How Congress can flatten the curve for small business | TheHill - The Hill

How Congress can flatten the curve for small business | TheHill - The Hill

How Congress can flatten the curve for small business | TheHill - The Hill

Posted: 28 Mar 2020 12:00 PM PDT

We've all come to learn the imperative of "flattening the curve" in recent weeks — slowing the spread of the coronavirus to avoid overwhelming our healthcare system. While the concept derives from epidemiology, the present effort to rescue our nation's small businesses can benefit from its insight.

Every empty sidewalk makes clear that the coronavirus has foisted a massive spike of losses onto small firms nationwide. Congress has recognized the scale of the challenge, authorizing a new $367 billion small business loan program. Yet, as structured, the businesses that most need help may be least able to participate.

The recently passed stimulus offers a heavily discounted loan to nearly every small business in the country. But there's a catch: The business must first find a bank willing to lend it the money. For firms fortunate to remain steady through the crisis, this will be a welcome boost. For those businesses that have been forced to shutter, it's an awfully tough assignment.


Flattening the curve would suggest we pursue an additional approach — providing rapid, intensive care to save companies on the precipice today, even as we extend broader stimulus to others. Of the nation's 6 million small businesses, a sector analysis indicates that slightly less than half will need to curtail much or all of their operations in a shutdown. These include firms in the most visibly affected industries such as restaurants, retailing, and tourism, as well as related fields such as distribution and manufacturing if production is impeded. The aggregate effect is enormous — in 2017, small businesses in these sectors employed 30 million people with a payroll exceeding $1.2 trillion.

But not all small businesses will close their doors, and not all are on the brink. Lawyers, accountants, and most other professional firms continue to operate, albeit remotely. Demand for veterinary clinics and auto repair shops endures. And, while it would be no one's wish, some firms focused on healthcare and basic goods may see growth. Firms like these comprise the other half of small businesses. They are no doubt pressured by this crisis, but they remain profitable and do not face the imminent peril of their peers.

Fortunately, there is a near-term, straightforward solution.

In addition to the stimulus bill, Congress should separately authorize a tax rebate for small businesses equal to the losses they incur this quarter, payable immediately and continuing in subsequent quarters as needed. For businesses that are closed and unable to generate revenues, this cash rebate will enable them to continue to pay their employees and expenses. For those businesses that have seen more modest impacts, the amount will be proportionately less. At the end of the year, if the business has returned to profitability, the government can recoup the difference.

To be effective, these payments must carry robust guardrails. The total rebate amount should be limited to the income taxes paid by a business (or for a passthrough or new entity, its owners) over a historical period, say 10 years. Those businesses that are structurally unprofitable or have avoided their prior tax obligations would need to find help elsewhere. Rebates covering the compensation of owners and other highly-paid employees should be capped at a reasonable amount, as should increases in a firm's overall cost structure. And, consistent with the current plan, companies should be required to maintain their payrolls throughout.


Businesses that incur losses because they are shuttered generally need to replace those funds with equity, which a tax rebate provides. Based on industry-level data compiled by the Risk Management Association, companies in the most likely-affected sectors maintain profit margins averaging 8 percent of revenues. Put another way, a single month's expenses are roughly equivalent to a full year of earnings for these firms. The current stimulus includes partial loan forgiveness for two months of payroll. A tax rebate would be complementary — firms also have overhead and existing loans to pay, and many will take more time to recover. As well, because the rebate would apply only to losses, the two programs could work in tandem. By contrast, adding more debt that amounts to years worth of earnings creates an unsustainable burden.

Many small businesses struggled to obtain bank financing before the current crisis. Even fewer will qualify now that their condition is more tenuous. While the government has said it will guarantee these new loans, lenders know that such guarantees are contingent and the government may later refuse to pay in full (an event euphemistically called "repairing" the guarantee). In addition, because the proposed loan forgiveness is both partial and conditional, banks cannot calculate upfront how much debt the business will ultimately carry. With these uncertainties, lenders may well focus their efforts on the safest bets, rather than those firms most in need of assistance.

