COVID-19’s Lasting Impact on Small Businesses

by Ron Kharmach, PBI Intern

On May 13, 2021, the Centers for Disease Control and Prevention announced that fully vaccinated individuals are no longer required to wear masks or socially distance in most circumstances. This milestone is a leap forward toward a sense of normalcy in the United States that has been eroded this past year due to COVID-19. Yet the widespread economic damage—including to small businesses—that the global pandemic caused, and the related need for legal services, is likely to outlast mask mandates. The loss of income and customer base prompted many small businesses to close temporarily. Others have shut their doors forever.

From the first U.S. COVID-19 case on January 20, 2020 to May 5, 2021, the number of open small businesses decreased by 33.8% in the United States. However, the national percentage doesn’t tell the full story: small business closures have disproportionally affected certain states, economic sectors, and minority groups.

By geographic location, the decrease in the number of small businesses open as of May 5, 2021 is -34.9% in New York, -36.6% in California, -39.8% in Michigan, and -43.7% in the District of Columbia. This decrease, across the board, represents the lost livelihoods and incomes of the workers who are the cornerstone of the U.S. economy. For example, in California, small businesses employ nearly half of the state’s private workforce. The consequences are not isolated; rather they compound to create further financial losses and uncertainty, including bankruptcy, relocation, and increased debt, for business owners and their employees.

The declines in small businesses are starker when accounting for differences across demographic groups. Metropolitan areas, such as New York and San Francisco, with a high concentration of Asian and Black communities, have witnessed sharp declines in Asian- and Black-owned businesses in proportion to overall business closures. The percentage of minority-owned businesses also declined in non-metropolitan locales. These closures not only impact business owners, but also employees of shuttered businesses and their families. They may face crises like eviction, food insecurity, lack of health care, and other hardships, which, during the pandemic, have disproportionately impacted Black, Latino, Indigenous, and immigrant households.

By industry, the leisure and hospitality small business sector was one of the hardest hit with a 50.7% decrease from January 20, 2020. Its decline has probably been the most visible with local restaurants and traditional bed-and-breakfast locations putting up “Closed” and “For Sale” signs on their front doors. The retail and transportation small business sector was also affected with a 29.9% decrease, following the transition to remote work and an increase in online purchases. There is hope for a rebound after the pandemic, but no guarantee that laid off workers will get their old jobs back. The U.S. Department of Labor reports that at as of the end of May 2021, 3.2 million Americans have been permanently laid off and 1.8 million are experiencing temporary unemployment from a total of 9.3 unemployed persons.

The decline in small businesses across industries also reflects the ways in which Covid-19 affects diverse communities differently. Within the restaurant and food services industry, the decline of 31% includes a high concentration of Asian owners (20%). In the taxi and limousine services industry, the decline of 73% includes a significant concentration of Black small business owners (31%). Whether the data is reflective of disproportionate minority business closures across industries is uncertain because of limited information regarding industry composition. It is likely that as the impacts of the pandemic continue to be documented, pertinent data to that effect will be released.

However, there are still two key takeaways about minority-owned small business closures. First, the constitution of minority-owned small businesses across industries is closely tied with the proportion of business closures—which have disproportionally affected Asian and Black communities. Second, regardless of the proportion of minority-owned small businesses that have closed, the Asian American, Native Hawaiian, and Pacific Islander (AAPI) and Black communities are experiencing critical financial difficulties due to the pandemic.

The optimistic news about the end of the pandemic being around the bend can still feel distant to struggling small business owners and their staff. The legal community can have an impact in supporting small businesses through pro bono work. Programs such as the Lawyers for Good Government COVID-19 Small Business Remote Legal Clinic have helped hundreds of microbusiness owners and nonprofits over the past year. These and other virtual clinics have been tailored to help small business owners address a number of issues, including applying for Paycheck Protection Plan (PPP) loans, which have an outsized impact in helping a small business remain open and pay their staff. Recent research has shown a positive correlation between government relief packages, such as the CARES Act, and increasing Black entrepreneurship in startup formation. These results magnify the social value created beyond the storefront to the families relying on their loved ones who own and work at small businesses to buy groceries, medicine, and school supplies. To find out more information about pro bono opportunities to support small businesses in your area, please contact Pro Bono Institute.