Augusta Chronicle
March 25, 2020
By Frank Knapp Jr.
Small business is in a crisis because of the government’s appropriate actions to contain the COVID-19 from spreading.
Consumer demand has fallen to the floor.
How serious is it?
Goldman Sachs conducted a national survey of small businesses last week and found that about 51% of the owners said that under current conditions they would only be able to “operate for 0-3 months.”
The South Carolina Small Business Chamber of Commerce conducted a poll of its supporters this week and found about 60% saying that, without an infusion of cash, their business would not survive the next three months.
A survey released this week by Businesses for Responsible Tax Reform of its network of small businesses found startling results.
Major survey findings include:
-91% of survey respondents say COVID-19 has directly impacted their business.
-88% of respondents have lost revenue due to the pandemic, with nearly 70% saying they have lost 50% or more of their revenue.
-Of survey respondents whose businesses are in “shelter-in-place” regions, 40% have been forced to close.
-For survey respondents whose businesses are not in shelter-in-place regions, 30% have experienced such sharp drops in customer demand that they have been forced to close.
-For businesses still open, 17% have been forced to lay off employees and 38% have had to cut hours for employees.
-Cash flow is the largest concern for small business owners, with more than 80% of survey respondents saying they face cash flow challenges because of the pandemic.
Small businesses, that are allowed to be open, across the country are cutting costs primarily by reducing worker hours and layoffs. Other costs are harder to reduce, like payments for rent, utilities, insurance, and existing loans.
And with the dramatic increase in unemployment, there is even less money circulating in the economy to help with consumer demand.
Many economists insist that we are already in a recession and no one knows how long it will take to revive the economy when the health crisis eases.
What experience from the recent Great Recession tells us is that it will be small businesses that will lead us out of this recession by creating jobs.
But that won’t happen if we lose small businesses in the next three months at the rate indicated by surveys. Without our small businesses, we will be facing a very long road back, possible years, to a healthy economy.
Fortunately, the U.S. Senate has recognized the need of small businesses for a fast, sufficient, flexible, and non-debt cash infusion to keep alive.
The Senate’s bipartisan $2 trillion stimulus package contains $367 billion for small businesses to obtain loans for operating expenses.
While the specific details of this loan program are not yet available, the general outline received from a Senate office is very encouraging.
Small business owners in operation as of Feb. 15 of this year can apply to SBA approved private lenders for loans of up to 2 ½ times their average monthly payroll. These loans will be 100% backed by the federal government.
Normal loan underwriting, including proof of ability to repay the loan, will be waved and there will be no borrower or lender fees. Checks will hopefully be received by the small business in seven days after a successful application submission.
The loans can be used for any business expense. However, if the money is used for payroll, rent, utilities or interest on a business mortgage; the small business owner will have that part of the loan forgiven making this money essentially a grant.
There will be no loan payments for the first six months. After that, only loan money used for non-forgivable expenses will require loan payments not to exceed 4% interest.
This small business loan program is intended for immediate relief. If this economic crisis goes on for too long, Congress will need to consider approving more assistance to small businesses.
While many have referred to the money in the Senate’s stimulus bill targeted to big corporations as a “bailout,” this infusion of federal dollars to small businesses is not a handout.
It is an investment in keeping people working and getting a regular paycheck instead of a smaller unemployment check. It is an investment in maintaining a more normal local business economy. It is an investment in supporting the emotional and psychological health of our citizens as they worry about the future.
And it is an investment in the essential local small business infrastructure we will need when we turn the corner on this crisis.
The writer is the president and CEO of the South Carolina Small Business Chamber of Commerce and co-chairman of Businesses for Responsible Tax Reform.