Moreover, the loan program's complex structure — with its mixture of guarantees, conditional forgiveness, and third-party origination — will take time to implement. The loan program's infrastructure rests on an existing Small Business Administration program, known as "7(a)", that is well-regarded, though operates at a fraction of the contemplated scale. In 2019, the 7(a) program processed an average of $2 billion in loans per month. Published 7(a) program data shows that 70 percent of banks in the country made no 7(a) loans at all last year; of the banks that did, half made less than five loans each. Most banks do not have systems in place to verify employer payrolls as the loan program requires, or to calculate loan forgiveness based on these amounts. Even with added capacity, borrowers with urgent cash needs may find themselves caught in lengthy queues — possibly for longer than they can afford to wait.

Flattening the curve isn't about curing the disease, it's about limiting the initial damage to improve overall survival. Government-backed loans are a critical component of a broader economic stimulus, and banks have an essential role to play. But loans, even if discounted, will not resuscitate many companies forced to close through no fault of their own. Offering small businesses direct relief through cash refunds provides them with what they need right now — a flattened financial curve that allows them to persevere today through to a brighter recovery tomorrow.

Jason Tepperman served as the Director of the U.S. Treasury's Small Business Lending Fund from 2010 to 2014. He currently is Managing Director of PLC Fund Advisors, LLC, a specialized small business lender. He holds an MBA with Distinction from Harvard Business School and a bachelors with honors in computer science and ethics, politics, & economics from Yale University.

How businesses are adapting to a coronavirus pandemic economy - ABC News

Posted: 29 Mar 2020 06:04 AM PDT

In just a few weeks, the novel coronavirus outbreak has changed the way thousands of companies operate in an unprecedented manner. As business owners and employees navigate the new normal, here are some of the ways they have adapted to stay operating amid a global pandemic.

The COVID-19 outbreak has delivered an indiscriminate blow to businesses as everything from small restaurants to multinational corporations have been forced to change how they do work amid a series of shutdown orders to help stem the tide of the virus. They have also had to implement these massive organizational changes in just a matter of weeks to attempt to stay afloat -- with many companies shifting to full-scale working from home plans and others going all in on delivery.

"I've done a couple of webinars with groups of companies. As of about a week and a half ago they weren't doing anything, there wasn't anything different," Peter Cappelli, a professor of management at the Wharton School of the University of Pennsylvania, and the director of Wharton's Center for Human Resources, told ABC News.

While many companies have adapted to the new realities of a pandemic economy, Cappelli predicts, "the big test will come when it goes on for more than a couple of weeks."

Some industries, like airlines, have not been able to find their footing as ridership has plummeted amid the crisis, leading them to project massive losses. And millions of workers have already filed for unemployment, even as companies scramble to hire workers to accommodate the new realities of the socially distanced and increasingly delivery economy.

"Right now, I think companies are getting a lot out of the good citizenship of their employees," he added.

Moreover, in recent months, Cappelli said there has been a shift in the way employers regard their workers, and it has been in vogue for business leaders to refer to employees as "stakeholders" not just workers. Cappelli predicts this health crisis is one of the first obstacles to put that to the test.

So far, "we've seen more companies carrying employees for longer than expected if this had been a financial downturn versus a health-related one," he said.

Teleworking takes over everything from meetings to yoga classes

Social-distancing measures and government-mandated stay-in-place orders have led to entire companies moving their workforce to working from home, leading to a skyrocketing demand for video conferencing software such as Zoom.

"The world is not going to be the same as it was in December," Janine Pelosi, Zoom's chief marketing officer, told ABC News. "Where that levels out, none of us really know. But working remotely, and using video conferencing, is not going to go away. If anything, I think it will speed up the adoption of these technologies."

In addition to being used for meetings, workers in the health and fitness sector have also used the software to stream live workout or yoga classes. Teachers have also turned to the platform for remote learning lessons.

