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Protecting US small businesses from the impact of COVID-19

Many small businesses have closed as a result of the COVID-19 crisis. In this McKinsey Live webinar, partner Deepa Mahajan discusses innovations and support mechanisms that could help keep more small companies in business.

Small businesses play many roles in the US economy: employers, sources of innovation, economic multipliers, community hubs. They constitute more than 99 percent of US businesses and employ 60 million people. Small businesses are also uniquely vulnerable to the economic impact of the COVID-19 crisis. A McKinsey survey found that close to one-third of small businesses were operating at a loss or breaking even before the crisis.

Small businesses in sectors which are most affected by COVID-19 and least financially resilient (such as accommodations and food services; educational services; and arts, entertainment, and recreation) employ 20 million workers and earn 12 percent of US business revenue. These businesses account for a disproportionate number of low-wage workers, people with less formal education, and minority business owners.

In this McKinsey Live webinar, partner Deepa Mahajan offers a closer look at the principal challenges SMBs face. Many such challenges arise because of uncertainty. When will customers return, if they return at all? What happens when we have to close, reopen, and close again? Is our supply chain reliable? What level of inventory should we maintain? How many employees do we keep on, and how can we keep everyone safe and healthy? Will childcare facilities be available? Will we have access to adequate financing?

In addition, small businesses face certain structural challenges that existed before the pandemic and have now intensified:

  • Already-slim margins are under pressure from factors such as decreased demand and the cost of health-and-safety compliance.
  • Adopting new business and operating models can be difficult and expensive.
  • Installing new technologies that can help small businesses to succeed requires an investment many SMBs are unable to make.

Recovery will take time. It took an average of six years for small businesses to recover fully following the 2008–09 recession. Some public-private local partnerships have been formed to help small businesses, and more can still be done. The following actions can shore up small businesses, build their longer-term resilience, and shorten their recovery time:

Increase small businesses’ access to credit and stimulus funding. This could include providing tax incentives for small businesses that hire individuals from disadvantaged groups, launching local microcredit funds that give loans to local businesses, and promoting structural reforms that encourage financial institutions to provide new or special forms of credit and longer-term access to capital.

Help small businesses make the transition to the next normal. This effort might involve working with educational institutions to provide classes on topics such as accounting, digital marketing, and workforce development; creating entrepreneurship zones that provide owners with access to comprehensive services and training; and subsidizing the cost of enterprise resource software.

Support efforts to help small businesses expand. Public-private partnerships could help owners and employees with low-cost mental health and childcare resources, for example. In addition, individuals and groups could pledge to buy from local small businesses.

For more on this topic, please watch the webinar recording and read the McKinsey articles “US small-business recovery after the COVID-19 crisis,” “Which small businesses are most vulnerable to COVID-19—and when,” and “COVID-19’s effect on jobs at small businesses in the United States.”

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