1st Place: The US small business dilemma in a post-pandemic world
Written by Dinesh Pannir
Reference: Businesses in the containment area that New York State declared in New Rochelle because of the coronavirus.Credit.Spencer Platt/Getty Images
This opinion piece aims to talk about the dilemma that small businesses in the United States are going through in the post-pandemic era. This is why this opinion piece talks about the new challenges faced by small businesses and what the U.S government can potentially do to help them, as well as, the opportunities that small businesses can undertake in a post-pandemic world in order to be successful.
In 2020, when the Covid pandemic first hit, small businesses faced challenges such as lockdowns and the initial fear of the virus as consumers preferred to stay at home. This resulted in a huge loss of revenue and the termination of employees which caused many businesses to close down. Those that survived had adapted through the tough times; albeit with aid from the federal government. We are now currently 3 years into the pandemic, and small businesses have new challenges to overcome such as high inflation, rising interest rates and a labour shortage. However, these challenges also come with opportunities that small businesses can take through innovation and adaptability. The government also has a part to play by implementing policies to suit the changing times.
2. Challenges and Government Aid for Small Businesses
The U.S. has seen the largest rise in inflation since the late 1970s and early 1980s with inflation reaching 6.9% in 2021. A rise in inflation will cause prices of raw materials and services to increase for small businesses. Inflation alone is not necessarily a problem if businesses see an equal or larger percentage rise in revenue to counter inflation. However, the new Omicron variant has seen a sharp rise in covid cases and 71% of business owners admit that this has negatively affected their revenue (Goldman Sachs, 2022). A fall in revenue and increased costs may see more businesses closing shop.
Figure 1: Number of Covid Cases in the US (Statista, 2022)
2.1.2 How can the government help?
The most obvious way the government can help is by imposing a vaccine mandate to curb the spread of the virus and any future spikes. However, the federal government has limited power over the states and Biden’s move to install a vaccine mandate has been deemed unconstitutional by the supreme court (Sherman,2022). The next best thing would be to encourage private businesses to install rules requiring their employees to be vaccinated. However, the National Federation of Independent Business have expressed concern that small businesses will bear compliance costs and find it harder to hire which may see their revenue drop (Sherman, 2022). Instead, it would be wiser to strike a balance where unvaccinated workers can be given the choice to work remotely in a hybrid workplace setup or be tested regularly if they choose to work physically. This will minimise the damage to small businesses.
In light of the new variants causing a surge in covid cases, the government can help by providing more financial support towards businesses in the form of partial rent waivers and direct cash checks, similar to that at the start of the pandemic. Small businesses can apply for these financial incentives if they provide proof of revenue loss amid rising inflation via their company financial statements. The financial aid should also be scaled to offer more help towards companies more sensitive to price increases; albeit capped at a maximum amount.
Additionally, Congress had previously introduced the COVID-19 Economic Injury Disaster Loan (EIDL). This is a federal program which allowed small businesses to take low-interest, long-term loans for up to 2 million dollars with interest waived for the first 2 years (Covid-19 Economic Injury Disaster Loan, 2022). Unfortunately, the program was ended at the beginning of 2022 due to increasing optimism as the U.S economy showed signs of recovery. However, the new contagious omicron variant resulted in more than 800,000 cases a day at the beginning of 2022 as seen in Figure 1 which is a point unseen even at the peaks of 2020 and 2021. Given the new situation, Congress should renew this program to continue helping small businesses. The government should also consider increasing the maximum loan amount of the program and waive interests for the year 2022 as businesses recover.
Figure 2: Relationship of inflation rates and interest rates in the US (US Bureau of Labour, 2022)
2.2.1. Rising Interest Rates
Furthermore, as seen from Figure 2, there is a clear correlation between inflation rates and interest rates. Whenever inflation rates are high, the central bank raises interest rates to combat inflation. Currently, inflation has significantly increased, which means that the central bank is bound to raise interest rates soon.
Small businesses that borrowed heavily in 2020 when interest rates were 0%, and are presently in high debt will be worst hit as they struggle to pay back their loans. After all, small businesses must set aside more money to repay their debt, leaving lesser available cash for the business (Merino, 2020). Any additional expenses or slowdown in revenue growth could be fatal for small businesses. According to a survey by the U.S. Chamber of Commerce, 45% of businesses have taken out a loan due to inflation (Leonhardt, 2021). 45% is a high number as compared to previous years and higher interest rates could decrease the revenues of small businesses further as borrowing costs increase. As seen in Figure 3, this is due to higher operating costs. It is also due to the specific needs of certain businesses. For example, the retail business requires the purchase of inventory or they would have nothing to sell and make a profit (Leonhardt, 2021).
Figure 3: Inflation increases cost for small businesses (USChamber, 2021)
Also, higher interest rates means that consumers would prefer saving and reducing consumption as they get a better return from the bank. This changing consumer sentiment may further hurt business profits.
2.2.2. How can the government help?
As previously mentioned, bringing back the EIDL program will help by allowing many of these businesses to borrow money at affordable rates. However, for businesses with high cash flow, they should pay back as much debt as possible before interest rates increase. It is important to note that the government has no power to influence the rising interest rates as that decision lies solely in the hands of the Central Bank which has made it very clear their intention to combat inflation.
2.3.1. The worker shortage crisis
As previously mentioned, there has been a wave of workers quitting their jobs amid the pandemic. Last November alone saw 4.5 million Americans leaving their jobs. Resignation rates are highest among mid-career employees as high workload, hiring freezes and other factors have made workers rethink their career and life goals (Cook, 2021). Additionally, resignation rates in the tech and healthcare sector are the highest due to stress (Cook, 2021).