Amy Smith, a yoga instructor at Laughing Buddha Hot Yoga in West Deptford, New Jersey, said she is doing live, online yoga classes seven days a week amid the outbreak.

"I do them on Zoom then upload them on YouTube then link them to MINDBODY to get to as many platforms as we can get on," she told local ABC News affiliate WPVI.

While she expressed worry for the fate of her business, she said she is currently doing her classes online for free.

"I will not charge for this and I want people to have access to this now more than ever," Smith said. "People don't have money to do yoga, they may be struggling to get money for dinner."

Pelosi said she has heard of the platform being used "for weddings, funerals and bar mitzvahs" in the aftermath of many "shelter-in-place" ordinances.

Restaurants and delivery

The same new directives that are forcing thousands to work from home have led to a sharp uptick in demand for delivery services, especially in the food and grocery sector.

While the coronavirus-induced economic crisis has led to skyrocketing unemployment numbers, we've seen "delivery companies booming," Cappelli said. Many also announced they are hiring hundreds of thousands of workers while other companies are facing mass lay-offs.

Instacart announced late last week it plans to hire a whopping 300,000 additional full-time shoppers over the next three months to meet the increased demand.

Amazon similarly said it will hire 100,000 full and part-time positions at fulfillment centers and delivery networks across the U.S. Pizza delivery giants Pizza Hut, Domino's and Papa John's also said they are hiring.

A handful of places including New York City have also mandated restaurants and other gathering-places such as bars only do take-out services for the time being.

Dawn Kelly, a small-business owner who runs the Nourish Spot restaurant in Queens, said everything about how they do business has changed amid the outbreak.

"I'm not letting people in," she told ABC News. "We're serving people pretty much at the door."

"We keep the door locked, we go to the door and we give them their food from behind the door with gloves on," she added. "Same thing with our delivery app drivers, we're not letting them in, they are showing us their phone through the window."

Photos of business across the country setting out social distancing rules for takeout customers with signs or chalk have also inundated social media.

It's not just in urban areas. In western Pennsylvania, demand for a delivery "milkman" has come back, according to one local dairy farmer.

"It's been a crazy uptick in interest," said Jeff Brunton, of Brunton Dairy in Aliquippa, Pennsylvania, told local ABC News affiliate WTAE, describing the new demand as "like a tidal wave."

"It allows you to stay in-home or in your neighborhood, and not have to worry about being amongst the crowds and touching dirty shopping carts," he added.

He said he even teamed up with other local businesses to help deliver beef, bacon, butter and more as social-distancing becomes the norm.

Grocery and retail

As grocery and retail stores also adjust to the new reality, some have also made major changes amid the health crisis.

Dollar General, Target, Walmart, Whole Foods and more have announced special hours for older shoppers, the most at-risk group to serious complications from COVID-19.

Walmart's executive vice president of corporate affairs, Dan Bartlett, said the biggest impact on the outbreak to their more than 4,800 stores has been "how our associates are coming together and doing heroic work."

"The care they're putting into serving our communities is amazing," he said.

But it's no longer business-as-usual.

As for how business has changed, Bartlett said they have reduced hours to allow for deep-cleanings of the store, upped the availability of hand sanitizer and disinfectant-wipe stations and installed new "sneeze-guard" glass at pharmacy and checkout and more.

"Associates clean carts with cleaning kits as well," he added. "We're installing clear plexiglass, sometimes there called sneeze guards. Buffets use them a lot, to prevent the spread of germs. We're rolling them out in pharmacy lanes and checkout lanes."

Bartlett says they currently do not have a maximum occupancy limit for shoppers entering the stores, but said, "We're installing signage to all of the stores to promote social distancing."

What the Great Recession can tell us about the COVID-19 small business crisis - Brookings Institution

Posted: 25 Mar 2020 01:05 PM PDT

The drastic measures to keep people at home as the COVID-19 pandemic spreads have decimated the small business sector. These vital businesses provide local amenities and experiences that enrich our lives and anchor our communities, and they're a critical source of income and wealth generation for their owners. And a subset of small businesses—young businesses, which are zero to five years old—are the primary drivers of the nation's net job creation and productivity growth.

