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The Deepening Economic Divide: How The Pandemic Has Hurt Small Businesses

Paul Roberts The Seattle Times

WWR Article Summary (tl;dr) As Paul Roberts reports, "Although businesses of all sizes have struggled under COVID-19, the pandemic has been especially hard for smaller firms, especially those with just a few employees and modest revenues."


In a big gravel lot near South Seattle’s South Park Bridge, a handful of small businesses might get a second chance to survive the pandemic.

Rocio Elizabeth Arriaga Briones, president of the South Park Merchants Association (SPMA), hopes to turn the 0.8-acre parcel into a temporary commercial plaza, built from cargo containers, for local small businesses that have been dislocated or shut down by the pandemic.

The plaza is still only a plan on Arriaga Briones’s laptop. Among other things, she needs permission from the Seattle Parks Department, which owns the land. But if approved, it could be a welcome break for small business owners after months of setbacks. Many “have lost everything,”

Arriaga Briones says. “They need a new start.”

Arriaga Briones could be speaking for many of the more than 600,000 small business owners in Washington state.

Although businesses of all sizes have struggled under COVID-19, the pandemic has been especially hard for smaller firms, especially those with just a few employees and modest revenues.

Many operate on the thinnest of profit margins even in normal times, which left them far more exposed to pandemic-related disruptions, says Jeffrey Shulman, a professor of marketing at the University of Washington Foster School of Business who has surveyed small Seattle-area businesses.

When it comes to business size, Shulman says, COVID-19 is “creating haves and have-nots.”

Those disparities often were even more pronounced among smaller companies in communities of color, where owners and workers also had to cope with those communities’ higher incidence of COVID-19 cases.

In effect, COVID-19 has put up a “medical layer” that minority business owners often must “get through in order to even run or participate in a business,” says William Bradford, professor emeritus of finance at the UW Foster School and an expert in minority-owned businesses.

Recessions are extra hard on smaller companies. With small cash reserves — often, just the owners’ personal savings — and difficulties getting bank financing, they can be devastated by even a few months of low or no revenue, says Laura Clise, a Seattle-based entrepreneur whose company, Intentionalist, connects consumers to small businesses in underserved communities.

Indeed, smaller companies, especially those that are family-, immigrant- or minority-owned, often are already “living hand to mouth, and are dependent on consistent streams of revenue,” which left them vulnerable to even a brief dip in sales, she says.

COVID-19 heightened those disadvantages. Modest cash reserves, for example, also made it hard to pivot to other products or markets to replace revenue lost due to the pandemic.

When gyms had to shut down last spring, Rainier Health & Fitness, a South Seattle nonprofit that caters to low-income residents and communities of color, had to invest “a lot of manpower and extra expenses” to get gym classes online, says director Alicia Haskins. “What it felt like was starting a whole new gym,” adds Haskins. And having to do that without a big cash reserve “was difficult for us.”

Further, because smaller companies frequently are narrowly focused on a single product or market, pandemic pivots often weren’t a realistic option. Rebecca and Brian Grant, owners of the Twin Willow Gardens wedding venue in Snohomish, had few alternatives to generate income when COVID-19 crashed last year’s wedding season. Pandemic-related cancellations erased half their expected revenue for 2020 and have already taken a big bite out of 2021. “We were a year ahead and now we’re a year behind,” Rebecca says.

Likewise for Bellevue-based Spotless Cleaners, where proprietors Boon and Yang Seo had few options when most office workers began working from home last spring and largely stopped needing dry-cleaning. Even a year later, business is down nearly 60% compared to before the pandemic, says Boon. “Who knows about tomorrow?” she says.

Deeper still were the impacts for businesses tied to a single location. In dense commercial districts such as downtown Seattle, scores of restaurants and tourist shops lost most of their customers virtually overnight. “These businesses didn’t just see a downturn; they saw a complete disappearance of business,” says economist Debra Glassman, a professor of finance and business economics at the UW’s Foster School.

In fact, state tax records show that Washington’s smaller companies likely took a larger financial hit early in the pandemic than did their bigger counterparts or the state economy as a whole.

During the second quarter of 2020 — April, May and June — as businesses were absorbing the first wave of pandemic-related restrictions and consumer anxieties, the gross income (total revenue minus cost of goods sold) reported by all Washington firms fell 17.5% compared with the same period in 2019, according to the state Department of Revenue.

But for smaller firms — those with gross incomes of less than $250,000 in 2019 — the average decrease was 24.3%.

Policymakers tried to fill in these disparities with pandemic aid. The federal Paycheck Protection Program, for example, has channeled nearly $17 billion in forgivable loans to well over 10,000 small businesses in Washington alone since last spring.

Yet the program also illustrates the disadvantages smaller firms typically faced.

Where a large firm could’ve turned to its in-house financial expertise and strong banking relationships to manage the complicated PPP loan process, smaller ones typically don’t have those resources, Glassman says.

“I used to have an accountant but we can’t afford that anymore,” says Joyce Poon, founder and CEO of Noir Lash Lounge, an eyelash parlor with four locations in Washington and California. That left Poon to handle the often-frustrating loan process while also struggling with a 75% revenue decline due to the pandemic and restrictions.

Where some smaller firms simply gave up on PPP loans, however, Poon says the $176,000 loan is crucial to keeping her business afloat until the economy fully reopens. “If we can just hang on just a little bit more, we’re going to be OK,” she says.

Similarly, even though many smaller brick-and-mortar retailers were desperate to move online to replace lost in-person sales, they often couldn’t afford professional technical expertise.

For Pamela Morales, owner of the Simple Life boutique in downtown Seattle, that meant either closing her doors or learning how to launch an online sales operation. “I did it myself,” says Morales, who had little technical expertise before the pandemic. But “it was almost three months of hard work.”

For many owners, these disadvantages ultimately proved too burdensome.

Some of the small businesses that closed temporarily because of early COVID-19 restrictions didn’t have enough capital to reopen when restrictions lifted. Others refused to drain their remaining savings trying to reopen when they could only operate at partial indoor capacity. “What gets lost on many folks is that just because you have the ability to legally be open, doesn’t mean that your business hasn’t been absolutely decimated,” Clise says.

Statistics on business closures and bankruptcies due to COVID-19 are incomplete. But according to Womply, a commerce platform that tracks small business credit card transactions, the number of open small businesses in Washington has declined by nearly 28% since January 2020. COVID-19’s challenges have been even larger for businesses in communities of color, says the UW’s Bradford.

Black- and Latino-owned businesses, for example, historically have been less likely to get bank loans than have white-owned companies with similar credit scores, Bradford says. And minority business owners also have had lower credit scores than white-owned companies, he adds. So when COVID-19 struck, Black- and Latino-owned businesses were even less likely to have the reserves to weather losses or to pivot to new products, Bradford says.

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