In the days after March 11, when the World Health Organization first declared the novel coronavirus a pandemic, Americans began to experience small changes to their daily routine. Events were postponed. Schools, colleges, and universities extended their spring breaks. People were asked to practice social distancing. Businesses were asked to limit crowd sizes to 10 or fewer people.
In the weeks following the declaration state government officials began imposing more drastic measures. Postponed became canceled. Extended spring break became online-only education. Social distancing became stay-at-home orders. Ten or fewer became temporarily closed.
Those impacted by the changes are asking the largely rhetorical question, “how long?” For small business owners, the absence of an answer to this question may ultimately be disastrous.
“What impacts small businesses is the same thing that impacts the broader economy – uncertainty,” explained Richard Hunt, assistant professor in the Department of Management. “The only thing worse than bad news is uncertainty. Right now, we are in a complete state of uncertainty.”
As Hunt explained, the idiom “no news is good news” does not extend to the business world.
“The reason bad news is preferable to no news is that knowing helps businesses plan for the future. Should a business order inventory, claim insurance, etc. In the current situation, businesses can’t make decisions, and that is the crusher.”
According to Hunt, even though many businesses are working at reduced hours, if not closed altogether, it does not mean that their bills aren’t still coming due.
“Most of America runs on credit,” he explained. “A business will always have payables on the books – payroll, insurance, rent, etc. – even when the business is closed.” With little to no revenue coming in, that spells disaster for many of the country’s small businesses.
“In a bad month, a business will have a 10-15 percent decline, not a decline to zero,” Hunt said. “Going to zero is like being suffocated. The sad reality of this situation is that many of the businesses will not reopen again. The cost to reopen won’t be worth it.”
He continued, “This virus is like a typhoon that leaves nothing standing in its wake.”
Joe Simpson, an assistant professor in the Department of Management, said that the time for small businesses to prepare for this crisis has already passed – if it was even possible to prepare for a crisis of this magnitude.
“The best thing a company can have right now is lots of financial reserves – the more the better – to help mitigate the shock,” added Simpson. “Unfortunately, no one can prepare for something of this scale. This has obviously hit harder than the Great Recession (2007-09). Consumers can’t get out en masse and companies can’t operate. During the Great Recession, people could still go out and spend money.”
What can the average person do to help ensure that their favorite small business does not disappear forever? Not much, according to Simpson.
“The best way to help is by buying locally, but even that may not be enough,” he said. “There needs to be government intervention to help keep businesses going. Unfortunately, the current loan solutions won’t be enough.”
The “loan solution” Simpson referred to are the loans associated with the $2 trillion economic stimulus package recently approved by Congress. Around $350 billion of the stimulus package is earmarked for small business loans, many of which have the potential to be 100 percent forgivable.
According to Hunt, however, the loan process itself may end up taking too long to prove effective.
“The problem behind a small business going through the loan application process to continue to operate is time,” Hunt explained. “There will be a flood of applications for these loans, and the education involved in the process could push the timeline for receiving the money to three or four months.
“By the time they get the medicine to the patient, the patient will be dead and buried.”
Hunt continued, “For now, we need to find a tourniquet to stop the bleeding. Businesses need to figure out how long they can continue to do business, how long they can keep payroll as is.”
While current circumstances are dire, Simpson and Hunt point out that our nation will persevere.
“Our needs won’t change, therefore, those willing to take the risk upon their shoulders will capitalize on the voids,” Hunt said. “This will open the door for entrepreneurs. With the closings of mid-sized businesses, there will be openings for small businesses, whose success may then be fast-tracked.”
Simpson added that the innovations businesses are now developing to survive may prove to be fruitful once the crisis abates.
“Companies are needing to rethink their business models to survive,” he said. “The positive that could come of this is that businesses could rethink ways to provide their products.”
Hunt added, “The recovery will be difficult. Although, no one does it better than the United States.”
– Jeremy Norman