A Path to Recovery from COVID-19 for Small Businesses


(The RAND Blog)

The grill is nearly empty at dinner hour at Ben's Chili Bowl during the COVID-19 pandemic in Washington, D.C., April 30, 2020, photo by Jonathan Ernst/Reuters

The grill is nearly empty at the dinner hour at Ben's Chili Bowl during the COVID-19 pandemic in Washington, D.C., April 30, 2020

Photo by Jonathan Ernst/Reuters

For the restaurant owner, the shift to takeout was successful at first, but the kitchen was small, the kitchen staff was crowded together, and they all faced the risk of getting sick. So the owner closed.

For the game store owner, traffic and gatherings stopped, but there was a solution—pair with a restaurant to provide takeout meals and games for family “game nights.” And just make enough money to hold on for a little while longer.

The novel coronavirus pandemic has hammered small businesses around the country. We spoke with 21 small business owners, the restaurant owner and the game store owner among them, to learn more about the challenges they are facing and how they might best be helped. We focused on the businesses that make up the daily streetscape of Americans' lives—the restaurants, specialty shops, and local establishments that make communities a bit different, a bit special.

They told us their biggest immediate concern is fixed operating costs, those expenses that do not go away when a business is shuttered. To reopen successfully, they said they could be helped by access to working capital though loans, clear communication from government, guidance on worker safety, and coordinated reopening rules across jurisdictions.

There are already a variety of assistance programs, and many of the owners we talked to had tapped them. The premier program is the federal Paycheck Protection Program (PPP), which must be used mostly for salaries. The PPP has been helpful, but insufficient.

The most pressing near-term problem is the challenge of meeting fixed operating costs—rent, mortgage payments, utilities, and insurance. Even with payroll assistance, as long as sales have collapsed, businesses are finding it difficult to pay those recurring costs. Rent poses a particular problem because landlords also have to meet their mortgage obligations and could have difficulty deferring rent. However, if tenants go bankrupt and the economic recovery is prolonged, landlords will then have difficulty renting out space and thus also might face financial difficulties or bankruptcy.

The most pressing near-term problem is the challenge of meeting fixed operating costs—rent, mortgage payments, utilities, and insurance.

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Another issue the owners mentioned is that while the PPP program is time limited, business disruptions resulting from stay-at-home orders and restrictions on activities may linger. A longer period to spend aid might allow a business owner time to adjust to continuing restrictions or to test post-crisis demand before committing to a full reopening.

Along with changes in financial assistance, businesses need clearer communication from government. Many of the business owners we talked to said they had applied to different programs and never heard back. Or they applied as best they could, but rules were confusing. Even after receiving help, some did not fully understand all the rules—and they are still changing. Aside from the government writing clearer rules, other helpful measures include help lines, webinars, and other forms of outreach.

Business owners are already thinking of how to reopen. For that, they said they need clear rules about what restrictions they will have to observe during a gradual return to normalcy. The details of these rules, some said, could determine whether reopening is feasible. Getting clear guidance on these matters—primarily from state and local governments—at the earliest possible date will facilitate preparations for resuming business.

Once reopening occurs, customers might be slow to return, but expenses will not.

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Once reopening occurs, customers might be slow to return, but expenses will not. Many may be unable to tap bank loans because they would be high-risk borrowers and reopening will involve great uncertainty. Therefore, small businesses will also need help with working capital to get their operations up and running again.

They will also be helped by measures for worker safety. Many we spoke to said they would be better off with guidance to help them meet the moral obligation of keeping their workers safe. Beyond this, some hoped for indications that certain safety practices might provide a “safe harbor” in terms of worker safety—practices that, if followed and documented, could shield the employer from legal liability.

Business owners also hoped for coordinated reopenings among nearby jurisdictions. These might spell the difference between survival and failure: Essential workers in a business in a closed jurisdiction might move to employers in a more accommodating jurisdiction. Customers could form new trading relationships with businesses in the next town over.

All of this might be costly. And the cost needs to be balanced against benefits and against the many other claims for assistance stemming from this once-in-a-hundred years public health crisis. The catch is that events are moving faster than relevant viewpoints can be captured and complete analyses can be made. Inevitably, decisionmakers will have to set policies before important issues can be resolved. They cannot stop trying to make sound policy, but they may have to make do with partial answers and learn as they go.

We will see the results of their answers as we walk down the streets of our cities and towns in the coming years.

C. Richard Neu is a professor of economics at the Pardee RAND Graduate School and a former senior economist at the nonprofit, nonpartisan RAND Corporation. Diana Gehlhaus is a recent graduate of the Pardee RAND Graduate School doctoral program and an assistant policy researcher at RAND. Howard J. Shatz is a senior economist at RAND and a professor at the Pardee RAND Graduate School.

Commentary gives RAND researchers a platform to convey insights based on their professional expertise and often on their peer-reviewed research and analysis.