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Report: Nearly half of small businesses not ready for two-week slowdown

March 19, 2020

A report released last fall on the financial stability of U.S. small businesses in 25 metros has been given new context as attempts to slow the coronavirus pandemic have brought a majority of in-person commerce to a halt across communities, the country, and the globe. The JP Morgan Chase report found that 29 percent of small businesses were unprofitable and 47 percent had less than two weeks of liquidity. The situation was worse — often twice as much — in communities with lower-than-average home values, college graduates, or majority minority populations.

The likelihood of a business having reserves varied by sector. Restaurants had the lowest median profitability (9 percent), followed by retail (11 percent). High-tech services companies (29 percent) and health care services (26 percent) were the most profitable. Of course, even sectors with an average cushion of more than two weeks may be tested by what promises to be a longer series of interventions.

These findings shed light on current and future economic emergency actions for governments to consider. The low cash reserves of many small businesses suggest that even subsidized loans may be difficult for low-margin companies to access without further assistance — low cash on hand can negatively affect a lender’s assessment of the company’s debt capacity, as well as the company’s ability to simply cover closing costs. Perhaps the most important lesson is the need for urgency: even as Congress is laudably already working on a third assistance package, the fact is that a two-week window for getting assistance into the hands of a businesses is too fast for any intervention requiring a legislature.

small business