The labour market has seen some sectors with a labour surplus and others with a labour shortage. For example, durable goods manufacturing, wholesale and retail trade, and education and health services have a labour shortage while transportation, construction and mining industries have a labour surplus (Ferguson, 2022).
Many workers prefer more flexible working hours as working remotely becomes the new norm. New research shows that people value flexibility as much as a 10% pay raise (Smith, 2022). Therefore, small businesses must try to adapt to this new environment to retain workers and fill up their vacancies. A labour shortage is undesirable in the market as businesses are inefficient and fail to maximise their profits.
2.3.2. How can the government help?
The mass resignation in the healthcare sector may not be too much a cause for concern. While the healthcare sector saw 1 million resignations in November 2021, there were also 1.2 million hires (Ferguson, 2022). Despite this, it is important not to take anything for granted as the spike in Omicron cases may see a future drop in hires and more resignations as workers cannot cope with the additional stress and longer working hours. The government can help by introducing a federal law to mandate compulsory rest hours and a maximum limit that workers can be asked to work overtime in a calendar month. The government can also introduce salary bonuses for government workers in the healthcare industry to acknowledge the increased workload of the industry amid the pandemic. This promotes a better work-life balance and can help improve retention rates in the industry.
Figure 4: Labour shortages in selected industries (USChamber, 2021)
Furthermore, the government can introduce a grant that helps improve the skillset of workers and solve the labour shortage of some small businesses. This grant can provide heavy subsidies for relevant courses and training programs. Workers who are struggling to find a job in labour surplus industries can use this grant to gain qualifications and skills in order to enter a sector with a labour shortage. For example, referring to Figure 4, those in the transportation sector can learn new manufacturing skills and re-enter the workforce. This will help the manufacturing sector that is struggling to find entry-level applicants with the desired skillset. Additionally, small businesses can also apply for the grant to upskill their existing workers to fill up higher position roles urgently.
3. Opportunities for Small Businesses
3.1. New work life arrangements
“The Great Resignation” is a term used to describe the previously unthinkable trend of workers quitting their jobs in swarms to take control of their lives and achieve better work-life balance. Businesses stand a chance to take advantage of this new trend by embracing a flexible work environment to build a loyal and long-lasting employee-employer relationship.
A survey done by Standford showed working from home can increase productivity by up to 13% with workers displaying increased work satisfaction (Surprising working from home productivity statistics, 2022). Small businesses should take this opportunity to promote a more hybrid work environment. With increased work productivity, companies can negate the labour shortage effects in the market by hiring less workers while being more efficient.
The Covid pandemic is a disruptive event which will permanently change the world. It is not a temporary phenomenon that will simply pass, and we can all go back to our lives pre-covid. Small businesses must change their business model to suit the new consumer trends. For example, delivery services have been on a record rise with food industries that adapted to this trend. Even gem stores innovated to having livestream auctions during the lockdowns (Gurchiek, 2020).
In the post-pandemic world, these innovations should be expanded and build into the business model. For example, the gem stores should not go back to purely physical sales. The online traction they have gained can be expanded upon through promotions, advertisement deals and new programs. They can gain more sales as the internet allows them to reach a wider audience from around the world. It is this kind of entrepreneurial mindset that will give companies the biggest opportunity to do well.
In all, the challenges in this new post-pandemic era in the United States is clear. High inflation, rising interest rates and the labour shortage in the workforce will all negatively affect small businesses. However, just like in 2020, small businesses can take the necessary steps to mitigate the crisis by seizing new opportunities available through innovation and taking advantage of the new norms of the pandemic. Lastly, it is vital for the federal government to adapt its policies to suit the ever-changing times.
Cook, I. (2021, September 15). Who is driving the great resignation? Harvard Business Review. Retrieved from: https://hbr.org/2021/09/who-is-driving-the-great-resignation
Covid-19 Economic Injury Disaster Loan. U.S. Small Business Administration. Retrieved from: https://www.sba.gov/funding-programs/loans/covid-19-relief-options/covid-19-economic-injury-disaster-loan/about-covid-19-eidl
Gurchiek, K. (2020, September 19). Small businesses get creative to survive during the pandemic. Society for Human Resource Management. Retrieved from: https://www.shrm.org/hr-today/news/all-things-work/pages/small-businesses-get-creative-to-survive-during-the-pandemic.aspx
Leonhardt, M. (2021, December 14). Almost half of small-business owners are taking out loans because of inflation. Fortune. Retrieved from: https://fortune.com/2021/12/14/small-business-owners-loans-inflation/
Merino, M. (2020, May 17). How do interest rates affect businesses? Crestmont Capital. Retrieved from: https://www.crestmontcapital.com/blog/how-do-interest-rates-affect-businesses
Number of new cases of coronavirus (COVID-19) in the United States from January 20, 2020 to March 4, 2022, by day. Statista. Retrieved from: https://www.statista.com/statistics/1102816/coronavirus-covid19-cases-number-us-americans-by-day/
Sherman, N. (2022, January 14). US Supreme court blocks Biden’s workplace vaccine mandate. British Broadcasting Corporation. Retrieved from: https://www.bbc.com/news/world-us-canada-59989476
Smith, M. (2022, January 14). Professor who predicted ‘The Great Resignation’ shares the 3 trends that will dominate work in 2022. Consumer News and Business Channel. Retrieved from: https://www.cnbc.com/2022/01/14/the-great-resignation-expert-shares-the-biggest-work-trends-of-2022.html
Surprising working from home productivity statistics (2022). (2022, January 02). Retrieved from: https://www.apollotechnical.com/working-from-home-productivity-statistics/