Council Post: We Can’t Allow Small Businesses To Fail 

It’s no secret that small businesses, the backbone of the American economy, are in trouble. The United States government recently passed its second deal aimed at supporting small businesses in this time of economic downturn due to the global pandemic. An additional $250 billion was earmarked to replenish a fund called the Paycheck Protection Program (PPP), which was aimed at helping small and medium-sized businesses with payroll, rent and other expenses. The first round of the PPP stimulus program, which opened on April 3, 2020, allocated $349 billion and was exhausted after only two weeks. The second round of PPP is expected to go even faster. It is clear from the rate at which these funds were exhausted that small business owners are in dire need of support. We need to act now because their failure will have grave consequences for us all.

The Small Business Ripple Effect 

There are 30.2 million small businesses in the U.S., and 56.8 million Americans work for small businesses, which makes up 48% of all U.S. employees. But, just as we see an ecological ripple effect when a species at the bottom of the food chain runs the risk of extinction, small businesses feed the rest of the business chain as well. In addition to employing about 1 in 2 Americans, small businesses serve as the customers of service providers, some of which are global Fortune 500 organizations. If small businesses fail, we all fail. Revenue will decrease, and layoffs will ensue, deepening the economic toll resulting from the COVID-19 pandemic.

The Global Economy

This ripple effect of the failure of small businesses, unfortunately, knows no borders. Mexico, the U.S.’s largest trading partner, has focused on aiding the nation’s poor rather than “bailing out” the private sector, causing friction between the government and the business sector. My company recently conducted a survey of 250 business owners and managers in Mexico. Only 34% of respondents believed that the government would provide enough aid to save their small businesses. They were just as likely to believe that the relief they needed to stay afloat would come from their community. The Mexican economy was already sluggish prior to COVID-19, but some analysts have predicted the economy in Mexico could contract as much as 8% in 2020 because of the virus.

Beyond Government Aid

Across the United States and in countries around the world, the support of the private sector in addition to government aid will be what allows small businesses to survive, from accountants advising small business owners on how best to secure government aid, to large, global companies bolstering their small business customers. Unilever recently announced it would begin paying its smallest suppliers first to help with liquidity and would be extending credit to selected small-scale retail customers whose businesses rely on them for a large percentage of revenue. It will be the combination of government aid, the support of the private sector and the grit of the entrepreneur that will allow small businesses to pull through this crisis.

The trade-off between health and economy will be an ongoing battle until testing is ramped up and a vaccine becomes available. In these unprecedented times, we need to ensure the survival of small businesses in the U.S. and across the globe. In this global economy, we are all connected, and the ripple effects of small business failure will define our economy for years to come.

Additional Resource

Investing in a Business