Issues & Insights

Small Businesses Are Almost Out Of Time, And It Matters To All Of Us

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.

With an average daily income of only $7 above daily expenses, the typical small business has a median cash buffer of 27 days of burn before it runs out of money.

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. 

Small businesses make up over 99.9% of businesses, employ about 59 million people (about 47% of the U.S. private workforce in 2015), create over 41% of new jobs, and account for 45% of GDP.

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.

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  • Yesterday was the application date for the small business loans/grants, and it`s a disaster. The banks have no infrastructure to process the applications and no conduit to receive the money.
    The bank told us they can only give the actual amount of payroll for 8 weeks, not the 2.5X the media was reporting. They said they will run out of money if they do. Now I hear the term “first come first served” line which wasn`t prevalent in the roll out.

    By the time these businesses get their loan they will be long gone.

    • It’s not meant to save the business anyway, as 75% must go to pay employees. Rent and other overhead can only account for 25%. The implication is that the bill is solely intended to keep employees paid, and nevermind the fact the business itself will go under. I’m talking about the forgiven part BTW, not loans. I don’t know what good a loan is, since it’ll just push the bankruptcy further into the future.

  • On top of the fact that small business formation had been declining for two decades. The loss of jobs, wealth and opportunity will also accelerate the plunge in marriage. The coronavirus response is a disaster of epic proportions.

      • The CDC acted in mid-January, before the Chinese even revealed the virulence, morbidity and mortality rate of the virus. Trump formed a task force in late January and then instituted a less-than-complete, as it turns out, travel ban days later.

        The CDC and FDA acted in time on the tests but screwed them up.

        Timing wasn’t the issue. It was and is a combination of:
        -Chinese lying and duplicity
        -CDC and FDA turf-protecting and bumbling, resulting in a lack of reliable information on the virulence, spread and severity of the virus
        -Letting the epidemiologists run the country, forcing an overreaction and shutdown, instead of focusing isolation on the most vulnerable

        As bad as the first two were, the last is by far the most damaging for the long term.

  • Scary. Soligent Holdings and other non-government financial institutions should jump in and provide the “Paypal” type service for small businesses. If small business doesn’t survive there may be no “Soligent Holdings.”

  • I haven’t heard of many government jobs being furloughed. A few counties have furloughed workers. I think there will be smart small business owners with no money and worthless 401k’s and employed government workers with guaranteed pensions. This will divide the country.
    If the minimum wage is raised, as proposed for the next stimulus bill, anyone with savings will suffer from inflation. An increase in minimum wage will give government workers and union workers a raise as their contracts are tied to the minimum wage.
    In Houston the layoffs are coming and they are not virus related. The oil price will hurt many jobs. This will slow recovery because no one will want to buy anything that isn’t essential.
    The country will come out of this with a lesson on savings and rainy day funds or they will come out of it with the lesson that we need basic income and government. Unfortunately they will not blame the government for the mess.

    • The very last sentence of this response is so apt. This fiasco is, in every sense, being engineered, manufactured, contrived by government at all levels, from president down to local dogcatcher. And aside from the obvious societal and economic breakdown, we don’t even know if the chosen path will actually produce satisfactory results, let alone take us toward a recovery path. Epidemiologists are in charge, several of them venerated by the general public, making their best educated guesses on appropriate policy recommendations (and admitting that these are guesses). I have supported President Trump since he first appeared as a presidential candidate in 2015, and doubt that anyone else would know better how to steer the nation through this escapade without destroying us. But to deliberately destroy the economy is, at both micro and macro levels, reckless folly.

    • It is not “the government” which failed us it is those in charge of government who failed us and now will have many if us dead.

  • This is a grim prediction. Maybe the $500 billion for small businesses shouldn’t be distributed. If it isn’t enough, can we afford what is enough?

    • It’s enough. Trump, the Congress and the Fed learned from 2008: go big, go fast.

      Last time aid was given in 2008, didn’t work, then 2009, didn’t work, then 2010, didn’t work, then 2011. Then they just went home and said ‘new normal’. The Fed’s initial Coronavirus ‘aid’ of 4 trillion is what the Fed gave in the housing crisis in four ‘shots’ over 3 years.

  • The only silver lining I see is that, as a student of history, I get a front row seat to watch the suicide of a civilization. Maybe I’ll write a book and be remembered by history as the chronicler of the End of Western Civilization.

