Early in 2020, as quarantine in the U.S. began, the supposed two weeks of most businesses being shuttered turned into months of this, affecting businesses large and small across the country.
While large corporations were able to take the financial hit, many small businesses closed their doors permanently. The most hard-hit small businesses were food, childcare, educational services and taxi/limo services, according to the Bureau of Labor Statistics.
The majority of the businesses were minority-owned and did not have the savings to cover basic costs during the quarantine period, as they weren’t making enough or any income. It is too early to tell how many businesses were drastically affected by the COVID-19 pandemic.
According to an article in the “Journal of Economics & Management Strategy,” by Professor Robert Fairlie, in the first months of quarantine, 22% of business owners were not working, the majority being labor-intensive or personalized services.
Other industries, such as finance, saw the number of active business owners drop by only 12%. Personal and laundry services were hit the hardest with a 79% drop in active business owners followed by educational services by 39%, leisure, and hospitality by 35%, construction by 27% and an active owner drop in restaurants by 22%.
The industries facing the highest losses were owned primarily by people of color and women. Women and people of color experienced the highest losses; active women business owners dropped by 25%, 41% for Black, 32% for Latino and 26% for Asian business owners, compared to a 20% drop for men and a 17% drop for white owners.
Most business owners claimed to have enough savings to cover one to two months of expenses at the beginning of COVID. As quarantine continued for longer than expected, businesses went from temporary closures to permanent closures. The Federal Reserve estimates that there will be 123,000 more permanent business closures than the pre-pandemic average.
At the beginning of the quarantine, according to Harvard University, 37% of small businesses in Mass. were closed which is over the national 31% of closures. This meant that small business revenue, on the national level, declined by 50% during the first months of the quarantine and a staggering 60% in Mass. While revenue on the national level has begun rising above pre-pandemic levels, Mass. remains behind, with only one week in 2021 having pre-pandemic revenues.
The post-pandemic recovery for small businesses has been a long road, but the impact of the CARES Act has led to a steady recovery. The CARES act delegated almost $800 billion in forgivable “Paycheck Protection Plan” loans to over 11 million businesses with less than 500 employees. According to Harvard University, small business revenue has increased to be almost consistently above pre-pandemic levels. While the revenue is catching up, it still may not offset the expenditures of quarantine and over a year and a half of low revenues.
Although 123,000 permanent closures due to COVID still means too many families without income, it could have been a lot worse. These numbers do not account for the amount of money spent by small business owners trying to stay afloat during the lockdown. An NPR study has shown that 19% of Americans have lost their entire savings due to COVID-19, and Pew Research has shown that the ability to save has decreased tremendously, affecting families of color and low income families the most.
