“Small Businesses Are Dying by the Thousands — And No One Is Tracking the Carnage”
By Madeleine Ngo, August 11, 2020, 9:08 AM EDT
- They simply close down and never show up in bankruptcy tallies
- More than half of owners are worried their firm won’t survive
The COVID-19 pandemic has impacted virtually all businesses in one way or another. But the divide between small businesses and large organizations has never been clearer. “Big companies are going bankrupt at a record pace, but that’s only part of the carnage. By some accounts, small businesses are disappearing by the thousands amid the COVID-19 pandemic, and the drag on the economy from these failures could be huge.”
Massive corporations have the cash and/or borrowing power to stay afloat for many months, the majority of small businesses do not. And we’re beginning to feel the effects. Economists project that more than 100,000 American small businesses have already shut down permanently since March. This suggests that at least 2 percent of all small businesses are now gone (never to return). And this is just the very tip of the iceberg.
According to a separate study that was conducted in April, as many as 7.5 million small businesses will be permanently shut down if business disruptions continue unabated. More than 90 percent of them will be companies with fewer than 20 employees.
“This wave of silent failures goes uncounted in part because real-time data on small business is notoriously scarce, and because owners of small firms often have no debt, and thus no need for bankruptcy court.”
“Yelp Inc., the online reviewer, has data showing more than 80,000 small businesses permanently shuttered from March 1 to July 25. About 60,000 were local businesses, or firms with fewer than five locations.”
Small businesses are the backbone of the American economy.
“While the businesses are small individually, the collective impact of their failures could be substantial. Firms with fewer than 500 employees account for about 44% of U.S. economic activity, according to a U.S. Small Business Administration report, and they employ almost half of all American workers.”
“Small business attrition is high even in normal times. Only about half of all establishments survive for at least five years, according to the SBA. But the swiftness of the pandemic and the huge drop in economic activity is hitting hard among typically upbeat entrepreneurs. About 58% of small business owners say they’re worried about permanently closing, according to a July U.S. Chamber of Commerce survey.”
References:
- https://www.bloomberg.com/news/articles/2020-08-11/small-firms-die-quietly-leaving-thousands-of-failures-uncounted?utm_campaign=news&utm_medium=bd&utm_source=applenews
- https://www.washingtonpost.com/business/2020/05/12/small-business-used-define-americas-economy-pandemic-could-end-that-forever/
- https://www.cnbc.com/2020/04/14/7point5-million-small-businesses-are-at-risk-of-closing-report-finds.html