Millions of small businesses are shuttering due to the coronavirus

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The coronavirus is single-handedly erasing millions of small businesses from the U.S. economy.

“They’re challenged,” said Rick Maicki, managing director at Berkeley Research Group, a global consulting firm. “I’m sure there will be small businesses after this thing clears up, but they certainly have a number of challenges.”

Before the pandemic hit the country in January, there were over 14 million small-business owners; by May, over 2 million of them had closed their doors, according to Robert Fairlie, an economist at the University of California at Santa Cruz.

The loss of more than 2 million small businesses over a four-month period is staggering. For comparison, 730,000 small businesses closed during the Great Recession that lasted from December 2007 to June 2009.

The prognosis for the rest of the year is that another 2 million small businesses could be lost by December, according to Oxxford Information Technology, a company that helps financial providers such as banks and credit unions grow their small-business customer base.

A chief reason why small businesses are vulnerable to the virus is that they have few resources to survive prolonged closings.

“The challenge for small businesses is that they don’t have a portfolio to balance off against [losses], so if their area gets shut down, that would be fairly significant for them,” Maicki said.

On average, businesses with more than $10,000 in monthly expenses had only about two weeks of cash on hand, according to a University of Illinois survey conducted between March 28 and April 4, when the U.S. economy was essentially shut down.

And while the March CARES Act provided businesses of nearly every stripe the resources to stay afloat, many small-business owners found applying for the loan problematic because of “bureaucratic hassles and difficulties establishing eligibility,” according to the Illinois survey.

Now, with infections increasing in several parts of the country, small businesses might be forced to shut down again to help slow the spread of the disease.

Neel Kashkari, president of the Minneapolis Federal Reserve Bank, on Sunday called for a lockdown lasting between four and six weeks.

“If we were to lock down hard for a month or six weeks, we could get the case count down so that our testing and our contact tracing was actually enough to control it the way that it’s happening in the Northeast right now,” he told CBS’s Face the Nation.

Reversing course to where only essential businesses remain open is unwelcome news for small-business owners who reduced operations during the first lockdown and are now struggling to survive the pandemic.

Ray Pugsley, founder of Potomac River Running, a family-owned specialty store for runners with nine locations in the Virginia area, said another shutdown would put his company in danger of closing.

“A lockdown would put us at serious risk, and it would be a very upsetting decision for us,” he told the Washington Examiner via email.

Pugsley’s stores in Virginia were partially open during the lockdown in March, while his D.C. location was fully closed. With very little revenue trickling in, he received a Paycheck Protection Program loan that was provided by the CARES Act to make ends meet. The application process for the loan was less than stellar.

“It was a disaster in terms of logistics,” he said, adding that rule changes by the lending facilities made it difficult to apply.

All of Pugsley’s stores are now open, but consumer demand is lower than before the pandemic, and that could force him to downsize operations.

“We definitely have considered which locations might not make it back,” he said, adding that “individual locations [are] more susceptible to the downsizing than others, especially our Washington, D.C., store, which is 100% tourist and business traffic. Both of those categories of consumers are not in D.C. right now.”

Pugsley stressed that he has no plans to close his entire company, but an economic shutdown of four to six weeks could change things if the federal government fails to provide another loan.

“If we don’t get cooperation from our [landlord], our vendors, our employees to ride this out and hang tight until we’re back in business, we won’t be able to make it through the other side,” he said if no loan is provided.

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