Some of the ways in which the Covid-19 crisis has disrupted small businesses include:
1. By keeping the customers away
There are two key aspects to this particular disruption. The first one is where customers are hesitant to visit the locations in which the small businesses are based, for fear of contracting Covid-19 there. And the second one is where the restrictions that came along with Covid-19 have left the small business’ potential customers with little or no money to spend. Thus you have some customers who really don’t have problems visiting the locations in which the small businesses are based. Still they are unable to visit the said small business locations, because they don’t have money to spend there. Added to all these is the fact that some types of small businesses have actually been closed down by government authorities, in an effort to contain the spread of the Covid-19 virus. In most places, for instance, you find that the entertainment as well as the education-related businesses have been completely shut down for quite some time now. Others have been forced to operate in less than optimum ways. For instance, you find restaurants having to operate at half capacity (or under the ‘takeaway’ system alone) due to social distancing requirements. In the final analysis, you find that most of the small businesses are serving fewer customers than they were serving before the crisis. And serving fewer customers means that they end up getting lower revenues. The lower revenues in turn translate into lower profits for some and outright losses for others.
2. By making the small businesses to incur extra expenses
This is where, for instance, you find that small businesses have to spend quite a bit of money in buying personal protective equipment (including face shields and masks) for their employees. They also have had to spend quite a bit of money on things like sanitizers, thermoguns and the extra cleaning necessary to keep Covid-19 at bay. These may look like inconsequential expenses. But over time, they do add up to significant amounts. On another related note, there are some small businesses that have had one or more of their staff members actually get infected with Covid-19. Such enterprises have been forced to sometimes endure closures, as the rest of the staff members (who interacted with the infected person) are quarantined. In the final analysis, the average small business finds that it has spent quite a bit of money [that it wouldn’t otherwise have spent] on Covid-19-related issues. All this at a time when the small businesses are getting reduced revenues. So it is a difficult scenario: where you find the average small business incurring extra expenses and at the same time getting reduced revenues.
3. By making it hard for small businesses to access inputs
We all know the extent to which Covid-19 has affected the global supply chains. This has often caused the small businesses to endure significant difficulties in accessing the inputs they need to produce whatever they sell. Inputs that previously could be ordered for and shipped within a month now take as many as three months to finally arrive. There are actually certain types of small business that had to close for some time, on account of them being unable to access the inputs they need to operate. That was especially the case in the earliest days of the Covid-19 crisis. Others have had to cope with higher input prices. Those have been caused by the logistical challenges brought about by the Covid-19 crisis. Now in normal times, higher input prices would have been recouped by simply hiking the prices of the end products. Unfortunately, this is increasingly not viable during the Covid-19 crisis — as the customers are also facing financial challenges. Thus, any small business that hikes the prices of its products too much is at risk of losing the few remaining customers. This has left the small businesses between a rock and a hard place: where they have to buy their inputs at higher prices and still sell the end products at almost the normal prices (for fear of losing customers). Now for small businesses that were enjoying good profit margins before, this has not been too much of an issue. They have just seen their profit margins going down. But for the small businesses that were already getting small profit margins, this state of affairs (where they have to buy inputs at higher prices and sell the end products at almost the normal prices) has caused considerable challenges. We have actually seen some small businesses closing down on account of these issues.
4. By making it hard for small businesses to access financing
The Covid-19 pandemic has caused the business operating environment to become very negative. That has in turn caused financiers to be wary of lending their money to small businesses. And this is quite understandable: because the financiers know that there is a high probability of them losing their money, if they lend it to the small businesses at this point in time. Furthermore, you tend to find that some of the financiers simply don’t have money to lend at this point in time. Therefore even if they were open to the idea of lending money to small business owners, they lack the funds to lend in the first place. You have to remember that in most cases, the money that banks lend is that which is deposited by their other customers. Customer X deposits money, and the same money is lent to customer Y within the same day. Unfortunately, the economic challenges induced by Covid-19 have meant that fewer people are saving money. That has in turn meant that the banks have less money to lend to small businesses and other types of borrowers. Consequently, small business owners who are looking for financing to expand (or to just keep their enterprises afloat) have often found themselves unable to get the money. Those that have managed to access any financing have had to contend with very high interest rates. Those rates are charged by the lenders who view lending to small businesses at this point in time as a risky gamble… Aware of these facts, some governments have launched loan and grant schemes targeted at small businesses. But those schemes have their own drawbacks. First is the fact that the funds that can be accessed through such schemes are usually very limited. Moreover, there is a great deal of competition for the government-funded grants and loans for small businesses. In the final analysis, you find that there are many small business owners who are looking for financing to either expand or to just keep their enterprises afloat. And increasingly, such small business owners are unable to access the money they need. Yet in the days before the Covid-19 pandemic, such people would have been able to access business financing very easily.