The Pandemic’s Impact on Small Business Ownership and What to Do About It
Small businesses make up more than 90% of the U.S. economy and play many roles within it—employers, sources of innovation, economic multipliers, community hubs, and more. While they provide great opportunities in their respective industries, small businesses are also uniquely vulnerable to the economic impact caused by crises like recessions or the COVID-19 pandemic.
Along with illness and death, the pandemic brought widespread economic disruption. Businesses closed, and unemployment rose to levels not seen since the Great Depression. According to an issue brief conducted by the SBA’s Office of Advocacy, the severity of the economic damage varied substantially across locations, industries, and demographic categories—the more significant declines occurred in metropolitan and coastal areas, and among Asian and Black business owners.
Today, in a somewhat post-pandemic era, self-employment in the United States is at an all-time high, with 28% of workers having some kind of self-employment and 14% citing self-employment as their primary source of income. It is evident that some small businesses have largely recovered from the initial decline in the market during the pandemic. Others continue to lag, and some have recovered only to experience subsequent decreases. Many challenges have emerged due to the market’s uncertainties, and recovery strategies have been substantially left up to guesswork.
Future impacts of the pandemic, including whether business closures become permanent, depend partly on policy responses. The Federal Reserve and other government officials must swiftly address the needs of a changing, disparate workforce—including those employed by small businesses and individuals working as independent entrepreneurs.
The pandemic has accelerated the trend toward an increasingly independent workforce, and to ensure that self-employed entrepreneurs have access to benefits consistent with those in the W-2 workforce, we must try to understand what they need most during this time.
Many companies have collected data surrounding small business owners and the gig economy in hopes of providing a more profound comprehension of their world. Neobanking company Nearside conducted and released the study “How the pandemic changed the gig economy and self-employment” that measures the changes that more than 1,000 self-employed workers have experienced as a result of the COVID-19
pandemic. The self-administered survey used in the study contains questions about demographic information, career changes, and the well-being of business owners. It also examines the fluctuations in both career and well-being among the self-employed workforce since March 2020.
The goal of the study was to provide some insight into the challenges that self-employed individuals still face as a result of the pandemic so that business and banking leaders can determine how they can better serve these often-underserved groups. Small business owners, particularly people of color, face significant hurdles in accessing capital from traditional banking institutions. In addition to decreasing customer availability and potential revenue, many small businesses must receive external financial assistance to survive.
Resources like Nearside’s study help identify the triggers that could take some companies out of the market permanently and highlight the best methods to help. And beyond identifying the struggles and potential solutions, the study also showcases industries that have remained resilient and continued to operate throughout this tumultuous period.
There’s no doubt that the COVID-19 pandemic has added to small businesses’ challenges around the world, regardless of size, location, or funding. The major question now is: can small businesses compete in today’s markets? Adapting to the situation is the key to overcoming it, and taking what we’ve learned from this crisis will help small businesses in the gig economy stay afloat as we continue onward into an unstable economy.