covid-19 impact on small business essay

covid-19 impact on small business essay

Analyzing the Impact of COVID-19 on Small Businesses

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1. Introduction to the Study

Small businesses represent great economic importance for the country, responsible for generating jobs and income. However, with the beginning of the pandemic, many lost their sources of income and were forced to close. The situation was aggravated due to the lack of clear and objective measures to maintain or recover fees. Thus, it was chosen as the research question to identify the main forms of impact in the universe of small businesses and if it was possible to identify support measures for this segment. As a data collection method, the Snowball search was adopted, in order to minimize costs and facilitate meeting respondents. 31 questionnaires were applied, in addition to consulting public databases. The results revealed that the main impacts were the decrease in revenues and that some companies managed to take out resources from other branches or laid off employees. In addition, there were no clear measures on the part of the government for support.

2. Challenges Faced by Small Businesses During the Pandemic

The study found three broad categories of problems being faced by small businesses in the pandemic: maintaining employees, keeping operations open, and a wide variety of other financial and personal problems. More specifically, with “employee retention” being defined as businesses seeking to maintain their full-time in-person staff, the study found that establishments are worried about layoffs or having to close. The study also discussed the obstacles of keeping operations open and not being able to open even when demand exists. Lastly, the study showed that small businesses financed their operations with savings or business income and personal investments. The most frequent personal and financial needs are emotional and mental health assistance, financial assistance, food assistance, and general business advice. Small businesses also appeared to be most at risk in the near future due to their low levels of social capital and overall business health prior to COVID onset and due to their size.

Small businesses are facing a myriad of challenges during the COVID-19 pandemic. Recently, ISB and Facebook partnered up to conduct a survey to understand the obstacles small businesses are facing. The survey, conducted throughout April 2020, captured the voice of more than 86,000 small business owners over 11 countries. The survey provided strong evidence of the global nature of the difficulties small businesses are experiencing. Small businesses across the globe are expected to lay off workers in the coming months, with more impactful layoffs expected in countries where greater numbers of businesses are set to close. Regardless of the country, two common key themes observed are that small businesses have limited financial resources and that they are not likely to recover in the event of closing. The main source of revenue for small businesses in the month of February 2020 was in-person sales (brick and mortar stores).

3. Government Support and Interventions

We next estimate regressions on the use of government support. In particular, the dependent variable in the OLS regression is equal to one if a small business i has used any form of government support and zero otherwise. The key independent variable of interest is the log of the age of the business. As we visually demonstrate, allowing a flexible non-linear age effect in our figures, the older businesses have higher levels of government support use. Our results with disposition towards the use of government support are consistent whether we use the returned weighted or fully weighted data. Conversely, we find that older business owners are significantly less likely to have used government support, which contradicts what OLS would have indicated. We also find that minority and female-owned businesses and those with high levels of government support use prior to COVID-19 (as measured by profits) are more favorably disposed towards subsequent government support. Overall, replicating our previous empirical findings, we find that businesses who happen to be in ‘good standing’ with the government receive more support.

The unprecedented effects of COVID-19 have led governments around the world to implement a suite of measures to assist small businesses. This section outlines the various forms of government support available to small businesses during the pandemic, as well as the responses of small business owners and their perspectives on such interventions. In general, we find that small business owners make extensive use of government support. To summarize our findings, Figure 1 shows whether a small business has used any form of government support by firm size. As we can see, larger firms are much more likely than smaller firms to use government support, including the PPP, exceptional tax refunds, or the Economic Injury Disaster Loan (EIDL) program.

4. Adapting to the New Normal: Strategies for Small Business Survival

The first step to surviving the crisis is to be clear about which type of trajectory a small business leader wants to put his or her company on. Is the focus on survival or is the leader also looking out for growth? Based on the answer to that question, primary activities should be adjusted. Some ideas to consider include amplifying your short-term efforts on health, safety, and ensuring business continuity. Identifying morale improvement programs that will boost employee spirits may also be a priority. Provide your employees support with their physical, mental, and financial well-being. Upgrading your skills in communication, decision-making processes, scenario planning, and stakeholder mapping can also be good strategies.

Even at the best of times, running a small business is challenging. But in the middle of a pandemic, the challenge is exponentially greater. It’s the small businesses usually hardest hit. The devastating effects of this crisis have not been borne equally across companies. Fortunately, small businesses are just that – small. This means companies have the flexibility to quickly test and implement creative new solutions, and can rapidly communicate with employees and other stakeholders. Moreover, smaller companies are not bogged down in hundreds of pages of convoluted policies and can get right to the heart of the matter.

5. Conclusion and Future Outlook

There are several important questions to be addressed, which are left to future studies. First, we find a very large jump in business exits after the PPP on May 1, 2021. The exits are disproportionately businesses younger than 2 years, 1 year, and 6 months, which indicates a large number of failed entrepreneurial experiences arising from the COVID-19 pandemic. Future studies are needed to look into the reasons behind these large exits and how these small businesses were hit disproportionately by the pandemic. Second, our second study reports that the support of temporary government policies is not unconditional. More generous PPP loans need to be accompanied by sufficient business demand for products, largely influenced by local demand shock, for the loans to translate the benefits to business reopening and employment. This calls for potential further government intervention to stimulate demand. Future research also quantifies how business size and industry types can play a role in generating loan repayment benefits, particularly for unsuccessful high-impact small businesses. It also evaluates how a combined policy, such as PPP and direct payment to households, can generate a synergistic recovery effect. Finally, to ensure a fast recovery, policymakers should start thinking about how to deal with the 4 million affected small businesses that were not surveyed in the SUSB dataset.

During the crisis, PPP loans provided much-needed liquidity to millions of businesses. We find that more generous PPP loans enable higher earnings for male business owners in goods-producing industries, while other benefits of PPP loans (net business reopening and employment) are relatively evenly distributed among various business subgroups. We also find that the Entry-PPP2 Policy exerts a significant positive impact on business reopening; the policy enables 7% or 20% more businesses to reopen, and these businesses are operated by white men. Such disproportionate benefits could come from the fact that business owners operate more profitable businesses which are more likely to repay the loans when they are provided with more generous funds. As a result, they can reopen and survive to obtain benefits from the policy. It is also possible that because of the lack of experience during the first wave, these subgroups disproportionately rely on government assistance to recover and reopen. In contrast, lack of government support does not play a key role in businesses’ decision of temporary closure. Providing government loans appears to be a more effective way to support small businesses survive during the crisis.

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