After enduring a pandemic, small businesses face new worries
By Lydia DePillis
America’s small businesses can’t catch a break.
After two years of shutdowns and restrictions due to the COVID-19 pandemic, they are straining to keep up with price increases without losing customers to larger competitors. They are struggling to keep positions filled as competition for workers remains at a fever pitch. And just at the moment that many business owners begin to recover and shore up their depleted savings, they are worried that the Federal Reserve’s medicine for inflation will bring fresh hardship: higher borrowing costs and timid consumers.
Surveys show that small-business sentiment has taken a markedly pessimistic turn in recent months — even more so than that of professional forecasters and of corporate executives.
In June, the National Federation of Independent Business measured its lowest reading ever for economic expectations. The nonprofit Small Business Majority, in a survey in mid-July, found that nearly 1 in 3 small businesses could not survive for more than three months without additional capital or a change in business conditions. The U.S. Chamber of Commerce’s Small Business Index for the second quarter showed that inflation had skyrocketed to the top of owners’ concerns. Seventy-five percent of participants in Goldman Sachs’ small-business coaching program reported that higher costs had impaired their finances.
The sector — which the federal government typically defines as businesses below a certain size, ranging from 500 to 1,500 employees depending on the industry — is responsible for 2 of every 3 jobs created over the past 25 years, according to the Labor Department. So a weakening of that engine bodes ill for American growth and prosperity.
Corinne Hodges runs the Association of Women’s Business Centers, a national network offering training, mentoring and financing to entrepreneurs. The organization’s funding from the Small Business Administration was augmented to help thousands of businesses navigate the pandemic, but, with the extra money now exhausted, the centers are laying off advisers, just as clients are asking for more help.
“We saw pivoting in COVID,” Hodges said. “Well, what is it now? What’s the new pivot? It’s just been a vise grip of pressure emerging from the pandemic. Is a pivot going to be enough, or does it need to be something more?”
Kymme Williams-Davis was one of those who survived pivot after pivot, and she is not sure she can make it much longer.
Seven years ago, she started a coffee shop in the New York City borough of Brooklyn called Bushwick Grind, specializing in fair-trade beans that are locally roasted. She spent $200,000 building out the space with a kitchen, and developed a brisk business selling healthier fare than that of the fast food outlets around her.
When the pandemic hit, the shop had to close for nine months. Williams-Davis made rent by subletting the space to other small vendors. When she reopened in 2021, she got a boost from a contract to deliver 400 meals a day to the city’s vaccine sites. That cash flow allowed her to qualify for a loan to buy her own space.
But she has not been able to find anything in Brooklyn, in part because large investors keep outbidding her. Foot traffic has not recovered. The cost of coffee, kale and other provisions — if she can even get them — is skyrocketing. Farmers from upstate are saving on gas by taking fewer trips into the city, so she has begun to swap in lower-grade ingredients.
“The costs are so high, the revenue came in, but it’s just siphoning out,” Williams-Davis said. At the same time, an unstable workforce has made it difficult to operate full steam: She had to limit her offerings, eliminating a brunch menu, because cooks kept leaving. Even after she raised starting pay to $24 an hour, she said, employees were lured away by the flexibility of gig work.
Williams-Davis does not blame her workers for seeking better opportunities, but the trend is one more penny on the scale against survival. Asked about the future, she sighed. “I feel like it’s 50-50,” she said, “because if I don’t find a way to reduce my liability and retain capital, I won’t be able to make it too much longer.”
Irina Sirotkina sold her stake in a construction company early in the pandemic, when contracts for new hotels and office buildings dried up. She used that money to open a bakery in October in Battle Ground, Washington. Although orders for her cakes and pies have been pouring in, customers have resisted even the smallest price increases. The costs of her main ingredients — eggs, butter, milk and flour — have climbed 13% to 49% since she first fired up the ovens. So far, profits have been elusive, would-be customers are cutting down on car trips into town and there is no new Paycheck Protection Program in sight.
“We’ve used all our resources to make it, because we didn’t qualify the first, second or third round” of that program, Sirotkina said. “But how far are we going to have to make it before we get help?”
New businesses and those run by people of color have particular difficulty obtaining bank loans, so they are often driven to online lenders that charge steep interest rates for short-term financing. Last year, hoping to ease access to credit, Congress allocated $10 billion to be funneled through lenders with the express purpose of reaching underserved entrepreneurs; the money is still trickling out.
Nevertheless, signs of weakness are appearing. Gusto, a payroll and benefits provider that serves 200,000 small businesses, has seen an uptick in layoffs among its users. That is significant, said the company’s economist, Luke Pardue, because smaller employers are typically loath to let people go.
“For a small business, 10% of its workforce might be its HR department,” Pardue said. “Every employee really does have some specialized importance that might not be present in a larger company, so every swing you might see is more meaningful.”