Small Businesses Are Disappearing rapidly.

Small Businesses Are Disappearing rapidly.

Just a few weeks ago, a New York Times article warned that as many as one-third of New York’s small businesses could be “gone forever”. Bloomberg reports that small businesses are “dying by the thousands”.

Business bankruptcies in Maryland have reached a “staggering state”. There are countless stories like these around the US and none of them sound very good. So are things that bad for small businesses? Is there not a great need for billions in new stimulus funding to save them? The short answer is no. Well, not for all of them.

America is a big country with 30m small businesses. And if there’s one thing I’ve learned about small businesses it’s that you can’t just lump them all together to support a narrative, be it moral or political.

This wave of silent failures goes uncounted in part because real-time data on small businesses are notoriously scarce, and because owners of small firms often have no debt, and thus no need for bankruptcy court.

“Probably all you need to do is call the utilities and tell them to turn them off and close your door,” said William Dunkelberg, who runs a monthly survey as chief economist for the National Federation of Independent Business. Nevertheless, closures “are going to be well above normal because we’re in a disastrous economic situation,” Dunkelberg said.

Yelp Inc., the online reviewer, has data showing more than 80,000 permanently shuttered from March 1 to July 25. About 60,000 were local businesses or firms with fewer than five locations. About 800 small businesses did indeed file for Chapter 11 bankruptcy from mid-February to July 31, according to the American Bankruptcy Institute, and the trade group expects the 2020 total could be up 36% from last year.

In 2000, 15% to 20% of small companies became medium or large companies every year, business professors Vijay Govindarajan and Anup Srivastava reported in Harvard Business Review. By 2017, that figure had been slashed by half. 

“Going into the pandemic, I have never seen them playing field more tilted” to the advantage of a handful of big businesses, Moody’s analyst Charlie O’Shea told Business Insider. 

Prior to the pandemic, roughly half of small businesses only had enough cash to stay in business for 27 days if they stopped bringing in money, according to a JPMorgan Chase Institute analysis. A quarter had a cash buffer that would last them fewer than 13 days. 

The pandemic put these cash buffers to the test. And more than 163,700 businesses failed that test, according to a September Yelp report, shutting down amidst financial hardship.

Meanwhile, half of the small business owners say that they will be forced to close if current business conditions continue for more than a year, according to a MetLife & US Chamber of Commerce Small Business Index survey released in mid-December. 

“People were in total shock” when the pandemic began, said Luz Urrutia, CEO of the small-business lender Opportunity Fund. “Small business owners were at home [asking] what do we do now? What happens? This is our lives, this is our livelihoods. This is our family.”

The situation is even direr for entrepreneurs of color. 

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