increase ever recorded).
But the job market is recovering. By August, unemployment had dropped down to 8.4 percent, which marked a faster and healthier job recovery than most experts anticipated (projections released in April by the Congressional Budget Office didn’t expect the unemployment rate to dip below 10 percent until sometime in 2021). Much of the job growth (including at small businesses) has been driven by the country’s reopening and lifting of COVID-19-related restrictions and lockdowns, which has allowed many businesses to resume or ramp up operations—albeit with different business operations.
One of the most visible impacts COVID-19 has had on small businesses is the way they manage their day-to-day operations. As small business owners adjust to the “new normal” and figure out ways to continue to run and grow their businesses during the coronavirus outbreak, many are having to pivot their operational strategy and business activity to comply with reopening guidelines (including guidelines from the Centers for Disease Control and Prevention, better known as the CDC) and to ensure the safety of their employees and customers.
For example, many small businesses that are able to function through telework are having their employees work from home in order to minimize potential exposure. Restaurants are another great example; because social distancing is challenging in restaurants, many eateries are shifting from a dine-in model and focusing their efforts on delivery and take out options.
COVID-19 has been a challenging time—for small businesses, for citizens, and for the world. But things are starting to look up for businesses—and if you want your business to continue to succeed, you’ll need to continue to adapt and innovate as we all figure out how to best navigate the current landscape.
