It took only 15 days after the coronavirus outbreak was confirmed in the U.S. for Boba Guys, a popular San Francisco bubble tea chain with 400 employees and 17 locations, to shut its doors.
Karen Mills, prior head of the Small Business Administration (SBA), said recently that “20%, even 30%, of small businesses could fail even in a good scenario.” Without immediate support to buffer the cash flows of stalled businesses waiting for the economy to reopen, it is a matter of days until millions begin to shut their doors, driving unemployment up significantly and sending the economy into a tailspin.
A Goldman Sachs survey of 1,500 small businesses found that 96% of owners were already feeling the effects of COVID-19. More than half said their business would not be able to continue operating for more than three months because of the economic stresses caused by the pandemic.
With 47% of the private workforce facing potential layoffs, unemployment could rise rapidly into the double digits, substantially driving down the 45% of GDP that small business represents, and lasting for a substantial, years-long recovery.
The ramifications on employment could drive decreases in spending and substantial repercussions, as 69% of Americans have less than $1,000 in ready savings. Additionally, even 25% of families making $150,000 or more a year live paycheck to paycheck, with one in three having nothing saved for retirement.
The number of new enrollments in unemployment benefits posted the week of March 21 were already five times higher than any week since records have been kept.
In 2009, I participated in the distribution of over $30 billion in Department of Energy stimulus funding. I learned that no matter how motivated administrators are, it is exceedingly difficult to push large amounts of funding into the market in the time frame and fashion needed to save small businesses.
After Hurricane Sandy, a much smaller event in economic terms, it took an average 46 days from completed SBA loan application to approval, then more weeks or months to fund the loans. And only 24% of businesses requesting support were approved. With 27 days of cash available to an average small business, the $349 billion available through the SBA won’t be fast-acting enough.
Think about it as attempting to put out a house fire with a garden hose: There is plenty of water to put out the fire in the pipes, but no possible way for it to get to the fire in time to save the house.
We need rapid deployment of capital from local and national financial institutions supported by the SBA and “immediate need” one-click solutions analogous to PayPal’s business loans, for instant relief until the larger loans can be made.
If small businesses see a 30% bankruptcy rate (18 million businesses) as per Mills’ projections, the U.S. will see unemployment of 14% (18 million jobs) from small businesses alone, as well as a decrease of 13.5% of GDP.
If we lose 18 million small businesses to bankruptcy, there is no future bailout that turns them back on overnight. This could in turn reasonably lead to the worst economic scenario most Americans have seen in their lifetimes, greatly increase wealth inequality and social instability.
The urgency is now, and only now, as we face this unprecedented threat to small businesses.
Jonathan Doochin is CEO of Petaluma, California-based Soligent Holdings Inc.