Small businesses around the country are on the brink of collapse.
The social isolation and state-wide quarantines necessary to prevent the spread of COVID-19 leaves the fates of small businesses within an uncertain space. Many have been forced to close indefinitely and lay off their staff, while those that remain open have seen foot traffic and business decrease dramatically. The future of small business in America is at risk, and with it, the livelihood of communities and families across the country.
Meanwhile, a record 3.3 million Americans filed for unemployment benefits last week—a staggering number that offers just a glimpse of what’s at stake. It’s clear that in addition to slowing the spread of COVID-19, we must also flatten the curve of its economic impact.
To point to a real-life example, Huckleberry Roasters is a successful Denver coffee shop that had 40 employees as of March 20, but as of a few days later, they are now a team of six after losing 80% of their revenue. The circumstances of Huckleberry Roasters are not an isolated instance: Gusto data shows a 300% increase in staff layoffs for food and beverage businesses across the U.S., when comparing the week ending March 15 to the week ending March 8.
Time is the enemy. Given the acceleration of small business closures and layoffs, the White House’s recently passed stimulus package could not have come quick enough. The current stimulus bill will take months to send aid through slow, bureaucratic channels. But if private-sector companies can act as intermediaries, we can get federal aid to small businesses and their employees in time to save jobs and protect health benefits—without sending people back to work and risking a greater health crisis. Three interventions can help in the short term.
Turn to the private sector to distribute funding
The private sector can play a key role in creatively funding small businesses just in time to save them. The government is setting aside billions for small-business relief, but the agencies in charge of distributing them need to adapt quickly.
Small agencies at the county, state, and federal levels perform vetting, onboarding, and loan payment processes for an overwhelming number of businesses. Funding should be routed through well-trafficked relationships, such as through financial institutions and payroll companies, that regularly interact with small businesses.
Many of the businesses most impacted by COVID-19 have never applied or are unsure how to apply for small business loans; some have never logged onto loan application sites before. In fact, a recent study found that 67% of small business owners are not sure how to access or apply for emergency funding.
Banks are critical liaisons to keep small businesses healthy, along with payroll platforms. Most likely, many small businesses are already familiar with payroll platforms, using them frequently to seek out assistance.
The private sector is well positioned to help small businesses. Private firms hold the data to validate small businesses’ revenue and level of financial hardship, along with knowledge of the infrastructure to move funds quickly.
Open channels to ease the disbursement process
Through their own outreach, both private and public sectors can greatly improve access to the Small Business Administration (SBA) and other sources of funding. One method is having the federal, state, and local government agencies open their APIs, or application programming interfaces.
Opening APIs to government loan websites allows the private sector to build software that more easily connects small business owners with government resources.
Small business owners have relationships with private-sector financial institutions, which can more easily direct them to funding resources for essential costs such as payroll and health insurance premiums.
By opening up APIs, the government can empower the private companies to crowdsource new solutions, which can be undertaken at no additional cost to consumers.
Look to payroll companies as a source of relief
Each year, billions of dollars are reserved for disaster recovery and small-business 7(a) loans from the SBA. These funds offer a good starting point.
Payroll companies can partner with the SBA and financial institutions to distribute these loans faster to small businesses based on the current, special circumstances. After all, payroll companies are used by half of all businesses in the U.S. They understand a small business’s track record, payroll history, number of employees, reduced hours, and employee layoffs.
Payroll companies can also play a critical role in pushing direct grants to individuals and small businesses apart from the SBA, as well as ensuring only qualified small businesses receive government aid. Furthermore, they can ensure that federal aid is used to cover payroll before other business expenses, which will benefit employees who are struggling the most to pay bills and make rent.
If we use payroll companies to connect the dots between federal agencies and small businesses, guidelines can be put in place to make sure aid gets to the companies that need it most—namely, restaurants, retail, and hospitality. Payroll companies have a unique understanding of business classifications that can help prioritize and distribute funds quickly. However, they need to be empowered by the government to act as custodians, which can only happen if the Treasury Department provides direct funding to payroll companies.
We need a more effective pipeline to get funds into the hands of small businesses, fast. The fate of small businesses is tied with household income, employment, and economic survival at a national level.
Beyond economics alone, small businesses are a conduit of the uniquely human moments that will be more important than ever when we get through this crisis. Whether it’s knowing the names of your barista’s children or making new friends at a neighborhood diner, small businesses are where we hold some of our most important interactions.
We cannot wait until this crisis is over to ask if we did everything in our power to help small businesses and stem the economic and social fallout on our communities. The time to act is now.
Josh Reeves is CEO and cofounder of Gusto, the people platform that provides payroll, benefits, expert HR, and team-management tools to more than 100,000 small businesses across the U.S.
Lexi Reese is the COO of Gusto and has spent her career advocating on behalf of small businesses to help them succeed. Before joining Gusto, she led small business initiatives at American Express and Google and served as a policy advocate at Accion International, which provides loans to people living in poverty so they can start their own ventures.