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Small businesses, like their large, publicly-traded counterparts, are feeling the pinch as the coronavirus pandemic brings consumer activity to a grinding halt.
However, unlike big businesses like Walmart Inc. WMT, -6.43% and McDonald’s Corp. MCD, -15.88% , which have reserves of funds to help them through tough times and turnarounds, many small businesses don’t have a safety net to spare them from ruin.
According to Gwendy Brown, vice president of research and policy at Opportunity Fund, many small businesses have enough resources on hand to last 45 days or less.
“Small business owners are much less financially prepared than most households,” she said. The Opportunity Fund provides microloans to entrepreneurs.
“They tend not to have a lot of cash on hand,” she said. “If they had that amount a while ago, they’re already cutting into that.”
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In an email sent to customers, Seamless said dining in at restaurants is down as much as 75%. Wells Fargo analysts said mall traffic was down as much as 45% over the past weekend.
Moreover, small business owners weren’t flush with cash before the outbreak. The median income for self-employed people in California with their own incorporated businesses was $57,420 in 2016, according to data Brown provided. For self-employed workers who are unincorporated, the figure is $25,034. And 17.5% say they don’t have health insurance.
“There will absolutely be businesses that will fold,” Brown said. “We’re still at a critical period where depending on what a variety of stakeholders do will determine what will happen.”
Consumers can still shop, but activity is moving to household necessities and online.
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Governments have begun to order restaurants to close for all but delivery and takeout business, and have restricted other kinds of businesses, like movie theaters, from operating at full capacity.
And Monday, President Donald Trump said Americans should avoid groups of larger than 10, with many people staying home in the interest of “social distancing.”
Major events are being canceled and postponed as well, normally a sales driver. The St. Patrick’s Day parade was canceled in Boston, which Doug Bacon, president and founder of Red Paint Hospitality Group, said will have an impact on his business.
Bacon, who has been in business for 30 years, runs eight restaurants in the city, from a neighborhood pub that seats 50 to restaurant bar and grill with a capacity for 400. He said events, college students — who have seen in-person classes eliminated — and other pockets of business have been taken away to combat the virus.
“As an independent operator I don’t have the resources that a publicly-traded restaurant company with 2,000 locations would have,” he said. “I’m going to be drawing on my personal savings and resources if this business slowdown continues in order to keep my business functional and pay my employees.”
While he can’t be specific about timing, Bacon said layoffs, menu changes and even closing some of his businesses could be a possibility if this outbreak wears on.
The Small Business Administration offers guidance on its website, as well as a link to information about the organization’s Economic Injury Disaster Loan program. However, Frank Knapp, co-chair of Businesses for Responsible Tax Reform, said small business owners will be reluctant to take on debt when their businesses are teetering on the edge of solvency.
“I’m not sure that small businesses want to take on extra debt to make payroll, even if the SBA now has $50 billion for loans,” he said. “This is for a loan that’s only to stay afloat versus growing the business, which is typically what a loan is for.”
Trump has said that $50 billion will be made available for small business loans.
Instead, Knapp and others MarketWatch spoke with said that a cash injection is what’s needed.
Read: Opinion: These steps are crucial to help small businesses survive until the pandemic passes
“Businesses are operating under cashflow challenges in the best of times,” said the Opportunity Fund’s Brown. “Now they need things that will free up cash.”
That includes delaying any payments that need to be made until a later time.
“We have to put more money in the hands of workers, both middle class and low income,” said Knapp. “We know if we do that, they’ll spend every penny. It’s always the number one concern – consumer demand.”
This becomes significant for workers employed at these small businesses that can’t afford to continue to pay workers when there’s no business coming through the door.
“A lot of small businesses don’t have policies for unemployment and other payments for leave, so the federal government can step in there,” said Knapp. “Small businesses can’t afford to pay people who aren’t working.”
