In response to the Coronavirus (COVID-19) Pandemic, the federal and state governments are passing legislation for record disaster relief programs.
One of the key targets of the disaster relief programs are small businesses. Rightfully so. Small businesses employ the majority of workers. Small businesses are where innovation starts. Small businesses are where the recovery truly will start.
A small business is defined as a business with less than 500 employees. Historically, most small businesses are micro enterprises with less than 10 employees. However, the largest group of small businesses are sole proprietors, the self-employed, freelancers and Gig workers.
A freelancer or Gig worker is a small business of one – a sole proprietor or self-employed individual (or only a fraction of a full time equivalent [FTE], splitting time between multiple businesses or overlapping time at multiple businesses) that works for different companies at different times rather than being permanently employed by one company.
These small businesses are independent contractors that do not receive a paycheck and do not receive benefits unless they pay themselves. They may be uninsured. If the get sick with the Coronavirus, there may be no one to pay their bills. If they can’t pay their rent, they may get evicted and become homeless.
According to one study in October 2019, the total freelancers in the United States in 2019 totaled 62.2 million people. It is projected that by 2027, freelancers will represent over 50% of the total U.S. workforce. https://www.statista.com/statistics/921593/gig-economy-number-of-freelancers-us/
Although existing and proposed disaster relief programs speak to helping this large segment of the small business sector, will they get the job done?
Small business owners that measure their income on what they did today (you eat what you kill) are different from small business owners who receive a paycheck.
Small business owners whose greatest cost of operation is themselves are different from small business owners who work in a bricks and mortar facility with equipment, staff and other costs.
Many, if not most of the sole proprietors, the self-employed, freelancers and Gig workers are underemployed or unemployed if you use the labels that are commonly applied when working with a more classical small business.
How is this underemployment or unemployment measured?
How will government disaster relief programs bail out these small businesses?
A program that only provides funding to cover the cost of operations without providing income to the small business owner may expect small business failures in direct proportion to the cash balance in their check account.
It is my expectation that by the time the first disaster funding was announced by the U.S. Small Business Administration on March 12, most of those cash balances were already at zero. By the time the program was put in place, by the time the small business could file an application or by the time (stated as 2 to 4 weeks) that a loan made be made, that same small business may be in a world of hurt.
Government relief programs can only move so fast. The Pandemic and government shutdowns of operating businesses are moving faster.
A program that only provides a small fraction of the income earned by sole proprietors, the self-employed, freelancers and Gig workers will not enable them to pay personal expenses that cannot be treated as costs of operations.
Government disaster relief needs to develop programs that specifically crafted for freelancers and Gig economy workers that address both their costs and their income. Unless they do, such small businesses are invisible to bailout dollars and money will only go to older, more classically structure businesses that too often represent the past and not the future.
A free Quick Guide to apply for a loan to the SBA Disaster Assistance Loan program is available for Single Owner Businesses (sole proprietorships, self-employed, freelancers and Gig workers who file taxes using IRS Form 1040). A copy of the Quick Guide can be downloaded at: http://www.capitalinnovation.institute/pandemic
Karl Dakin, Executive Director
Capital Innovation & Technology Institute LLC
kdakin@capitalinnovation.institute
http://www.capitalinnovation.institute
First published on LinkedIn on 3 28 2020 at https://www.linkedin.com/pulse/sole-proprietors-self-employed-freelancers-gig-workers-karl-dakin