Personal View: How to Mitigate the Effects of the COVID-19 Pandemic on Small Businesses

By Brad Whitehead and Joseph Parilla, Personal View for Crain’s Cleveland Business

Scientists highlight three criteria for mass species extinction: The event must be worldwide, it must happen quickly and at least one-third of all species must disappear.

For small businesses, the COVID-19 pandemic is potentially an extinction-level event. Greater Cleveland has about 50,000 small businesses, and according to Brookings Institution and Fund for Our Economic Future research, as many as half of them may not make it in the near term due to the halt in national commerce.

The Brookings research segmented small businesses into immediate, near-term and long-term risk categories, according to their industry. Sectors at immediate risk include restaurants and barbershops, which have been shut down out of public health concerns. Others are less obvious, like rental and leasing services, specialty trades or apparel manufacturing. In total, 52% of small businesses are in industries with immediate or near-term risks. Many have already closed, especially the smallest businesses (those with fewer than 10 employees), which have the shortest cash buffers.

The pain does not fall equally within our community. Systemic racial exclusion already disadvantages high-quality small businesses in black-majority neighborhoods, according to recent Brookings research. Cleveland’s ThirdSpace Action Lab, among others, has called attention to the subtle and complex ways this pandemic will exacerbate existing structural race issues. Indeed, people of color are disproportionately employed in the most at-risk industries during the COVID-19 crisis.

But we can act to blunt the effects. The equation for addressing the unfolding small business crisis is challenging but simple: Small businesses are not generating revenue, yet they still have costs. We must inject liquidity (cash) into these businesses or help them reduce expenses until markets return.

In partnership with the county government and many others, the Fund and Brookings have mapped Cuyahoga County’s liquidity landscape. (A highly summarized map can be seen in the accompanying graphic.) What’s clear is there is no silver bullet; instead, businesses must explore every pathway, and there should be no wrong door for small businesses to walk through to receive assistance.

Over a dozen small business assistance organizations have come together under the county executive’s leadership to establish the Cuyahoga COVID-19 Small Business Resource Center (www.cuyahogacounty.us/helpforbusiness; 216-452-9714) to direct small businesses to the resources best positioned to help them. The state has established the Office of Small Business Relief to provide support (www.businesshelp.ohio.gov). Small businesses also can go directly to organizations they already know and trust, whether that is COSE, the Urban League, the Hispanic Business Center, JumpStart, MAGNET, Cleveland Neighborhood Progress or others.

Here are some recommendations for a robust mitigation strategy:

1. Fully leverage the federal stimulus. At $350 billion and counting, the Small Business Administration (SBA) programs embedded in the CARES Act — especially the Paycheck Protection Program — are imperfect, but perhaps the biggest levers to staving off a small business disaster. These programs, which include both loans and grants (in the form of loan forgiveness), may soon be supplemented with an even larger Main Street Lending Program from the U.S. Department of the Treasury and Federal Reserve Bank. In every community, there must be extensive outreach to make sure all small businesses are aware of these opportunities and can receive technical assistance to navigate the application process. Particularly important will be outreach to minority-owned businesses in economically distressed neighborhoods where approval rates for SBA loans have traditionally been lower.

2. Fill in the gaps with supplemental assistance. As bold and aggressive as the SBA programs are, they will not make sense for every business and some businesses will not qualify. Fortunately, institutions are stepping up in Cuyahoga County with a supplemental fund for businesses that are in vulnerable industries (e.g., hospitality or service) with special attention to those in low- to moderate-income neighborhoods. While the $3 million fund size is small relative to the need, it will be welcome help to hundreds of businesses and hopefully be the harbinger for further support. Last weekend, JobsOhio announced a $50 million program to support the most promising venture-backed companies statewide.

3. Collaborate with customers and suppliers to reduce/defer costs. Enlightened banks, utilities and landlords know that squeezing small businesses now will not be productive. Instead, most have established policies to relax payments in the near term to protect the long term. Utilities have agreed not to cut off services for nonpayment and many will negotiate payment. One real estate firm will defer rent payments in exchange for a payment plan and a lease extension — which they, in turn, can use to shore up their own financing. Such practices need to be encouraged.

4. Be a safe local consumer. We as citizens also have a role. We can support local restaurants with their innovative (and safe) takeout and delivery plans, support creative supply chain workarounds, such as the Love Local Collective the Central Kitchen is pursuing with farmers, or sign up for an online fitness or yoga class. If possible, we should continue supporting the contractors who care for our children or clean our homes even if they are not presently serving us. And we should “buy forward” with gift certificates and coupons. Revenues now can be a lifeline.

5. Prepare for more. All that is being done is impressive, but it may not be enough. Already we are hearing talk of a future stimulus, and our community must gear up quickly to take full advantage of it. Should the situation deteriorate further, local policy leaders must prepare now for even bolder actions such as tax forbearance or additional relief services.

These policies and actions can avert mass extinction. With businesses shuttered and a massive recession unfolding, it’s hard to imagine an “after.” But another lesson from nature seems to be that, in addition to the pain they cause, severe disruptions can ultimately yield unforeseen positive evolution. These policies and actions can help small businesses adapt to a potentially fundamentally different economy. As Northeast Ohio contemplates its rebuilding, civic leaders should envision a future that not only helps small businesses get back on their feet, but instills greater entrepreneurship, racial equity and quality jobs.

Brad Whitehead is senior adviser for special projects at the Fund for Our Economic Future and a nonresident senior fellow with the Brookings Institution’s Metropolitan Policy Program. Joseph Parilla is a fellow with the Brookings Institution’s Metropolitan Policy Program.