The Impact of COVID-19 on Small Businesses

Iquer Mecalco-Hernandez

Within the short span of less than a year, the once-unknown Covid-19 virus has drastically changed our lives. Gone are the days of parties, festivals, and celebrations. While for most this has meant a life of seclusion, and the occasional arguing of whether to use or not to use a mask, to a certain group of people, the pandemic has meant the end of their work and their businesses.

While mainstream media has been covering the bankruptcies of massive companies due to the strain imposed on them by Covid, such as JC Penney, GNC, and Hertz, and struggling sectors as the airline industry and the tourism industry, they have largely forgotten a sector that most of us can relate to more: small business. Unlike your local Walmart, Costco, or Smith’s, small businesses are often forced to operate with little to no liquidity. Historically they’ve struggled to thrive under the shadows of massive corporations that are able to underprice them with ease. Forced to operate with razor-thin profit margins to stay competitive, any disruptions to the cash flow in their system could potentially bring catastrophic results to their already vulnerable structure.

When the second week of March hit, our lives changed completely. Within a weekend, schools were closed, public gatherings banned, and strict restrictions were put into place by local governments. Only essential businesses were kept open, while the rest were ordered to close down. For large companies, this was a hard reality to face; however, with access to large sums of cash on hand to supplement the now lacking cash inflow, they would be able to stay afloat during the rough months to come in a nation still grasping to understand what had happened.

When the economy and stock market began to take a turn for the worse, the Federal Reserve rushed to prevent a possible depression from taking place as millions of Americans were laid off and the stock market plummeted to all-time lows. They took action, preventing as many corporations as possible from going under by slashing the interest rate to a near-zero—, something that had not been seen done in any other recession. This allowed for large corporations to get loans to stay afloat with little to no interest owed to the financial institutions, and incentivized the American public to spend more money and keep the economy running as best as possible.

The Federal Reserve not only slashed the interest rate to near zero, but they also offered $2.3 trillion dollars in financial aid to companies, as well as purchasing bonds from public companies in an attempt to stabilize the Fixed Income Market and the Equity Market with the purchase of ETFs.

With the Federal Reserve focusing their efforts on saving as many companies as possible, they neglected to assist small businesses with the funds needed to keep them afloat. According to the US Chamber of Commerce, it is estimated that 1 in 5 small businesses have shut their doors as of June 1st.

From the beginning, it was clear that local businesses were going to suffer the worst during this pandemic. However, in these past six months, it’s become more than obvious that local and state governments simply did not do enough to save our small businesses. With Covid tightening, its grip on the nation more and more as the days pass, it is unclear how many more jobs will vanish due to the economic effects it has had on the nation.