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Covid-19 Accelerates Small Businesses’ Woes

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Covid-19 Accelerates Small Businesses’ Woes

April 14, 2020

Small businesses entered the coronavirus crisis vulnerable. They traditionally were an engine of innovation and job creation, but in recent years they become a smaller part of the economy. They still employ many Americans but not as many as they used to. Larger firms now dominate the economy for many reasons, some of them reflect a more technologically advanced, globalized world where scale means more productivity.

Now that the economy has shut down, small firms are hit harder because they have tighter margins and less access to capital markets. A limited re-opening of the economy won't provide much relief because for many small firms operating at half capacity is not realistic. The government and the Fed are offering many lifelines in terms of lending and conditional grants. But it is not clear what distortions this will create and whether it will be enough to keep many small firms afloat. What does seem clear is that the assistance will not solve the deeper structural issues that made it hard for small businesses to compete even before the crisis.

Allison Schrager is a senior fellow at the Manhattan Institute. Follow her on Twitter here.

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