Finding working capital is key to small businesses efforts as reopening accelerates

As small businesses reopen after a lengthy pandemic shutdown, one key challenge will be finding working capital to replenish inventories and pay employees until revenue returns to normal, according to a new RAND Corporation perspective based on interviews with a select group of small business owners.

Business owners believe it will take many months to return to normal, and that process can be aided by clear guidance from government or trade organizations about how to reopen safely during the pandemic. This includes how to keep both workers and customers safe.

Small business owners face an array of challenges during the pandemic, which has resulted in sharp reductions in revenue and created an existential threat to their future operation. The RAND paper provides their account of what kinds of policies will help them survive.

The RAND perspective is based on interviews with 21 small businesses from across the country, including owners of restaurants, specialty shops, and even small amusement parks.

Other highlights from the perspective include:

• Paying fixed costs such as rent, mortgage, and insurance has been a struggle during the shutdown and such costs represent an existential threat. Business owners report that while existing programs help support payrolls, they do not go far enough in helping businesses with these fixed costs.
• For some businesses, it was better to lay off workers so they could receive enhanced unemployment benefits rather than trying to keep paying workers’ salaries.
• Relaxing rules in the Paycheck Protection Program, the premier federal small-business assistance program, requiring that 75 percent of loans must be used on payroll in order to be forgiven is one possible approach to aid small business owners. Such a change would give business owners more flexibility to meet their other fixed costs such as rent.

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The perspective, “Preserving Small Businesses: Small-Business Owners Speak About Surviving the COVID-19 Pandemic,” is available at

http://www.

rand.

org

. Authors of the report are C. Richard Neu, Diana Gehlhaus, and Howard. J. Shatz.

The research was conducted in RAND Education and Labor, a division of the RAND Corporation, which conducts rigorous, objective research to help decisionmakers and practitioners find solutions to education and labor market challenges.