Can Government Revitalize Small Business and Restaurants?

As vaccination rates continue to rise, so too will consumer confidence and an increased demand for goods and services. After a year of struggling just to get by, small businesses are poised for a comeback. Forced to change quickly in order to survive, many small businesses are unlikely to revert to their pre-pandemic form, due to COVID-related changes in consumer expectations, including the adaption of tech in commerce. Whether or not these changes are permanent, the increased reliance on technology is likely here to stay.

Small businesses have an outsized influence on the economy, employing half the country’s private workforce. According to the U.S. Small Business Administration, 60.6 million people were employed by small businesses in 2017, the largest share working for companies with 20-99 employees. Small business created 1.6 million net jobs in 2019, the largest share of them at companies with fewer than 20 workers. These businesses provide more than just jobs. Locally owned stores and restaurants foster a sense of community by bringing neighbors together, especially in rural areas. Although the exact number is not known, many small businesses have cut back or closed because of COVID-19. Even in a normal year, small businesses struggle to stay afloat. According to the Bureau of Labor Statistics, about 20 percent fail within their first year. Half are gone within five years and only 30 percent survive a decade.

The $1.9 trillion American Rescue Plan (ARP), signed into law in March, is only the latest in a series of federal aid programs designed to help businesses survive the economic upheaval of the past year. Forgivable loans, grants, tax credits and unemployment benefits acted as lifelines, keeping businesses afloat when they might have otherwise failed. The current round of funding allocates $50 billion in aid to small businesses, far less than the nearly $400 billion made available by the Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted over a year ago. But ARP aid differs from the CARES Act and is more narrowly targeted, providing funds to woman and minority-owned enterprises, and to smaller businesses that can demonstrate a 50 percent drop in sales since the pandemic started.

A key component of the American Rescue Plan is the Restaurant Revitalization Fund (RRF), a $28.6 billion grant program designed to target hard-hit restaurants and bars. Grants are available based on lost revenue between 2019 and 2020. A majority of food-related establishments will be eligible to take advantage of the program, including restaurants, food trucks, caterers, taverns, bars and brewpubs. Again, women and minority-owned businesses will initially have priority, and chain restaurants with more than 20 locations are excluded in order to keep the focus on smaller businesses.

Beyond the mandated physical spacing of customers and servers, COVID-19 has caused a number of changes to food service operations. As customers return to dine in, or continue to order out, tech solutions have done much to mitigate risk while improving efficiency. Online ordering, contactless payment and digital order tracking have become the norm, and are likely to remain in place once the pandemic recedes.

Small Business and the Tech Equation

It will take time for small business to rebound from the economic damage wrought by the pandemic, but indications are that this recovery will be different than it was following downturns of the past. Unlike the recessions of 1990 and 2001, when the number of new small businesses rose only slightly, numbers are rising dramatically in the COVID-19 era. There were over 1.5 million new businesses created in the third quarter of 2020 alone, nearly double the same period a year ago. New technologies, including those that make it easier to start a business without a physical location, are likely responsible for much of the increase in startups.

In its ongoing survey of small business owners, Kabbage, an American Express company, finds that the pandemic has, unsurprisingly, caused a sizable shift to online sales. Before COVID-19, respondents claim that online sales represented 37 percent of total revenue. By February of this year, the number rose by 20 points, a 54 percent increase in less than a year. Asked about a possible return to pre-pandemic in-person transactions, 33 percent of surveyed small business owners say they plan to expand their digital operations. Only 15 percent expect a return to previous in-person levels. Kabbage also reports that reopening rates among small businesses are significantly improved when operations are moved online.

A year of social isolation, online shopping and workplace disruption have changed customer expectations, perhaps permanently. If small businesses are going to succeed, they will need to build on the recent lessons learned, utilizing the technologies not just to survive but to grow and prosper.