How small businesses can survive the coronavirus outbreak

COVID-19 will put many small businesses on life support. Karen G. Mills, who has been advising policymakers on aid options, offers guidance to owners on the brink of ruin.

Small-business owners trying to weather the coronavirus pandemic will face a financial blow that’s likely to be worse than what they experienced during the Great Recession more than a decade ago, says Karen G. Mills, senior fellow at Harvard Business School.

“This is going to be orders of magnitude worse than the financial crisis,” says Mills, who led the United States Small Business Administration from 2009 to 2013. “Many small businesses will not survive more than a month.”

Small businesses have been scaling down and temporarily closing as consumers stay home to stem the spread of the highly infectious virus, also known as COVID-19. Without incoming cash, many small businesses—especially restaurants and shops on American Main Streets—will soon need to cut staff or shut down for good.

“To many of these small businesses, daily cash flow is their lifeblood,” says Mills, who in recent days has been advising Congressional and business leaders about potential aid approaches. “Money in the door allows you to put money out the door.”

A cash crunch with no end in sight

The JPMorgan Chase Institute estimates (pdf) that the average small business has 27 days of cash in reserve, but Main Street businesses often have less than 20 days’ worth. While forecasts vary, many public health experts don’t expect the coronavirus outbreak to subside for at least eight weeks, assuming that social distancing and other mitigation efforts can slow the spread.


The most vulnerable businesses won’t last that long. They’ll need interest-free loans and other cash buffers to pay their workers and keep their storefronts while they wait out citywide lockdowns and school closures. After that, consumers might resume some of their spending habits, Mills says.

“If small businesses can stay solvent, then we have a greater chance for recovery after the virus threat subsides,” she says.

The grim reality is sinking in. About 77 percent of small business owners say they’re “very worried” about the economic impact of COVID-19, according to a new National Small Business Association survey (pdf). Almost half of the 950 people surveyed said that customer demand was down, and one-third of respondents were experiencing supply chain disruptions. More than half expect the US to sink into a recession during the next 12 months, up from 14 percent in January.


The next wave of small business aid

Mills joined the Obama Administration and his National Economic Council in early 2009, and led efforts to help small businesses recover in the wake of the 2007-2008 recession. She has been drawing from that experience in recent weeks as she helps government officials explore ways to shore up the 30 million small businesses that provide almost half of the country’s jobs.

Earlier in March, Congress and the Trump Administration authorized $7 billion in disaster loans for small businesses affected by COVID-19. The program helps businesses in states that have declared emergency status borrow as much as $2 million and repay it over 30 years with an interest rate of less than 4 percent.

Both chambers of Congress are considering additional relief, with small business loans packages of over $300 billion under consideration. Mills hopes that the government will go a step further and offer interest-free loans and work to include new financial technology companies, such as Square and Kabbage among the permitted lenders.

After all, small businesses generate almost 2 million net new jobs a year and employ 47 percent of the workforce. Even though macroeconomists rarely give them their due, Mills says, small businesses contribute 44 percent of US gross domestic product. Helping them withstand a brutal cash crunch will support the broader economy, Mills says.

“This is the number one thing that we can do to keep our economy going during this particular crisis,” she says. “This is about helping small businesses, but it’s also about helping their employees and their families. They need to know that there will be a job and a paycheck when we get to the other side of this crisis.”

What to do now

While federal, state, and local lawmakers mull over additional aid, Mills recommends that small business owners:

  • Apply for Small Business Administration loans. In addition to the disaster loans, which only apply to businesses in states that have declared emergency status, some state governments are offering aid packages.

  • Explore private sector programs and fintech products. Facebook said it would offer $100 million in grants to small businesses. And fintech companies such as Kabbage and Fundbox, which specialize in loans to small businesses, are also considering ways to support the sector.

  • Renegotiate terms of contracts and debt. Owners should ask landlords for more time to pay their rent, for example. They should also ask banks to temporarily defer interest payments on outstanding debt.

Concerned consumers can help by buying gift cards from their local businesses, a small gesture that can help Main Street shops stay afloat. “That’s an excellent way to get money into these businesses,” Mills says.

Large companies and government agencies can provide relief simply by paying outstanding bills—now. As economic concerns mount, large companies tend to delay payments to suppliers to conserve cash. Mills recommends that organizations reject that tactic when it applies to small businesses and pay as soon as possible to support not only the vendor, but the American economy.

“They should pay all of their invoices now and pay anything they can forward,” says Mills. “The Apples of the world should take it as part of their civic responsibility.” Mills emphasized that acting quickly, with both small individual steps and large government-led actions, is critical.

“Small businesses are the very fabric of our communities, all across the country,” Mills said. “Days matter at this critical time. If we lose these small businesses, our communities are going to look very different when all is said and done, and it will take a long time to bring back the businesses we will have lost.”

About the Author
Danielle Kost is senior editor at Harvard Business School Working Knowledge.

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