  • So media and Dems couldn’t “get Trump” with Russia, Ukraine, impeachment, etal. So now they try with his response to virus, but he foiled them with his leadership there. But, but, just maybe they can somehow blame him for the recession that will follow.

      • Do you know how to read??? 6536 people have died in USA as of April 3. That is NOT thousands per day. Over 80% of these people had compromised immune systems, the common flu (for which there is a vaccine has killed approximately 29,000 people since start of flu season last October. Tens of millions of people have or will lose their livelihoods, families will be destroyed while you are whining about exaggerated death projections. Educate yourself before you start spewing more lies…or do you want the economy to collapse?

  • My family patronizes a small physical therapist firm, a small autism educational firm and a small chiropractic office. Each one sent us a message that they were getting these loans and would be ready for us because they can keep their very highly trained staff with their firms. But I work for a big company whose revenues got just as upended and may be unemployed by Easter. Not sure how it works if it isn’t the small business owner and employees that are the hard point here but their customers, many of whom are big business employees. If you think big businesses can just “weather the storm” and incur millions in weekly losses, we’ll you would be wrong there.

  • We lost too much time since January third when Trump was informed about the seriousness of this disease.

    Tens of thousands of us will die now for that error.

  • The Kennedy Center gets a $25 million gift, small businesses get to borrow money, maybe. If you borrow money to pay employees to stay home or come in and not work, then your business is already doomed to failure. This was Congress’ gift to the banks. Smart small businesses won’t get suckered in to taking on debt and will let unemployment have those workers.

    If they want to really help small businesses, then they should make available grants instead of loans. These grants should cover three months of operating expenses. Even with that, the businesses still have zero profit, but at least most of them could survive with that.

  • It isn’t just small business for which we should worry, the large ones too are susceptible to losing valuable operational members to this disease. No power? New York had the operators of their power systems live in the buildings on premises so they could not get infected by others.

    I have added another 2.2 kW to our PV system. Things could get scary, but we have arranged in our neighborhood to get through it because we already live in earthquake country in Northern California.

  • I think we can help small businesses by using them with cut-outs, deliveries, and choosing them over the big guys. We added some PV panels to the system and used a local guy with two employees, practiced separation and the disinfecting of touched items. When we can get tested for the virus and/or antibodies, we can then use those folk to do the work while the rest get tested and separated.

  • Biggest problem is Mnuchin and his SBA director. Neither would know a small business if it fell on them. Scalia at Labor is as bad. Solution is simple outsourcing the aid distribution to a small business person. Problem solved. Trump fan here, but relyin scum swamp creatures from DC is insane

  • Fact: The economy runs on a capitalistic model.
    Fact: Businesses come and go
    Fact: The strong survive

    “With an average daily income of only $7 above daily expenses, the typical small business has a median cash buffer of 27 days of burn before it runs out of money.”

    What kind of BS statement is that? If any business person only has $7.00 per day after costs then they shouldn’t be in business or 27 days of cash. Perhaps you report the story correctly.

    In order to run a business you need emergency money put aside for unknown costs such as repairs, etc… So while this story they say they have $7.00 left after expenses why not tell the truth instead of trying a sky is falling scenario.

    When you do a budget one of your expenses should be a percentage to an emergency fund, and let’s not forget this is AFTER expenses meaning the owners have taken their salary already which could be anything from $1.00 to thousands of dollars per month, we don’t know because it was it reported.

    Well guess what, I have $0.00 left over per month because my family does a zero based budget where every dollar is allocated for something.

    Aside from all of that, let’s be realistic, if someone’s business fails then they shouldn’t be in business anyway and as usual someone else will come along and replace them.

    If a restaurant closes, another will take it’s place, maybe not in the same location but we will never be out of restaurants.

    So while many have to close during this current crisis, let’s not act like they will never come back, many will come back and for those that don’t, if there is a need in a particular business sector someone will come along and open a business to fill the need. They always have and always will.

  • We had to survive 3 + months without electricity after Hurricane María. Many small busineses went under, other entrepreneurs moved out of state and then, a year later, it was like spring. New businesses started to flourish where the closed ones were. It was tough to watch, but we survived.

  • Seems to me the government could just get its boot off the economy? That would be a way cheaper solution.

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