Last week, the U.S. House Small Business Committee hosted a virtual hearing on current barriers and long-term solutions for a small business recovery from the COVID-19 health crisis.
The chair of the hearing, Rep. Nydia Velazquez (D-NY), argued that compared to larger corporations, small businesses face disproportionately higher financial vulnerabilities from the health crisis. “Congress has a responsibility to ensure American small businesses have the capital and support to survive this crisis,” she said.
Despite the $669 billion in federal funds for business loans under the Paycheck Protection Program (PPP), many small businesses are still at risk of permanent closure, according to Velazquez.
Struggling to Survive
Of the 31.7 million small businesses in America, 74% experienced a decrease in revenue, and 42% had to close down since March, according to the U.S. Census Bureau’s Small Business Pulse survey and a survey by the Society for Human Resources Management (SHRM).
This means that 7.5 million small businesses are at risk of permanent closure from COVID-19, the National Main Street Center estimates.
Witness Amanda Cohen, Chef and Owner of Dirt Candy, a fine dining restaurant in New York City, said the restaurant experienced significant challenges with finances and lockdown measures.
According to Cohen, outdoor dining forced them to “dramatically alter their menu and processes for serving customers.” Many still consider outside dining unsafe and are reluctant to do so until the arrival of a vaccine, she said.
This led to a 50% reduction in revenue in most restaurants compared to last year, said Cohen. As a result, she was not able to pay her employees during the shutdown, so many went on unemployment or took other jobs.
“If my fixed costs of running a business don’t change and demand for dining out remains low, there is no way Dirt Candy can survive,” said Cohen.
She urges Congress to pass the RESTAURANT Act, which she said will ensure the 16 million people in the dining industry to get back to work as soon as possible.
“Small businesses are the backbone of the U.S. economy, composing nearly half of the private sector employment and generating 44% of the economic activity,” said Velaquez. “Ensuring that these businesses fully recover from COVID-19 is crucial to reviving the economy.”
Learning From the Past
Velaquez calls on the government to examine the economic policies passed during the 2008 Great Recession as a role model for COVID-19 recovery plans.
“Policies enacted then have proven to be a critical lifeline for thousands of small businesses in danger of closing their doors,” Velazquez said. She praised the Obama administration’s response, which provided approximately $1.2 billion of loans and funds to small businesses from 2009 to 2011.
On the other hand, Velazques deems the Trump administration’s response to COVID-19 as inadequate.
“The rhetoric coming from the current administration downplayed the severity of the crisis, making many states rush to reopen, ultimately exacerbating the problem [of COVID-19].”Rep. Nydia Velazquez
According to witness Brett Palmer, President of the Small Business Investor Alliance (SBIA), the main barriers to a recovery of small businesses includes prolonged lockdown, lack of capital assets, and racial and gender disparities.
He emphasizes the “catastrophic failure of minority-owned small businesses, with up to 41% of Black-owned businesses lost.”
Witness Dr. Lisa D. Cook, Professor of Economics and International Relations at Michigan State University, agrees.
The sectors in which small minority-owned firms are overrepresented are accommodation and food services, personal and laundry services, and retail, Cook said. Cook advocates for collecting more demographics data on minority-owned businesses in order to more accurately understand their difficulties and address their needs.
Palmer also believes that the government should specifically target barriers for minority-owned businesses, as well as provide more funding and loan access.
Additionally, Palmer requests more federal support for SBIA in order to increase the scale of their operations and target funding disparities among minorities.
“The quick action of Congress has gone a long way to lessen or postpone the pain associated with this pandemic-induced recession,” said Cook. “[However,] systemic factors leading to the structurally fragile nature of small minority-owned firms… should be addressed.”
In Five-Thirty-Eight’s most recent survey, the majority of macroeconomists believe that there will be a slow recovery, rather than a V-shaped, sharp rebound.
“Given that consumer spending is 70 percent of GDP, it is clear that more and extended help to the American people and small businesses will be urgently needed,” Cook said.