COVID-19 Forces Widespread Small Business Closures

07.20.2020
Small Business

The coronavirus pandemic forced more than one-fifth of U.S. small businesses to close between February and April as minority- and women-owned businesses were hit hard, a new study shows.

A National Bureau of Economic Research analysis, The Impact of COVID-19 on Small Business Owners, said the number of active small business owners in the U.S. fell by 22% from 15 million in February to 11.7 million by the end of April.

“The drop in business owners was the largest on record, and losses were felt across nearly all industries and even for incorporated businesses,” Robert Fairlie, a University of California Santa Cruz economic professor, writes in the report.

By comparison, the Great Recession saw the number of business owners fall by 730,000, or 5%—far less than the 3.3 million owners the coronavirus claimed from February through April.

Breakdown

The analysis also found that:

  • African-American owned businesses were hit the hardest by COVID-19, with a 41% drop from 1.1 million to 640,000
  • Immigrant-owned businesses fell 36% from 3.1 million to 2 million
  • Latino businesses fell by 32% from 2.1 million to 1.4 million
  • Asian businesses were down 26% from 888,000 to 658,000
  • Women-owned businesses decreased 25% from 5.4 million to 4 million
  • White-owned businesses fell 17% from 10.5 million to 8.7 million.

African-American businesses were hit the hardest by COVID-19, with a 41% decline.

The disproportionate impact on women-owned businesses “will only further increase gender inequality in business ownership and perhaps broader economic inequality,” Fairlie wrote.

“The negative early-stage impacts on minority- and immigrant-owned businesses, if prolonged, may be problematic for broader racial inequality because of the importance of minority businesses for local job creation and economic advancement.”

Sector Losses

The number of unincorporated small businesses fell from 7.8 million to 5.1 million, or 34%, while incorporated businesses dropped from 5.8 million to 4.7 million, or 20%.

The report, which Fairlie called the first analysis of the pandemic’s impact on small businesses, used nationally representative data from the April 2020 Current Population Survey.

Agriculture appears to be the only major industry the virus spared.

Construction, restaurants, hotels and transportation all faced large declines.

“Construction, restaurants, hotels and transportation all faced large declines in the number of business owners due to COVID-19,” the report said.

Construction businesses fell by 670,000 from 2.4 million to 1.7 million.

“Although construction businesses experience a lot of swings in demand, it is not clear how many of these business owners will be able to come back,” the report said.

Long-Term Impact

Other small business sectors that were hurt include arts and leisure, accommodations, restaurants, transportation services, and retail.

The pandemic’s long-term impact on small businesses could be devastating, the report said.

“Many of these closures may be permanent because of the inability to pay ongoing expenses and survive the shutdown.”

“Many of these closures may be permanent because of the inability to pay ongoing expenses and survive the shutdown.”

The analysis notes that the Payroll Protection Program, despite some controversies, provided $669 billion to small businesses with more still available.

But it warns that any further large closure of small businesses will likely “have a dramatic effect on employee job losses, further income inequality, and contribute to a prolonged recession.”

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