The Coronavirus (COVID-19) Pandemic will cause small businesses to fail. This seems like an obvious forecast when small businesses are shut down everywhere waiting for the Pandemic to peak. However, many small businesses are assuming that tomorrow’s markets will somehow resemble yesterday’s markets.
In ordinary times, startup businesses will fail 90% of the time. https://www.failory.com/blog/startup-failure-rate This statistic also incorporates temporary businesses, business acquisitions and mergers and other changes in existence that significantly lower this number, but the failure rate is still high.
Now, hit this statistic with a disaster and the question becomes: “Will any small businesses survive?” According to the Federal Emergency Management Agency (FEMA) “Following a disaster, 90% of smaller companies fail within a year unless they can resume operations within 5 days.” FEMA Resilience Bulletin Other studies predict a higher failure rate over three to five years. None of these statistics and studies match a disaster the size of the Pandemic.
Start counting the days. Some businesses were already impacted in December that were tied to trade in China. This number climbed steadily through January into February when it started accelerating. The forced closure of businesses a few weeks ago started spiking interruptions in operations and now complete non-essential contact bans have become the norm. At this time, nearly all businesses have far exceeded 5 days in reduced or stopped operations. Today’s best guess on a Pandemic peak is still weeks away with restrictions on business expected to continue for a long time afterwards.
In developing a new strategy, a small business should consider what must be done differently if most small business vendors, suppliers, partners, distributors, retailers and customers are out of business?
Key to survival is cash. Money now. Time in accessing immediate funding is critical to achieving mitigation of small business failure. Analysis of post-disaster damage and disruptive impacts on the operating status of small businesses after Hurricane Katrina
Government disaster relief programs, designed to pump money into the economy, here and more are coming. A small business may borrow up to $2 million at 3.75% interest for up to 30 years. https://disasterloan.sba.gov/ela.
The government programs will not be enough. A small business will need to combine any available government money with revenue from sales and other forms of capital. To receive money from government programs a business must still be in operation.
First, what can a small business do now to generate revenue?
- · Change how products or services are distributed, sold or delivered
- · Create new products or services
- · Support healthcare response to the Pandemic
- · Support other small businesses
Second, what can a small business do to obtain capital now from sources other than the government?
- · Borrow money from your bank
- · Borrow money from economic development programs
- · Raise equity investment
- · Qualify for grants and other incentives from local communities
Both tasks are problematic, if possible?
Karl Dakin, Executive Director and Economic First Responder
Capital Innovation & Technology Institute LLC
This article was first published on LinkedIn on March 31, 2020 athttps://www.linkedin.com/pulse/small-business-disaster-failure-survival-rates-karl-dakin/