The Impact of Business Approval on US Small Businesses

To investigate the impact of coronavirus disease 2019 (COVID-19) on small enterprises, we surveyed about 5,800 small firms between March 28 and April 4, 2020. A few motifs emerged. First, huge layoffs and closures had already begun just a few weeks into the crisis. Second, the probability of closure was adversely related to the predicted duration of the crisis. Furthermore, businesses held vastly differing views on the expected duration of COVID-related interruptions. Third, many small enterprises are financially unstable: The median business with more than $10,000 in monthly expenses had only approximately two weeks of cash on hand at the time of the survey. Fourth, the majority of businesses intended to seek money under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. However, many people anticipated hurdles in accessing the program, such as bureaucratic red tape and determining eligibility. Using experimental variation, we compare loan take-up rates and company resilience effects to grant-based programs.

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In addition to its impact on public health, coronavirus disease 2019 (COVID-19) has created a significant economic disruption. In this study, we examine the impact of COVID-19 on the small business landscape in the United States, focusing on three key concerns. First, how did small firms respond to the economic disturbances caused by COVID-19? Second, how long did businesses expect the crisis to endure, and how does this influence their decisions? Third, how would different policy approaches affect business and employment resilience?

To learn more, we polled over 5,800 small businesses from Alignable, a network of 4.6 million small businesses. The study was performed from March 28 to April 4, 2020. The timing of the poll allowed us to assess business owners' expectations at a critical point in time when both the advancement of COVID-19 and the government's response were unknown.

The findings indicate that the pandemic had already caused widespread disruption among small enterprises just a few weeks after it began, prior to the availability of government assistance under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Across the entire sample, 43% of enterprises had temporarily shuttered, with nearly all of these closures being attributable to COVID 19. Respondents who had temporarily closed cited reduced demand and employee health concerns as the primary reasons for closure, with supply chain interruptions playing a less significant role. Since January, firms reported a 39% decrease in active employment, on average.

The loss was especially steep in the Mid-Atlantic region (which includes New York City)

where 54% of businesses shuttered and employment fell by 47%. Impacts also varied by industry, with retail, arts and entertainment, personal services, food services, and hospitality businesses all reporting employment declines of more than 50%; in contrast, finance, professional services, and real estate-related businesses experienced less disruption, as these industries were better able to transition to remote production.Our findings also underscore the financial instability of many enterprises. The median firm with monthly expenses of more than $10,000 had only enough cash on hand to survive about two weeks. Three-quarters of respondents have enough cash on hand to survive two months or less. Not surprisingly, businesses with more cash on hand were more certain that they would be open by the end of the year.Our poll also revealed firms' perspectives on the progression of the crisis, allowing us to investigate the impact of beliefs and expectations in decision-making. The median business owner anticipated the disruption to persist far into midsummer, with 50% believing it would endure at least until the middle of June. However, opinions on the probable duration of the crisis differed greatly. This raises the potential that some companies made mistakes in their estimates of how long the crisis would endure.

The entire potential impact of the crisis is heavily influenced by its duration

For a crisis lasting four months rather than one month, just 47% of businesses planned to be open in December, compared to 72% for the shorter timeframe. The degree to which firms are affected by the crisis varies significantly. In-person industries, like as personal services and retail, indicated worse chances of surviving the pandemic than professional services or other sectors that require little face-to-face interaction.

Finally, our study investigates variations on stimulus packages that were being debated at the time of the poll. When questioned about a program similar to the CARES Act's Paycheck Protection Program (PPP), more than 70% of respondents said they planned to use aid. Furthermore, they expected this cash to affect other business decisions, such as layoffs and continued operations. At the same time, many firms were hesitant to apply for funds under the CARES Act due to worries about administrative complexity and eligibility. A high percentage of respondents predicted challenges in getting the help, citing potential issues such as bureaucratic red tape and difficulty determining eligibility.