The impact of COVID-19 on small business outcomes and expectations
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The impact of COVID-19 on small business outcomes
and expectations
Alexander W. Bartika, Marianne Bertrandb, Zoe Cullenc, Edward L. Glaeserd, Michael Lucac,1 ,
and Christopher Stantonc
To explore the impact of coronavirus disease 2019 (COVID-19)
on small businesses, we conducted a survey of more than 5,800
small businesses between March 28 and April 4, 2020. Several
themes emerged. First, mass layoffs and closures had already
occurred—just a few weeks into the crisis. Second, the risk of clo-
sure was negatively associated with the expected length of the
crisis. Moreover, businesses had widely varying beliefs about the
likely duration of COVID-related disruptions. Third, many small
businesses are financially fragile: The median business with more
than $10,000 in monthly expenses had only about 2 wk of cash on
hand at the time of the survey. Fourth, the majority of businesses
planned to seek funding through the Coronavirus Aid, Relief, and
Economic Security (CARES) Act. However, many anticipated prob-
lems with accessing the program, such as bureaucratic hassles and
difficulties establishing eligibility. Using experimental variation,
we also assess take-up rates and business resilience effects for
loans relative to grants-based programs.
COVID-19 | small businesses | CARES Act
In addition to its impact on public health, coronavirus disease2019 (COVID-19) has caused a major economic shock. In
this paper, we explore the impact of COVID-19 on the small
business landscape in the United States, focusing on three ques-
tions. First, how did small businesses adjust to the economic
disruptions resulting from COVID-19? Second, how long did
businesses expect the crisis to last, and how do expectations affect
their decisions? Third, how might alternative policy proposals
impact business and employment resilience?
To explore, we surveyed more than 5,800 small businesses that
are members of Alignable, a network of 4.6 million small busi-
nesses. The survey was conducted between March 28 and April
4, 2020. The timing of the survey allows us to understand expecta-
tions of business owners at a critical point in time when both the
progression of COVID-19 and the government’s response were
quite uncertain.
The results suggest that the pandemic had already caused
massive dislocation among small businesses just several weeks
after its onset and prior to the availability of government aid
through the Coronavirus Aid, Relief, and Economic Security
(CARES) Act. Across the full sample, 43% of businesses had
temporarily closed, and nearly all of these closures were due
to COVID-19. Respondents that had temporarily closed largely
pointed to reductions in demand and employee health concerns
as the reasons for closure, with disruptions in the supply chain
being less of a factor. On average, the businesses reported hav-
ing reduced their active employment by 39% since January.
The decline was particularly sharp in the Mid-Atlantic region
(which includes New York City), where 54% of firms were closed
and employment was down by 47%. Impacts also varied across
industries, with retail, arts and entertainment, personal services,
food services, and hospitality businesses all reporting employ-
ment declines exceeding 50%; in contrast, finance, professional
services, and real estate-related businesses experienced less dis-
ruption, as these industries were better able to move to remote
production.
Our results also highlight the financial fragility of many busi-
nesses. The median firm with monthly expenses over $10,000 had
only enough cash on hand to last roughly 2 wk. Three-quarters
of respondents only had enough cash on hand to last 2 mo or
less.∗ Not surprisingly, firms with more cash on hand were more
optimistic that they would remain open by the end of the year.
Our survey also elicited businesses’ beliefs about the evolu-
tion of the crisis, allowing us to study the role of beliefs and
expectations in decisions. The median business owner expected
the dislocation to last well into midsummer, as 50% of respon-
dents believed that the crisis would last at least until the middle
of June. However, beliefs about the likely duration of the cri-
sis varied widely. This raises the possibility that some firms were
making mistakes in their forecasts of how long the crisis will
last.†
The crisis duration plays a central role in the total poten-
tial impact. For a crisis lasting 4 mo instead of 1 mo, only
47% of businesses expected to be open in December compared
to 72% under the shorter duration. There is also considerable
heterogeneity in how sensitive businesses are to the crisis. In-
person industries like personal services or retail reported worse
prospects for riding out the pandemic than professional services
or other sectors with minimal need for face-to-face contact.
Lastly, our analysis explores variants of stimulus packages
that were being discussed at the time of the survey. The results
show that over 70% of respondents anticipated taking advantage
of aid when asked about a program that resembles the Pay-
check Protection Program (PPP) that is part of the CARES Act.
Moreover, they expected this funding to influence other busi-
ness decisions—including layoff decisions and staying in business
Significance
Drawing on a survey of more than 5,800 small businesses,
this paper provides insight into the economic impact of coro-
navirus 2019 (COVID-19) on small businesses. The results shed
light on both the financial fragility of many small businesses,
and the significant impact COVID-19 had on these businesses
in the weeks after the COVID-19–related disruptions began.
The results also provide evidence on businesses’ expectations
about the longer-term impact of COVID-19, as well as their
perceptions of relief programs offered by the government.
Author contributions: A.W.B., M.B., Z.C., E.L.G., M.L., and C.S. designed research,
performed research, analyzed data, and wrote the paper.y
The authors declare no competing interest.y
This article is a PNAS Direct Submission.y
This open access article is distributed under Creative Commons Attribution-NonCommercial-
NoDerivatives License 4.0 (CC BY-NC-ND).y
1 To whom correspondence may be addressed. Email:
[email protected]
This article contains supporting information online at https://www.pnas.org/lookup/suppl/
doi:10.1073/pnas.2006991117/-/DCSupplemental.y
First published July 10, 2020.
