How You Can Help a Local Small Business Survive COVID-19
The only way to feel worse about the impacts of COVID-19 than talking to people in public health is to talk to people in business and economics. Macroeconomists often tell us that the typical recession is caused by the normal cyclical movements of the invisible hand. The recession that is looming on the horizon, however, appears to be one in which the gloves on the invisible hand may have come off. Last week’s shocking 3,283,000 statistic on new unemployment claims (665,000 at the peak of the Great Recession) makes it is clear that the U.S. economy has never encountered a foe like COVID-19. One recent forecast put the number of retail store closures as a result of the virus at 15,000. As part of the new $2.2 trillion stimulus package, small businesses will have access to $350 billion in loans, of which the principal can be forgiven if the businesses is able to keep all its employees on the payroll. At least for the small businesses who are able to do so, this will help.
But most of the local businesses in our communities are in a perilous position since COVID has shuttered their doors, and they need help more urgently than the time it takes for the gears of government wheels to begin to churn. These include some of the small enterprises that help bring joy and meaning to our lives: pre-schools, private and parochial schools, favorite restaurants, local workout places, barbers and hair salons, kids’ sports clubs–even micro-sized businesses like piano teachers, gardeners, tutors, and nannies. For all of these businesses human contact is essential, and Zoom is a weak substitute. Social distancing means distancing themselves from customers and revenue.
But what can ordinary people do to help save the small businesses that have become part of their everyday lives? I want to suggest a fairly simple solution. The solution can be initiated by customers, but probably better by enterprises themselves, and it was brought to my attention by Clayton Loosli, my friend who owns and operates the small gym in Walnut Creek where I work out a couple of times a week. It involves the enterprise saying to its customers something like the following:
“For people who are able to keep their monthly fee to us in place for a number of months during the crisis, we will give you credit for a similar number months in the future.”
What this amounts to is faithful customers pitching in to create a collective zero-interest loan to a small business during the crisis. This is critical because many are unaware that small businesses routinely operate on a very thin level of liquidity. The cash that comes in this month is used to pay the employees this month; there is typically little cushion. So the biggest threat to the established small business in your community is not a bad business plan, it’s the threat of having the cash hose turned off. By keeping short-term cash flowing into the business during the period the COVID crisis is at its worst, and smoothing out the intense shock of the crisis over time, you help keep the business afloat.
This works most easily with small businesses for which you provide a regular weekly or monthly payment, such as private schools, home services, and sports-club memberships. But it can easily be adapted to conventional retail stores through the creative use of gift cards. A gift card, from the financial perspective of the business at which it can be redeemed, is like a small zero-percent loan. The business gets the cash now, and pays back the loan in the form of a product or service to be given to the customer later. Want to help perform economic CPR on your favorite restaurant? Offer to buy a $500 gift card that you redeem over the next few years.
Of course the main downside to this is you may worry about helping out a business in the short term that, due to the coronavirus and its ensuing recession, may not be around in the long term. But as I was reminded all too many times in graduate school, the macroeconomy is simply a big confidence game. It is a game of trust, and in times of crisis the trust has to begin somewhere, and why not with each of us in our relationships with the small businesses that we would most hate to lose.
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