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How Do We Help Small Business During COVID-19 Crisis?

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The COVID-19 pandemic and accompanying economic crisis have forced this question into immediate consideration.

In many places, restaurants, bars, entertainment venues, and other types of businesses are being ordered to close or shift, where possible, to takeout and delivery only. Foot traffic is falling everywhere. Small, independent, local, and family-owned businesses are posting social media appeals to encourage people to keep supporting them. Some have already closed their doors, ahead of government orders.

At the moment, it seems possible that many small businesses may have to close their doors over the next several weeks. Closures could be temporary; in some cases, they might turn out to be permanent.

National economic discussions often focus on the cash-flow challenges faced by individuals and families. While the much-repeated statistic about American families being unable to cover a $400 emergency expense is not entirely true, it’s nonetheless true that many Americans don’t have a lot of liquidity, especially during a crisis. Hence the calls for stimulus similar to the 2008 financial meltdown.

But as I heard one national policy leader say today: the COVID-19 crisis is showing that many American small businesses have cash-flow issues too and effectively live the equivalent of “paycheck to paycheck.” Sharp declines in consumer demand can easily tip them into the red and, perhaps, failure. While a federal fiscal stimulus for Americans is not a bad idea, it won’t necessarily prompt everyone to go out and spend money at their local barber or hardware store. Social distancing will undermine demand-side stimulus.

Small business challenges will be exacerbated by squeezes on the supply side. With schools closing, more employees will face serious child care challenges. Many businesses may find it difficult to maintain staffing, even if they manage to remain open.

There is little question that big companies need help at this moment. Airlines, for example, are severely hurting and looking for a bailout. Hotels, cruise ships, national foodservice chains, manufacturers, and more may find themselves in line, too. Assistance should, and likely will, be given.

Yet what this all threatens to do—as I heard another national policy leader say—is set up a clash between small business and big companies. In some ways, the current crisis magnifies rifts that have always existed among business interests categorized by employment size.

What Could Be Done?

So if big companies get bailouts and individuals and families receive one-time checks, what might be done for small businesses?

Disaster loans. The Trump administration has proposed to increase the amount of low-interest loans available through the Small Business Administration (SBA). Anything that helps businesses meet payroll, make debt payments, and pay other bills is welcome help. It’s not clear whether the criteria will exclude many businesses in need: will “substantial economic injury as a result” of the pandemic be interpreted narrowly or expansively? Likewise, the “without credit available elsewhere” condition that usually accompanies other SBA programs could be subject to interpretation. Small business owners already say they’re being bombarded with solicitations from predatory lenders—does that count as credit available elsewhere? Any increase in loan availability, moreover, should be made as administratively simple as possible.

Mitigate supply chain disruptions. Similar to increased lending in general, the Hamilton Project has proposed “targeted lending/cushions based on supply chain bottlenecks.” Many small businesses are either facing disruptions in their own supply chains—especially from the impact of COVID-19 in China—or are part of a supply chain facing difficulties from knock-on effects. Helping businesses weather these disruptions could be straightforward and time-limited, especially as China’s economy moves back to normal ahead of the U.S. economy.

Paid leave. According to survey work by the Bipartisan Policy Center (BPC), most businesses with fewer than 50 employees do not provide paid leave of any sort. It’s not for lack of interest: irrespective of political affiliation, there is broad support among small business owners and executives for providing paid leave. It’s expensive and can be difficult to manage when one of your 11 employees is gone for some period of time. The Families First Coronavirus Response Act passed by the House of Representatives, and supported by President Trump, mandates paid leave by employers with fewer than 500 employees and offers tax credits to cover the cost. Waivers are available for businesses with fewer than 50 employees, although there are concerns about what this type of mandate could mean. (At the time of this writing, Senate Minority Leader Chuck Schumer has also promised a bill with assistance for small business.)

Income support. In response to demand shortfalls, many small businesses will respond by reducing hours worked for employees or dismissing them altogether. (Many will intend to rehire them when the crisis passes and the rebound kicks in.) Laid off workers would be eligible for unemployment insurance, and there are varying ideas for how to make that system more responsive to a pandemic. To help businesses avoid layoffs (and all the social and psychological costs they come with), the Heritage Foundation has proposed a new “epidemic tax credit” that functions both as income support and as a way to offer paid leave.

Wage insurance. A similar approach is to help small businesses avoid layoffs by reducing hours and providing support to fill the gap of missing wages. Something like this has been proposed multiple times before, inspired in part by practices in Europe that use “working time accounts” to help employers manage their workforces more flexibly without pushing people onto the unemployment rolls.

Delay tax payments. Many small businesses (and the self-employed) will be making quarterly estimated tax payments in April and June. Those payments will come right when small businesses are in the midst of the liquidity crunch. Delays and abatements for these payments, as suggested by the National Taxpayers Union Foundation, could go a long way in helping mitigate the COVID recession impact.

Payment flexibility. Even if small businesses receive assistance, they may still have trouble meeting obligations such as rent and loan payments. In its support for financial institutions, the federal government could help offer flexibility in how those institutions collect payments from small businesses. Perhaps a COVID-peak forgiveness period, perhaps principal-only payments, or other flexible options could be considered.

Targeted assistance. In past work on entrepreneurship and small business, I always took pains to stress the enormous variety and diversity that is included within broad terms like “small business.” During this crisis, assistance could be targeted to those types of small businesses likely to bear a large brunt of negative impact. One type, for example, is child care providers, as highlighted by BPC. Most of the 675,000 child care providers are family and home-based small businesses. Many are nonprofit and, as such, do not usually qualify for many SBA assistance programs. BPC proposes that this lack of qualification be addressed in any package to help small business.

What Are Your Ideas?

This is a small sample of all the different actions that could be taken to help small businesses. And, of course, there are plenty of challenges being faced by businesses that don’t technically meet the “fewer than 500 employees” threshold of being “small.” Yet they’re also not exactly “big,” operate on razor-thin margins, and can’t offer more than a couple of weeks paid leave to employees. They may need help, too.

So let’s hear it. What are your suggestions?

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