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Coronavirus-related lockdowns laid waste to small businesses and local economies in 2020. Layoffs at small businesses jumped more than 1,000 percent during the first wave of lockdowns in March and April, and by the fall, more than 100,000 small businesses had permanently closed.
Many small business owners worry that economic recovery will be excruciatingly slow this year. Although President Biden hopes to vaccinate 300 million Americans by the fall, new research indicates that strict social distancing measures must continue through July to effectively limit new infections. Government initiatives, such as the CARES Act and President Biden’s new relief bill, have provided some relief, but one-in-four small businesses could still fold in the next six months.
At little personal cost, individuals can help small businesses stay afloat as we wait for the economy to fully reopen. Three simple, targeted shifts in spending can help businesses shore up their cashflow and stem the tide of lost revenue.
1. Pay in advance
Liquidity is a common challenge for small businesses. Typically, 47 percent of small businesses in the US have two weeks or less of cash on hand; in majority Black or Hispanic communities, this figure hovers around 90 percent. These businesses are even more cash-constrained during the pandemic as they lose revenue and payout more benefits related to the pandemic.
Even businesses that normally have enough cash on hand are struggling during the lockdown. Think of a dentist in New York: as the economy reopens, customers who postponed routine procedures are beginning to schedule appointments and generate new revenue. But while the dentist waits to return to full capacity, she might run out of cash-paying rent, utilities, payroll, benefits, and other recurring expenses. Barbershops, gyms, restaurants, and some healthcare facilities that focus on elective procedures find themselves in this position.
Normally, businesses could borrow to make ends meet. Indeed, banks are lending at the fastest rate ever, bolstered by additional federal funds. But even this unprecedented lending isn’t keeping pace with demand, and federal programs have been hindered by glitches, loopholes, and red tape.
Individual consumers can help fill the gap with personal “loans”—no banks or lawyers needed. How? Buy gift cards from local retailers. Prepay for services from a local contractor. Schedule future appointments at barbershops, nail salons, dentists, and pay upfront. Start early online shopping for holidays or birthdays, even if there are shipping delays. Pay outstanding bills immediately and overpay to temporarily have a negative balance.
These actions would functionally provide businesses with personal, zero-interest loans. Consumers spend their money now with the assumption that they will recoup the value later. It costs next to nothing for the individual but provides liquidity to businesses feeling the squeeze.
2. Reallocate spending
Liquidity alone won’t save some businesses. Some companies may expect a prolonged decline in demand, even as the economy reopens. Certain sectors, including entertainment, travel, leisure, food services, and retail, are especially vulnerable as consumers continue to postpone large purchases or cut spending on non-essential purchases altogether.
Small businesses in these sectors will struggle to repay loans—from banks or individuals—unless they get more business. Said differently, they need more consumption, not just more liquidity.
Individuals can provide relief at little personal cost by shopping at local businesses instead of national chains. The consumer might pay a slight premium in cost or convenience, but the local business gets revenue it otherwise would have missed out on entirely. For example, buying groceries at the local supermarket might cost a few extra dollars or take a few extra minutes compared to shopping at Walmart. But accepting that small marginal cost ensures the entire balance of your grocery bill goes to the supermarket. Reallocating spending, therefore, offers high “bang for buck” for consumers looking to support small businesses.
3. Increase spending
The clearest way to support small businesses is to increase spending. Admittedly, it’s a difficult ask to make of those Americans who lost their jobs and savings due to the pandemic. But for those who can afford it, greater consumption directly benefits local businesses’ bottom line.
There are at least two ways to think about increasing spending. Individuals can simply buy more goods and services. Hire a local company to shovel snow or mow the lawn. Buy the new appliance or device that’s been sitting on the wish list. Buy an extra birthday gift.
Alternatively, individuals can choose to pitch in more for goods and services they already buy. Increase the tip for food delivery. Continue a local gym membership even while the gym is closed. Pass up refunds or vouchers for forgone services. These are generous acts of goodwill and solidarity.
Small businesses are crucial to our economy and our communities, and many of them are facing an existential threat from the coronavirus. While government, nonprofit, and private institutions are scrambling to provide relief, individuals must also do their part: small, thoughtful shifts in spending can bolster liquidity, generate new revenue, and boost margins. In aggregate, these individual actions could make all the difference.