May 21, 2020
By Rhett Buttle, Contributor
With unemployment claims topping 36 million, and both manufacturing and retail sales experiencing steep declines, there’s no doubt that America’s economic recovery faces a long road ahead. Last week, Federal Reserve Chairman Jerome Powell delivered a sobering view of the future, noting that “the loss of thousands of small- and medium-sized businesses across the country would destroy the life’s work and family legacy of many business and community leaders and limit the strength of the recovery when it comes.”
The COVID-19 crisis has made clear the central role small businesses play in our daily lives and the extent to which our nation’s economic well-being relies on their financial health. Small businesses are found in every American community. They create jobs and wealth, they enliven our towns, they invigorate our local economies— and poll after poll shows that small business owners are among the most trusted groups in the country. One hundred million people—representing the broad and diverse faces of America—are either small business owners or work for a small business.
Indeed, people of color own more than 11 million businesses, collectively generating more than $1.8 trillion in annual sales. Women-owned businesses generate $1.9 trillion in revenue and are also steady job creators—in the last five years, their total employment rose 8% versus less than 2% for businesses overall. Business ownership is also a proven path to household wealth creation and spending power, which are critical for economic growth. On average, business-owning households earn more than twice the wealth of their wage-earning peers, and this impact is even more pronounced for business owners of color.
As we think about the post-COVID-19 future, we must take advantage of that influence, broad reach and deep community impact. The best way to achieve a recovery for all is to put small businesses and their job-creating, wealth-building power at the center of our recovery efforts. With the right tools, small businesses can help us all rebuild.
But to do that, we must act swiftly. Small businesses are facing an existential crisis and the federal government’s emergency response has been poorly administered. Data released by the U.S. Census Bureau last week showed that 74% of small businesses surveyed have had revenue declines and 41% only have enough cash on hand to maintain business operations for the next month or less.
Tight margins are typical for small businesses, with or without the current crisis. Most don’t have significant cash reserves on hand, meaning even minor disruptions to revenue can force them to shutter. In the face of COVID-19—as big a disruption as most small businesses have experienced—Congress created the Paycheck Protection Program (PPP). But while 75% of small businesses surveyed by the Census Bureau requested assistance through the PPP, only 38% have received it.
Although the PPP loans were designed to help small businesses, the program hasn’t worked as intended. The implementation, particularly in the first round, has skewed toward preferred or established customers of big banks. This leaves out many small businesses that aren’t among traditional lenders’ preferred customer base because their financing needs are considered too small or their businesses too risky.
This gap is more acute in low-income communities and communities of color. Although this is where 43% of small businesses are found, historically they are underserved by big banks. An Inspector General report recently found that the SBA did not direct private lenders to prioritize minority- and female-owned businesses as Congress intended, and a poll released this week by advocacy organizations Color of Change and Unidos US found just 12% of black and Latino small business owners who applied for federal aid received what they had asked for. Forty-one percent said they were denied assistance entirely. Even more concerning, nearly half said they may have to close their doors for good in the next six months.
Even with the best of intentions, this relief package is amounting to a new form of redlining—further widening an already-vast racial wealth gap. After the 2008 housing market crash, it took the nation’s most prosperous zip codes less than five years to replace the jobs lost during the Great Recession. And yet, more than 10 years later, the most distressed communities have yet to recover.
We cannot let history repeat itself—and everyone, from government to business to the philanthropic and financial sectors, has a key role to play. Providing small businesses with the support they need to keep workers on the payroll and adapt their revenue streams will require significant investment. But ultimately, that investment will drive our economic recovery. By bolstering small businesses—particularly those that are traditionally underserved—we can speed our post-pandemic comeback and ensure it’s more equitable than what came before.
If COVID-19 is an unprecedented challenge, it also presents us with an unprecedented opportunity. The opportunity to rethink the rules that govern our economy and leave so many without a safety net in times of crisis. The opportunity to not just bounce back from this crisis—but bounce forward with small business front and center.
Rhett Buttle is the founder of Public Private Strategies, Executive Director of the Small Business Roundtable, Founder of the NextGen Chamber of Commerce, and a Senior Fellow at The Aspen Institute.