PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

State of Small Business in the Era of COVID-19

By at 10 February, 2021, 11:51 pm

SBE Council’s Kerrigan Testifies before the U.S. House Committee on Small Business

KEY ISSUES: Access to capital, economic and revenue growth, technology and online platforms, a proposed federal wage hike, technical support and training, access to broadband, regulatory certainty, policy stability and more.

By Karen Kerrigan-

Various congressional committees are now marking up the details of President Biden’s $1.9 trillion spending plan.  This massive plan follows the $900 billion package passed at the end of last year (total COVID-19 federal spending to date is $4 trillion).  It is being advanced quickly, and not in a bipartisan way.  Approximately $1 trillion in previous stimulus and recovery dollars have yet to be spentNo doubt, small businesses and other key sectors and players in our economy continue to need help, but a tempered approach is now in order to determine how current resources are working and being deployed to address specific harms caused by COVID-19.

Concerns have emerged about the massive size of the proposed package, and the possible negative effect it could have on inflation as well as who, ultimately, is going to pay the colossal and cumulative bill once it comes due in the not-too-distant future.  The small business owners and entrepreneurs I talk to prefer a smaller, targeted package combined with pro-growth policies – actually, policy stability at this point – to help their businesses and local economies recover more quickly.

It is critical that members of Congress understand what’s at stake for small business and our economy.  On February 4, the House Small Business Committee hosted a “State of the Small Business Economy in an Era of COVID-19” hearing where I had the opportunity to provide insight and data regarding the business environment and the continuing challenges faced by many business owners.

While you can read my full written testimony here, and watch a replay of the hearing here (starting at the 10:00 am. mark on the video) my remarks focused on the fragility of many small businesses and local economies, and the fact that new shocks or costs would shutter additional businesses beyond the millions that have already shut their doors.  As I noted during Q&A with committee members, our nation’s small businesses desperately need – in fact all businesses need – “a period of certainty and policy stability” in order to dig out of their current hole and help them fully recover.

Wage Hikes During a Costly Pandemic

Of course, the issue of the proposed $15 minimum wage was discussed at the hearing.  In response to several questions, I said that the hike would hit the smallest of small businesses and those walloped the hardest by the pandemic:  “Many will throw in the towel for sure.  Businesses will be lost, worker hours reduced, jobs will be lost, and it will be very difficult to raise prices given the current economic climate and the fact that small businesses have to compete against larger businesses” better equipped and capitalized to deal with cost increases.

A new report by the Congressional Budget Office (CBO) on the Raise the Wage Act of 2021, bottom-lines the predictable impact of a phased-in $15 minimum wage hike – yes, wages would rise for some workers, but 1.4 million jobs would be lost.  A recent NFIB report finds that 1.6 million jobs would be lost with passage of the Act along with: a $2 trillion reduction in real economic output, nearly $1 trillion reduction in real GDP, and a $103 billion reduction in personal disposable income.

Just how small businesses will be able to pay for this wage hike is beyond me, especially given the serious cash and revenue constraints that many are facing.  For example, as I noted in my testimony:

● An Alignable January 2021 Rent Poll revealed 33% of small business owners could not pay their rent in January.  The number is higher for minority-owned businesses at 48%.

● The latest Census Bureau Small Business Pulse Survey reported that 40% of small businesses experienced a decline in revenue during the first two weeks of January 2021.

New labor costs mandated by a wage hike, at a time when revenues remain depressed and businesses cannot meet their current expenses will have predictable consequences.  This is not rocket science.

Positives to Build From: Technology, Broadband, Online Platforms and the Surge in New Business Creation

As I noted in my testimony, there is some pretty ugly data with respect to business closures, small business sentiment, their outlook for the future and current operational conditions.  At the same time, there are positives to build from, which can serve as a hopeful sign and direction for developing common-sense policy initiatives.

At the hearing, discussion touched upon the important role of technology in helping small businesses to pivot and continue operating in the COVID-19 economy.  In my testimony, I pointed out that online platforms have served as a lifeline for small businesses and “policies need to provide certainty to ensure these platforms continue to innovate and affordably serve small businesses.”

Online platforms are providing access to new markets, communications tools that allow small businesses to operate and find customers more efficiently and effectively, and payment options that help small businesses close sales more quickly, which means faster access to the capital to invest, grow and innovate.

The most recent Small Business Pulse Survey affirms the vital role of technology and online platforms in helping small businesses keep their “doors” open and drive revenue: 24.8% reported an increase in the business’s use of online platforms to offer goods and services, which is higher in educational services (65.5%), accommodations and food services (38.5%), information (38.1%), finance and insurance (36.7%), and retail trade (32.3%).

Of course, access to platforms would not happen without access to broadband, where I agreed with several members of the committee that gains are needed to bring more communities and people online so they can access the digital tools to succeed and take advantage of opportunities.  Our broadband providers have performed outstandingly during COVID-19, and resources and policies that help our providers do their jobs better, innovate more rapidly, and more efficiently/quickly deploy broadband and 5G will directly aid small businesses in their efforts to recover and grow.  Technology, broadband and online platforms have also played a critical role in new business creation, which will be needed in many areas of the country where small businesses have been decimated due to COVID-19.

According to the U.S. Census Bureau’s business formation data on “high-propensity” business applications (these are likely employers tracked on a weekly basis in 2020), over 1.5 million employer applications were filed in total in last year, which is an increase of 16% compared to 2019.

This is really great news – America’s entrepreneurial spirit is alive and well!

Congress and the Biden Administration must leverage the positive uptick and interest in new business creation by developing policies and strengthening support programs that will encourage individuals to move forward with their intention of starting a business – and being successful in that endeavor.  Given the big “small business hole” our nation is facing due to business closures, helping new entrepreneurs and firms launch and succeed are necessary to breathe life into America’s small business ecosystem.  Access to capital is also critical toward that end.

In that regard, SBE Council will continue to monitor the rollout of the current PPP and EIDL loan programs to ensure that all eligible small businesses receive the capital and assistance they need during the next few months.  However, other solutions are needed to leverage and incentivize local capital and private investment.

That is where investment crowdfunding (regulation crowdfunding) can play a big role.  It is being utilized by a greater number of local businesses and startups, and new Securities and Exchange Commission rules set to take effect in March will help to supercharge this method of raising capital.  From the very beginning of our efforts to make regulated crowdfunding a reality during President Obama’s term in office, we maintained that it would democratize access to capital.  And that has certainly been the case. In fact, the latest study by Crowdfund Capital Advisors finds that of the SMEs that successfully raised the maximum $1 million from regulation crowdfunding, 45.5% had female founders and 40.9% had minority founders.

Hopefully with PPP and other programs running smoothly, an acceleration in vaccine output and distribution, and states and localities restarting or broadening economic activity, small business optimism and outlook will shift in a more positive direction.  Small business owners may be the optimists among us, but they are exhausted.  They need a period of stability and continued support, and that is what SBE Council will continue to advocate for to bring our economy back to robust and sustainable growth.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.

 

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