Insights / Research BriefApr 14, 2020

The Impact of COVID-19 on Small Businesses

Alexander W. Bartik, Marianne Bertrand, Zoë B. Cullen, Edward L. Glaeser,, Michael Luca, Christopher T. Stanton
New Survey Reveals that Many US Small Businesses are Financially Fragile, Need Assistance, and Fear a Long Recession

Small businesses account for nearly 50 percent of US workers, and this new survey of nearly 6,000 firms reveals the financial fragility of many of those businesses and signals a cautionary note for policymakers, as most respondents expect the crisis to extend beyond the spring and well into the summer.

The late-March 2020 survey focused on assessing small businesses’ current financial status, the extent of temporary closures and laid-off employees, duration expectations and the impact on decision-making, and whether businesses planned to apply for CARES Act funding and how such a decision could impact closures and lay-offs. Broadly, the survey revealed the following:

  • Disruption to US small businesses is severe, with 43% of the respondents temporarily closed. Employee reductions stood at 40% across all respondents. Regionally, mid-Atlantic states, including New York City, reported closures of 54% and layoffs of 47%. Industry responses varied widely, with service sector firms reporting employment declines over 50 percent.
  • Many US small businesses are standing on financially shaky ground, with the median firm with expenses over $10,000 per month retaining only enough cash to last for two weeks. For 75% of respondents, there was only enough cash to cover expenses for two months or less.
  • US small businesses are widely uncertain about when the crisis will end, with half expecting the crisis to persist into mid-summer, meaning that many firms expect this economic challenge to persist well beyond their available cash levels.

For policymakers, the following results are particularly salient:

  • More than 13% of respondents did not plan to seek CARES Act funding because of application hassle, distrust that loans will be forgiven, and eligibility complexity.
  • If the crisis extends beyond four months, many firms—especially many in the service industries—do not expect to remain viable.
  • Extrapolating the 72 percent of businesses that would apply for CARES Act funding, and assuming all businesses would request maximum loans (2.5 months of expenses), the total volume of loans from all US businesses would approach about $410 billion, beyond the $349 allocated in the CARES Act at the time of the survey.