Last night I enjoyed talking with my daughter by phone. Except when I didn't. Which was when she gave me a disturbing rundown of the challenges the small company she works for faces because of the worldwide coronavirus outbreak.
She and her family live in southern California. Her company (she's the sales director) makes a product that is sold in retail outlets in the United States and other countries, almost all of which aren't owned by the company.
But the dynamics she described to me must apply to huge numbers of small businesses all across the United States, notably including restaurants, since a number of states (including Oregon, where I live) have banned selling all but take-out food.
A few months ago sales for her company were great, she told me. The future looked rosy. Sure, they'd been concerned about the coronavirus cases in China, and then in Europe, but alarm bells didn't ring with full force until recently.
Yesterday she spent much of the day taking calls from retailers that had bought her company's product. The message was, "We aren't going to be able to pay you what we owe." For sure not now. Maybe not ever. And with many fewer people getting out to shop, along with some malls closing entirely, sales projections look dismal.
Unless something changes the company is heading toward laying off half of its employees. Even worse, there's a chance the company may not even survive, though it has been in business for about thirteen years.
I was shocked.
I hadn't fully realized how many small businesses basically exist month by month, lacking enough reserves to get them through months of a unusually severe financial shock like what's been caused by the coronavirus pandemic.
Her boss has checked into getting a loan to tide them over until sales pick up again. However, the initial response from their bank wasn't very encouraging.
This is why Congress and the rest of the federal government need to act fast to provide financial assistance to small businesses. A CNBC story on this subject is encouraging, but I'm worried that what's being planned could be too little, too late.
President Donald Trump and Capitol Hill are working on multiple fronts to make sure the U.S. Small Business Administration has the ability to offer small business owners across the U.S. as much as $50 billion in loans to stay afloat during the widening economic shutdown caused by the coronavirus. One huge issue goes beyond the money: The SBA has never faced a challenge of this magnitude in working with lenders to grant loans.
...In its more general lending program, known as 7(a) loans, the SBA has averaged 50,000 loans a year and $30 billion.
Now if it’s to keep America’s small businesses from ruin, the SBA and its private-sector lending partners will be tasked with getting out to entrepreneurs almost double that annual loan amount, and in a fraction of the time.
“Almost twice the number of dollars in half the time,” Hurn said.
And even $50 billion may fall far short of what is truly needed.
There are roughly 7 million business within the small and mid-sized sector in the country with employees (meaning not sole proprietorships). If the SBA and its lending partners provided $1 million loans on average up to $50 billion, that would help 50,000 companies.
My daughter and I agreed that while some assistance to large companies may be needed, small businesses should be the main focus of efforts to prop up the United States economy, along with direct assistance to individuals.
The cruise ship industry, for example, should be allowed to go under.
Those ships are floating disease incubators in the best of times. I can't see any real societal benefit to helping them stay in business. Airlines deserve some help, probably. But they are better suited than small businesses to weather the financial disruption caused by the coronavirus outbreak.
Here's another excerpt from the CNBC story.
According to a National Small Business Association survey of its members conducted last week, 3 in 4 small business owners say they are very concerned about the economic impact of COVID-19, and nearly half have already experienced reduced customer demand for their products and services.
More than half are now anticipating a recession in the coming 12 months compared with just 14% in January. Thirty-eight percent say they are not confident in the financial future of their business compared with just 15% in January.
“We’ve got to triage this,” Hurn said. “If the business was thriving until mid-February and it’s fallen off a cliff, and there are a lot of them, with 20-30-40-50 employees, they won’t have the reserves to make payroll,” Hurn said. “Those are the people we can help.”