Small Businesses Are the Lifeblood of the Economy — Don’t Let Them Fall Out of the Recovery Conversation
At the family-owned bodega across the street from my Upper East Side apartment, the mother works the cash register and the father and son stock the shelves. They also employ a flower saleswoman who sits under the awning outside. After school lets out, her daughter sits next to her, smiling and creating beautiful bouquets.
That bodega is now closed, and so is Fashion Nails, the salon next door. The owner Juliet (her Americanized name) gave me an air hug on her last day in business. Her shoulders shrugged when she said, “Maybe I will see you again.” I replied, “Of course you will,” as her eyes watered. “I don’t know how long I can pay rent without working,” she told me. Her daughter hugged her as she took the protective mask off her face to say, “We’ll be OK, Ma.”
Will these business owners be OK? Will they receive relief funds in time to be able to open their doors once more? Will I ever see Juliet or the family behind the counter at the bodega again? Will Juliet’s daughter be able to take over Fashion Nails one day and follow through on a dream to open a new location on the West Side? What about the five women whom Juliet employs? How will they feed their families?
Lives and Livelihoods Are Intertwined
A large part of our lives is our livelihoods — they take up a good portion of our time and are ingrained in our identities. For small business owners like the ones in my neighborhood, their livelihoods are ingrained even deeper in who they are. They not only have a financial stake in their businesses, but also a personal one. This personal connection may be even deeper for those whose businesses have been in their families for generations.
In the U.S., the conversation around the coronavirus pandemic has been rightly focused on saving lives. Conversely, a lot of focus has also rightly been placed on minimizing damage to the economy, and getting it back on track once this crisis has ended. Much of this talk is around the stock market, but the major indexes don’t tell the story of the American economy like small businesses do. Small business recovery needs a more prominent place in this discussion.
What would it mean for many small businesses to be eradicated because of this crisis? There are obvious economic implications: small businesses employ a large swath of the American population, and without those jobs, many individuals find themselves in a dire situation. This is already playing out as businesses have been forced to lay off staff and almost 10 million people filed for unemployment in the last two weeks of March.
On an individual level, closing shop means a small business owner can’t support themselves or their families, and they can’t pay for things like childcare or college tuition. Closing shop also means a family business can’t be passed down to the next generation. When you zoom out, those individual losses will result in towns and cities looking drastically different in the future. Unfortunately, that means losing important lifelines to our communities, and to each other.
The Backbone of America
According to the SBA, small businesses are the macroeconomy’s backbone. There are around 30 million small businesses across the country, accounting for 99% of all business establishments in the U.S. These businesses are responsible for more than 41% of net job creation, 45% of GDP and 34% of all U.S. exports.
With much of the U.S. population under orders to remain at home, many of these businesses can’t operate. Data from software and business-services provider Womply cited by The Wall Street Journal “shows that in the week ended March 25, sales at bars and lounges were down 52% from a year earlier, restaurant sales were down 59%, and at hotels and other lodging places, revenue was down 78%.” Without financial assistance, many businesses will be forced to close forever.
Although the number of days businesses can survive without revenue varies widely, on average most businesses could survive no more than 27 days, according to a JP Morgan Chase study, while smaller storefronts would only last up to 10 days. The study found that median small businesses hold an average daily cash balance of $12,100, but a small business in the personal services industry holds a mere $5,300 on average. All small businesses spend an average of $374 each day while bringing in an average of only $381 daily during normal business conditions.
We know that whatever the economic recovery looks like, investing in small businesses will pay off. According to an NDP Analytics study, from 2015 to 2017, five major online lenders funded nearly $10 billion to approximately 180,000 small businesses in urban and rural communities across America. These businesses went on to generate $23 billion in sales from that funding. Additionally, the same businesses “generated $37.7 billion in gross output and created 358,911 jobs with $12.6 billion wages in the local economies of the small business borrowers.”
Support for Small Businesses
Congress has apportioned $350 billion in loans with just 1% interest for small businesses, and for those who keep their employees on payrolls for two months, loans will be forgiven. More funds have been proposed. But if the process isn’t expedited, the distribution of these funds may come too late. Owners need immediate access to capital to survive and will also need greater access to capital to eventually regain a foothold.
Business owners faced a crippling loss of access to capital during the last major financial crisis, the Great Recession of 2008 when banks closed off lines of credit and didn’t provide loans to small businesses. We should not let this history repeat.
According to research from the Economic Innovation Group, states with higher scores of dynamism, where businesses and jobs are created, tend to be more resilient to economic trauma. “Entrepreneurs and small businesses must remain front and center throughout if the economy that emerges from this crisis is to be more dynamic and opportunity-rich than the one that went into it,” the group recently said.
Supporting small business is not only about supporting the economy — it’s also about supporting lives. We must protect them at all costs, and I’m confident that we as Americans will do so. We are a country of strong-willed, compassionate people. More than ever during this crisis, we need to start displaying that. We need to be accepting and open-minded. We won’t emerge from this downturn by vilifying each other, but by having an inclusive mindset of protecting both lives and livelihoods. Main Street businesses like my local bodega and nail salon show us that now, more than ever, lives and livelihoods go hand in hand.