*See refs. 1 and 2 for discussions of cash holdings of small businesses.
†See refs. 3–5 for related literature on the behavioral economics of firm decisions.
17656–17666 | PNAS | July 28, 2020 | vol. 117 | no. 30 www.pnas.org/cgi/doi/10.1073/pnas.2006991117
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Fig. 1. Firm size in the survey and Census. This figure plots the share of
firms in each employment category for the 2017 Census of US Businesses and
the survey respondents. The sample size for the survey is 4,873 responses,
omitting 959 responses with missing employment data.
altogether. At the same time, many businesses were reluctant to
apply for funding through the CARES Act because of concerns
about administrative complexity and eligibility. A large number
of respondents also anticipated problems with accessing the aid,
citing potential issues such as bureaucratic hassles and difficulties
establishing eligibility.
Our survey was constructed to allow for a counterfactual eval-
uation of a straight loan policy, which is a stylized representation
of traditional Small Business Administration disaster relief pro-
grams. While the more generous PPP program does improve take-
up and business outcomes, traditional loans with speedy delivery
and sufficient liquidity are also found to meaningfully shift busi-
ness owners’ expectations about survival. When compared to a
straight loan without forgiveness provisions, the CARES Act had
modestly greater take-up, but at much higher cost to the gov-
ernment. Because the majority of business owners would have
taken up aid in the form of less generous loans, our results suggest
that liquidity provision was paramount for these owners.
Overall, our paper contributes to our understanding of the
economic impact of COVID-19 on the small business ecosys-
tem. The fate of the 48% of American workers who work in
small businesses is closely tied to the resilience of the small busi-
ness ecosystem to the massive economic disruption caused by the
pandemic. Our survey was conducted during a period of substan-
tial policy uncertainty and before any federal response had been
enacted. Our results provide a unique snapshot into business
decisions and expectations at that time, while offering insight
for policy designed to aid the recovery. Our results highlight the
role the length of the crisis will play in determining its ultimate
impact, which policy makers should consider as they contemplate
the scale of the required interventions. We estimate that closures
alone might lead to 32.7 million job losses if the crisis lasts for 4
mo and 35.1 million job losses if the crisis lasts for 6 mo. While
some of these workers will surely find new jobs, these projec-
tions suggest that the scale of job dislocation could be larger than
anything America has experienced since the Great Depression
and larger than the impact of the 1918 influenza epidemic (6–8).
Another important take-away of our work is that, during liquidity
crunches with significant cash flow disruptions, the form of cash
injection (e.g., grant vs. loan) may be less important than mak-
ing sure that funding is rapidly available with little administrative
complexity.‡
‡This echoes a growing literature that suggests that reducing, simplifying, or providing
assistance in the process of signing up for programs can increase take-up. For examples,
see refs. 9 and 10.
The rest of the paper proceeds as follows. Survey Design
and Details discusses the survey design. Firm Characteristics
and Representativeness discusses the characteristics of the firms
that responded to the survey and their representativeness. In
Responses to the COVID-19 Pandemic and Lockdown, we explore
the current and expected impacts of COVID-19 on these busi-
nesses. In Anticipated Response to CARES Act Programs, we
present results from a module of the survey that experimen-
tally varies policy proposals, allowing us to explore responses to
policies such as the recently passed CARES Act as well as alter-
native policies. Industry Differences in Response to Crisis Duration
considers survival rate differences across industries, and how
survival depends on the duration of the crisis. We conclude in
Conclusion.
Survey Design and Details
Our survey was sent out in partnership with Alignable, a
network-based platform focused on the small business ecosys-
tem. Alignable enables businesses to share knowledge and inter-
act with one another, and currently has a network of 4.6 million
small businesses across North America. Much of the network
growth has been organic, with little outside marketing.
Alignable also regularly sends out polls (which they call “pulse
surveys”) to users. At the end of a regular pulse poll, par-
ticipants who took that poll received an email inviting them
to participate in a more comprehensive survey being con-
ducted by researchers at Harvard Business School. Partici-
pants were shown a disclosure statement and consent proto-
col. No payments were offered; participation was completely
voluntary. The survey was approved by the Harvard University
Institutional Review Board.
We received 7,511 responses between March 27 and April
4; 5,843 of these can be traced back to US-based businesses,
which is the relevant sample for understanding policy. While
the 7,511 responses represent a small fraction (0.017%) of
Alignable’s total membership, they represent a much larger share
of Alignable’s membership that has engaged with their weekly
pulse surveys on COVID-19. Alignable estimates that 50,000 to
70,000 members are taking these pulse surveys weekly, which
suggests a 10 to 15% conversion rate of these more active
respondents.
Fig. 2. Average per capita payroll ($1,000s) in the survey and Census. This
figure plots per-employee payroll in thousands of dollars by firm size for
the 2017 Census of US Businesses aggregates and the survey respondents.
The Census data only report annual payroll for W2 workers and the num-
ber of firms in an employment size category. To calculate payroll for the
survey firms, we take the midpoint of categorical answers for monthly
expenses, multiply by the fraction of expenses going toward payroll, and
divide by total employees (we cannot distinguish between W2 employees
and contractors).