Because small businesses have greater credit constraints and are more sensitive to weak consumer demand, they are often hit the hardest in economic downturns. The COVID-19 recession is uniquely damaging to them, especially those relying on foot traffic and social interaction.

As policymakers prepare relief measures to support small businesses, it's helpful to look back at what happened to small businesses during the last major economic downtown, 2007 to 2009's Great Recession. The COVID-19 recession will likely differ in severity and duration from the Great Recession, but it may nonetheless offer clues as to how small businesses experience economic contractions compared to larger businesses.

Small businesses had fewer workers but larger job losses during the Great Recession

The Small Business Administration's definition of "small" varies by industry, but for the purposes of this analysis, we define small businesses as those with fewer than 250 employees, which is the highest standard to qualify in most industries.

During the Great Recession, these small businesses experienced disproportionate job loss compared to their share of total employment in the economy. Nationally, small businesses accounted for 45% of employment, but as the economy shed about 5 million jobs from 2008 to 2009, they accounted for 62% of the net job loss (Figure 1). Compared to the Great Recession, the early stages of the COVID-19 economic crisis suggest that job losses will fall even more disproportionately within the small business sector.


Micro businesses and young businesses are particularly vulnerable 

As policymakers develop responses to the severe economic contraction we're facing, they should consider that job loss varies considerably by the age and size of the small business.

Generally, the older and larger a small business, the better it fared during the Great Recession. Micro businesses (fewer than 10 employees) and young businesses (zero to five years old) are most vulnerable across all sectors (Figure 2). The employment losses within young and micro businesses ranged from 15% in wholesale trade and services to nearly 35% in retail trade and construction, the latter of which reflects the role housing played in the Great Recession.

Restaurants and small retail outlets are likely to lead the losses during the early days of the coronavirus-fueled economic crisis. But eventually a major recession will hit every sector of the small business economy, as consumer and corporate demand decreases. This chain reaction begins first and most intensively with younger, smaller (and thus more vulnerable) businesses.


Geographic trends matter 

Broader industrial and technological trends—and how those influence the dynamism of metro area economies—also played a role in how small businesses experienced the Great Recession. Small businesses are predominantly locally serving, meaning their viability depends on the health of the key export industries in their local economies.

Among the nation's 100 large metropolitan areas, eight metro area economies actually managed to expand despite the Great Recession. This was mainly due to the energy boom, which kept demand for small business activity higher in regions in such as Louisiana, Oklahoma, and Texas (Map 1).

Most communities were not so lucky. In more than half of the nation's 100 largest metro areas, small businesses accounted for at least 60% of net job losses. In 16 large metro areas, small businesses were responsible for more than 90% of net job loss. Metro areas that were hit hardest included Philadelphia, Fresno, Calif., Jacksonville, Fla., Bridgeport, Conn., Louisville, Ky., and St. Louis, Mo., among others.


Mitigate, then recover 

Last week, we wrote about several small business relief strategies that local and state governments are pursuing, including emergency loan funds and tax relief. Still, not every small business is equipped to survive this downturn. But because small businesses contribute disproportionately to job loss during recessions, these policy responses are necessary. In our current crisis, these measures must occur immediately—which means that speed and simplicity are important considerations.

If speed and simplicity are required in the short-term, then scale is the operative word for the medium-term recovery. As of this posting, the Senate is on the verge of passing a relief package of at least $350 billion for small businesses. This federal package is critical, because locally led capital support will only take local economies so far.

In the long-term, policymakers and business development providers should remember that the Great Recession was distinctly damaging to small businesses. And that was at a time when shops and restaurants could still rely on social interaction and foot traffic for business—COVID-19 has stripped even that advantage away.

This crisis will demand a set of policy supports that are both broader and longer-term than those pursued in 2009. Otherwise, small businesses are certain to face a calamity.


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