Among the many victims of COVID-19, businesses small and large are being ravaged by its impacts. With global demand falling and supply chains being interrupted, there are significant short- and long-term risks to the fabric of our society, economy and country.
While the work of Congress and the Federal Reserve to quickly apply fiscal and monetary stimulus programs are laudable, the small business sector of our country is now in extreme jeopardy, and with it, the ability of our country to successfully recover from the effects of this virus.
The small business sector drives over 40% of U.S. GDP. The owners are the innovative entrepreneurs who invest their time and life savings, working hard with their employees, and creating two-thirds of the net new jobs in our country.
They are the owners of restaurants, the retailers of our motor fuels, the millions of franchisees who work to provide the services that make our lives easier and more convenient, and the list goes on. Maybe most importantly, they also work closely with and support the other 60% of our economy with their business ingenuity and the important services they provide.
A recovering stock market, fueled by the application of trillions of dollars in stimulus and safety net funding, along with initial efforts to safely re-open the economy, are masking a terrible and hidden reality — millions of small business owners, even some who were lucky enough participate in the first Paycheck Protection Program (PPP), are now running out of money.
For the most part, these are privately owned business enterprises with limited, if any, outside investor capital. Currently, many do not have access to additional funds. Their business models are under extreme duress.
Completely appropriate and necessary COVID-driven social distancing and stay-at-home orders that help slow the progress of the virus must continue, as needed. Understandably, this will limit both the access and revenue needed by small businesses.
We need to recognize, that despite our best efforts, these challenging business conditions will continue as we work through the first, and likely subsequent, COVID-19 waves. Gradual and limited business openings, with necessary social distancing, will not be enough to save many of the owners and their dedicated workers from permanent business failure and unemployment. Sadly, we are already seeing many of them on the seemingly endless foodbank lines as they struggle to hold their lives and livelihoods together.
This vital segment of our economy, and the heartbeat of our country, cannot be allowed to fail.
We all want to see our economy return to its previous unprecedented rate of growth, but that cannot and will not be the outcome if we lose the spirit and drive of those who have quietly been making that happen. Time is of the essence. Our thinking must now extend way outside the box.
We all know small business owners personally; it is now time to think about how we save our friends, many of whom are permanently closing their shops right now. Lifting the rules on PPP forgivable expenses and the 8-week restrictive window in which these must occur, payroll tax holidays, making permanent the small business tax relief measures that were enacted in the Tax Cuts and Jobs Act, tax incentives, and tax credits for third-party investment, must all be considered.
The Fed’s Main Street Lending program has been appropriately scaled for an important subset of small businesses, which should ease demand pressure on PPP. Still, the Fed must ensure that small firms are not crowded out of this new fund and eligible small businesses have the same access as larger businesses.
If we think for a moment we can’t afford to do everything necessary to save our small business enterprises, just remember that without this segment returning to its vibrant role, none of the fiscal and monetary stimulus we have put in place, thus far, will get us back on a strong economic growth track. There will be an economic chasm. Small businesses touch every aspect of our economy, their owners take a risk when they start their businesses and every day of their working lives.
If we fail to recognize the critical role of small business in the success of our economic recovery, and do not act boldly right now, that lack of action will be etched on a small business tombstone, as a stark reminder of that failure for generations to come.
Michael J. Roman is a non-resident senior fellow at the American Council for Capital Formation and president of CertainPoint Strategies LLC.