PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Small Business and Effects of the Pandemic: An Update – Both “Troubles and Hope”

By at 24 April, 2021, 9:00 am

by Raymond J. Keating-

Given the lag in data on the state of small businesses, it’s a challenge to nail down the extent of damage to American small businesses caused by the COVID-19 pandemic, and how small businesses are faring on the recovery front. However, there are assorted sources of numbers that can provide parts of the overall picture – and perhaps a glimpse of what might lie ahead. These sources show a mixed picture – one that conveys both trouble and hope.

Let’s consider three of those sources.

“Open” Small Businesses: TracktheRecovery.org, hosted by Harvard University, Brown University and the Bill and Melinda Gates Foundation, offers estimates on the percent of small businesses that have been closed – whether permanently or temporarily – during this pandemic. The latest estimate points to the number of small businesses open decreasing by 37.4 percent as of April 10, 2021, compared to January 2020. That also compares poorly to the 31.9 percent decrease in late March 2021. The bottom was registered in April of last year at a decrease of 43.8 percent in the number of small businesses being open.

Overall Impact, Operational Capacity and Expectations for Recovery: The latest “Small Business Pulse” survey from the U.S. Census Bureau released on April 22 found that in response to the question “Overall, how has this business been affected by the Coronavirus pandemic?” 26.8 percent said there was a large negative effect, with another 43 percent saying a moderate negative effect. That tallies up to 69.8 percent of small businesses experiencing negative fallout from the pandemic.

As for expectations, when asked “how much time do you think will pass before this business returns to its normal level of operations?” 17.8 percent said there has been little or no effect on normal operations and another 15.1 percent have returned to normal levels. That’s good news for that 32.9 percent of respondents.

Another 1.9 percent said the business has permanently closed and 7.4 percent do not see the business returning to normal levels – grim news from that 9.3 percent.

Finally, 15.5 percent said it would take 4-6 months and another 36.8 percent more than 6 months to get back to normal, with 0.9 percent saying 1 month or less and 4.6 percent saying 2-3 months. So, more than half (52.3 percent) of respondents saying it will take at least 4 months to get back to normal is troubling.

New Business Creation: On the very good news front, new business applications (as measured by applications for an Employer Identification Number (EIN)) continued to run high in March 2021 for both total applications and high-propensity applications (i.e., business applications with a high likelihood of turning into businesses with employees), according to the latest Census Bureau report. Business applications offer a rough estimate of future business startups.

Source: U.S. Census Bureau

Source: U.S. Census Bureau

As noted in the two charts above, in March and April 2020 as the pandemic hit, total and high propensity business applications dropped markedly. Subsequently, though, each moved up dramatically into and remaining in record territory. That provides hope for what might lie ahead for U.S. entrepreneurship and our nation’s economy.

Let’s hope policies – namely sound tax and regulatory policies – are pursued to help fuel small business and startup recovery

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

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