A view from over 300,000 small businesses on how to help the US economy
This year it is very likely that the world economy will fall into recession for the first time since 2009. The US looks especially vulnerable.
Going into the crisis the US had one of the world’s lowest unemployment rates. But many economists believe that within a few months it could have one of the world’s highest. While economists in Britain are projecting that unemployment there will rise above 6%,[1] in America the jobless rate could easily rise above 15%.[2] A recent estimate from the Federal Reserve Bank of St. Louis even suggested American unemployment could soon reach 40%[3] — far worse than levels reached during the Great Depression.
Triggered by the global health pandemic, America’s economic downturn could be more severe because of the inadequate support for the country’s 5.4 million businesses with 500 or fewer employees (small and medium-sized businesses, or SMBs), which account for half of America’s jobs.[4] To stop the coronavirus shock from turning into another depression, we need to work together to keep these businesses alive.
Last week Generation Investment Management convened a roundtable of ten leading entrepreneurs. Their firms work with over 5% of America’s SMBs and represent industries ranging from healthcare to financial services to retail. Many of these firms partner with each other; some of them compete with each other. They have all come together for the good of the US economy.
Three lessons emerged from our discussion. First, we need to more accurately comprehend the scale of the problem facing the SMB community and the speed at which this is occurring; second, we need to better understand what resources are currently available to SMBs and how SMBs might be able to access funding; and third, we need to form a united effort to respond to the limitations of current proposals and to ensure that small businesses can get what they need to survive, quickly.
1: Comprehend the scale of the problem
Proprietary data give a glimpse into the severity of the economic crisis now facing America. Toast, a restaurant software and point-of-sale company, shows that restaurants participating in its #RallyforRestaurants initiative are suffering from daily revenue losses of 70% or more. The growth of delivery and takeout does not seem to be anywhere near strong enough to replace losses from dine-in.
Deputy, a workforce-management firm, observes steep drops in the number of hours being scheduled by managers in the retail industry.
Meanwhile, Homebase, an employee-scheduling tool, finds that about 50% of businesses have shut their doors.
The result is that a growing number of Americans are looking for work. Instawork, an app connecting hospitality businesses with temporary staff, noted that in recent weeks it has seen a surge in people joining its platform.
For any business this would be an enormous challenge. But SMBs are in particular need of help. According to a recent report from the J.P. Morgan Chase Institute, over half of SMBs have fewer than 15 days of cash buffer.[5] And as the data from Toast, Deputy and Homebase suggest, many SMBs risk going out of business fast.
2: Understand what help and support is available
The stimulus package recently signed into law in the US makes available $350 billion to SMBs in the form of loans and grants — the so-called Paycheck Protection Program (or PPP), administered through the Small Business Administration (SBA).
But navigating the support on offer is not easy. SMB owners have lots of questions.
Fortunately, there are more and more resources available to SMBs. Gusto, the people platform, has published a compendium of all available private and governmental resources, including at a state-by-state level. They are updating this regularly. (See the bottom of this post for a full list of available resources.)
In the meantime, businesses which continue to operate need to make sure they are keeping their workers safe. Wonolo, the on-demand staffing solution, is looking at how companies deemed “essential services” can best support their growing workforce during the pandemic. Similarly, Justworks, the small business professional employer organisation, has published advice to employers around how to navigate COVID-19. Faire, the online wholesale marketplace, has created a helpful calculator for retailers trying to estimate business impact. And Convoy, the digital freight brokerage, has created a resource centre for carriers and drivers who are working tirelessly to get vital goods into the communities that need them.
3: Ensure small businesses get what they need
What is clear to us is that more financial assistance will be required. The $350 billion of small-business support accounts is equivalent to about three weeks of output produced by SMBs in the US. So it’s only a short-term fix. And the SBA desperately needs more staff — if half of SMBs apply for help, then each SBA employee will need to deal with over 500 inquiries — and do so while working remotely.
But speed will be just as important as size. Some firms, such as Gusto, are calling for the government to turn to fintech providers to speed up the process of certifying and disbursing financial assistance. The #PayToday campaign is calling for immediate payment of the over $900 billion in receivables still outstanding to SMBs.
What’s next
Generation’s roundtable reinforced one message of optimism — that America’s entrepreneurial spirit is alive and well. Choco, which digitally connects restaurants to their suppliers, noted that many food-service businesses have quickly pivoted to new business models: suppliers which once delivered to restaurants are now going direct-to-consumer; restaurants, conversely, are becoming suppliers of ingredients and exploring other innovative avenues to maintain revenues.
And the recovery will come eventually. The question is what it will look like. All companies at our roundtable shared resources they are leveraging to assess whether the pathway of GDP will be V-shaped, U-shaped or L-shaped. At the moment, no one knows for sure, though data being published on the Chinese economy suggests that a fairly quick bounceback in consumer behaviour is possible.[6]
But to ensure this, we must avoid permanent damage to the capacity of the US economy. That means stopping firms from going bust, and workers from losing their jobs and networks. These resources are a step in that direction.
FURTHER RESOURCES:
*If you are a small business provider and feel your resources would be additive to the below list, please get in touch
Funding & Other Resources
- Gusto’s Resource Hub (including detailed federal, state and private relief funding explanations or see spreadsheet layout)
- Toast’s Resource Center for Restaurants
- Faire’s COVID-19 Retailer Resource
- Convoy’s Coronavirus Resource Center for Carriers
Education & Support for SMB Owners and Managers
- ToastNow helps restaurateurs pivot to digital ordering channels and open new revenue streams
- Instawork discussion on “How to build non-traditional revenue streams” for restaurants and caterers
- Gusto’s Employer’s Guide to Navigating the Coronavirus
- Justwork’s Guide to Navigating COVID-19
- Faire’s COVID-19 Impact Calculator
- Deputy’s Tips for Keeping Your Staff Healthy
- Wonolo’s Supporting your workforce in the time of COVID-19
Calls for Policy Action & Coalition Building
- American Institute of CPAs-led coalition — Advocating the use of payroll processors to quickly distribute governmental funds to SMBs
- #PayToday — Advocating to immediately pay SMBs the over $900bn in receivables currently outstanding
- #RallyforRestaurants — Tools to support your favourite restaurants (restaurants are encouraged to submit their restaurant)
- What our country can do now to support small businesses — OpEd from Gusto’s CEO and COO in Fast Company
- Bail Out Main Street — Request from the Main Street Alliance
- #DebtFreeTaxFree — Initiative to help enable companies to make tax-free payments towards employee student debt
Industry and Company-Level Data
- Toast data on how COVID-19 is affecting restaurants: city view and state view
- Deputy — Deputy Industry Index (daily data on the impact of COVID-19 within key industries of the hourly paid economy)
- Homebase — COVID-19 Impact on US Local Businesses and Hourly Employees
- Homebase — Hourly SMB Worker Survey
Other Relevant Open-Source Data
