A recent McKinsey webinar explored how COVID-19 has impacted small businesses. Small to medium-sized businesses make up 99 percent of all firms and employ 47 percent of all private-sector workers. They also create two-thirds of net new jobs.
Before COVID-19, surveys show small businesses were optimistic about the economy. Now, however, almost 80 percent of small business owners are concerned about their firms’ sustainability. With limited liquidity, small businesses – especially those owned by minorities – are more likely to be at risk due to COVID.
The pandemic has caused small businesses to close for any of several reasons: lower demand in certain industries, changed customer behavior, more digital demands, and operational restrictions. Nearly 2 million small businesses are in the most vulnerable sectors, and these businesses employ about 20 million people. Surveys of small business owners show that they could close completely if they lose four months of revenue; in some sectors, more than a quarter of small businesses could close permanently (specifically accommodation, food services and education).
The crisis also disproportionately affects minorities. According to a Brookings Institution study, large banks approved 60 percent of loans from white small business owners and only 29 percent from Black small business owners. Black owners are also more likely to be asked to provide personal financial information than their white counterparts.
Currently, the largest concerns for small businesses are the uncertainty of demand due to the reopening and closing of the local economy, issues with global supply chains, and the health and safety of their employees.
As for the future of small businesses, there are three main issues. First, the crisis is pressuring businesses that came into the crisis with low financial resilience. Second, these businesses will need to adapt to new business and operating models, because consumers are changing what and how they buy (i.e., buying more online, wanting to make fewer/shorter trips, etc.). Last, small businesses will need to focus on hyperlocal trends and develop customer loyalty. Yet these changes won’t be easy; for example, shifting to digital sales can prove costly. Restaurants now have lower sales and lower profits, yet have higher packaging costs because of increased online orders, and still have fixed costs for occupancy.
Webinar speakers offered three effective strategies during this tough time. One is to provide small businesses with increased access to credit and financial stimulus, and to continue doing it: businesses in these industries could take five years to recover. Second is to help businesses rapidly adapt to using new technologies, such as UberEats or GrubHub. Last is to provide strategic support for small businesses to grow, not simply survive – e.g., technical assistance with digital marketing or customer outreach.