CHAPEL HILL – How COVID-19 has affected businesses is a constantly evolving story as new data continues to better explain the pandemic’s impact and fallout. But a new report from UNC’s Kenan-Flagler Business School “Frontiers of Entrepreneurship” lays out just how wide spread the damage has begun and also makes clear that better definitions about what is and isn’t a small business also are needed to help better understand – and deal with – what has happened.
Kenan Institute Executive Director Greg Brown says the report “provides direction to business leaders, entrepreneurs, ecosystem partners and policymakers on how they can work proactively to mitigate that impact.” He also notes that the long-term impact of the pandemic remains unknown.
But one recent study shows how smaller businesses have suffered greatly. Findings cited in the UNC report:
- 43% of businesses had temporarily shut down due to COVID-19.
- 40% reported reducing their number of employees since January 2020.
- Impacts varied across industries with “retail, arts and entertainment, personal services, food services and hospitality businesses all reporting employment declines exceeding 50%.”
- 75% of respondents said they only had enough cash on hand to cover a two-month or shorter period of expenses.
- However, 90% of respondents thought it was at least somewhat likely they’d be open come December 31, 2020. Those companies with more cash on hand were more optimistic about their chances compared to those firms with less cash.
In discussing the importance of definitions, Entrepreneurship Executive Director Vickie Gibbs points out: “With a broad definition of what constitutes a ‘small business,’ one significant challenge for the government has been ensuring stimulus funds get into the hands of desired recipients. It’s not a one-size-fits-all approach.”
The report notes that he Small Business Administration (SBA) “sets the definition for what constitutes a small business. This definition is used by all federal agencies” and determines small businesses “based on industryspecific size standards that look at employee numbers and average annual receipts. Therefore, a firm can have up to 500 employees and still be considered small.”
And the existing criteria can cause problems:
“Federal, state and local governments acted quickly to assist businesses during the COVID-19 pandemic. However, because the category of ‘small business’ is defined so broadly, stimulus money did not always reach the intended recipients. The government’s definition of small business includes firms with fewer than 500 employees — which, taken together, represent a broad collection of different types of businesses with very different needs.
Definitions are important, as the report notes:
- There was an outcry when seemingly large firms (like Shake Shack) were able to get federal recovery funds via the Payroll Protection Program (PPP), but this speaks to the importance of how policymakers define different types of businesses.
- Not all businesses require the same type of economic aid; thus, segmenting types of firms is critical to understanding their individual needs and to ensure a successful recovery.
- To understand the data and interpret it to make policy decisions, we must first understand what is being analyzed — in this case, firm characteristics and size.
Other takeaways from the report
- There were varying responses at the federal, state and local government levels. Although state and federal government responses have been getting much of the press attention, local governments play a pivotal role in supporting businesses during this time.
- The COVID-19 pandemic is affecting some demographic groups drastically more than others. For example, Black-owned businesses are significantly more at risk during these times, which puts the communities they serve at risk of being more negatively affected by COVID-19.
- Legislation in response to COVID-19 and its economic fallout is ongoing.
- The jury is still out regarding the lasting effects of COVID-19 and how broadly it is affecting, and will continue to affect, the U.S. economy.