Clearer picture emerges of pandemic’s toll on small businesses, nonprofits

The longer the pandemic lasts, the greater the jeopardy to many small businesses. A recent report from McKinsey & Company finds that the sectors most affected by the coronavirus and the least financially resilient include 1.7 million small businesses, employ 20 million workers, and earn 12 percent of U.S. business revenue. Additional research from JPMorgan Chase & Co found that small business revenues dropped as much as 50 percent and cash balances dropped 12.7 percent through April 2020, with Black and Asian-owned businesses suffering larger declines than white-owned businesses. With their roles as employers, economic multipliers and community hubs, the McKinsey report notes that interventions need to give more than immediate relief and help build longer-term resilience.

In addition to sectors that are experiencing well-known challenges, like restaurants and hotels, other small businesses in educational services, healthcare, social assistance and retail trade also reported being highly affected.

The McKinsey report notes that government leaders could consider additional support to small businesses, including:

• Providing sector-specific support, such as helping supply personal protective equipment in bulk to customer-facing industries;
• Establishing local portals to help customers support small businesses;
• Working with private financial institutions to improve access to help businesses with lower financial resilience; and,
• Promoting structural reforms that encourage financial institutions to provide longer-term access to capital and create incentives for small businesses to upgrade their facilities and digitize.

All across the country regions are grappling with the economic fallout of the pandemic. Earlier this month, an economic impact report from Networks Northwest and Fourth Economy noted that Northern Michigan alone could see a $2.3 billion loss in economic activity. Retail there was expected to take the biggest hit, followed by manufacturing, and accommodation and food service industries. The report notes that cuts in tourism traffic and cancelled festivals are also expected to have a reverberating effect in the region that finds 24 percent of its workers in “non-critical” occupations. The region is also vulnerable because of its high concentration of small businesses. 

The report goes on to provide a four-phase roadmap for economic resilience, including goals, the types of stakeholders that might be involved, recommended actions and anticipated outcomes. The phases begin with immediate term interventions that respond to needs for food, shelter, economic relief and other necessities to mid- to long-term resilience that assess the community’s civic infrastructure and capacity to respond to ongoing needs.

The economic crisis has extended to nonprofits as well. A recent survey of nonprofits revealed that a third may be forced to close their doors within the next 12 months as a result of the pandemic. Funders are supporting grantees by offering more grant flexibility and agreeing to grant extensions. Grantees reported that the type of funding they needed most was unrestricted funding, regular project funding and COVID-specific funding.