COVID-19 Impact on Small Business Could Be Devastating

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COVID-19 Impact on Small Business Could Be Devastating

Published: Monday, April 20th, 2020 @ 8:00 am
By: John Locke Foundation ( More Entries )

Charles Fain Lehman of the Washington Free Beacon explores the coronavirus pandemic's crushing blow to an important segment of the American economy.

The novel coronavirus and concurrent nationwide lockdown could see the closure of as many as two in three of America's small businesses, a new survey finds.
Four in 10 small businesses have already temporarily closed due to coronavirus, the survey finds, with many expecting permanent closures in the coming months if the states' lockdowns drag on. Restaurants and entertainment venues expect to be particularly hard hit, with most deeply pessimistic about their ability to come back from a shutdown of more than a few months.
These results are just the latest grim news for an economy battered by SARS-CoV-2, including unemployment at levels unseen since the Great Depression. The particularly dark outlook for small businesses, however, heralds a bigger shift, as their collapse may allow larger firms to further consolidate economic influence.
The survey, conducted by a group of academic economists, covered over 5,800 small businesses-those with 500 or fewer employees-across the United States. Many of those firms have already closed or are shedding workers, with respondents reporting a 40 percent average reduction in payroll as compared with Jan. 31.
That shedding is likely to continue at least through the duration of the crisis, as small business owners report major concerns with both lessened demand and fears for the health of their employees. Many also do not have adequate cash reserves to weather a crisis: One in four do not have enough cash on hand to cover one month's expenses, while one in two could only cover one to two months.
"These limited levels of cash on hand readily explain why layoffs and shutdowns have been so prevalent," the paper notes. "Absent these actions, it is hard to understand how these firms could have met payroll."

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