March 19, 2020, 12:07 p.m. EDT

Small businesses could crumble in mere weeks as coronavirus pandemic exacts toll

Research by J.P. Morgan Chase puts the median small-business cash buffer at just 27 days

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By Tonya Garcia, MarketWatch


Bloomberg News/Landov
Small businesses have become vulnerable very quickly, experts and business owners say.

Small businesses, like their large and publicly traded counterparts, are feeling the pinch as the coronavirus pandemic brings consumer activity to a grinding halt.

However, unlike big businesses like Walmart Inc. /zigman2/quotes/207374728/composite WMT +0.13% and McDonald’s Corp. /zigman2/quotes/203508018/composite MCD +0.47%  , which have reserves of funds to help them through tough times and turnaround periods, many small businesses don’t have a safety net to spare them from ruin.

According to Gwendy Brown, vice president of research and policy at Opportunity Fund, many small businesses have only enough resources on hand to last 45 days or less.

Don’t miss: Trapped in no-man’s land of coronavirus restrictions, some of Britain’s small businesses are wasting away

“Small-business owners are much less financially prepared than most households,” she said. The Opportunity Fund provides microloans to entrepreneurs.

“They tend not to have a lot of cash on hand,” she said. “If they had that amount a while ago, they’re already cutting into that.”

Karen Mills, a fellow at Harvard Business School who headed the Small Business Administration from 2009 to 2013, noted in a Shorenstein Center interview last week that half of all Americans work for a small business and that 24 million of the country’s small businesses are sole proprietorships with no additional employees.

Small businesses, she said, referencing J.P. Morgan Chase /zigman2/quotes/205971034/composite JPM +0.05% research from 2016, have, at the median, cash buffers of just 27 days. “So one can anticipate,” Mills said, “that many of them will run out of cash” during the coronavirus emergency.

And, she added, “when you run out of cash, as a small business, you’re dead. ... [A]t the very least they will start not being able to pay their people, which will be devastating for people who rely on that for their income. So this is a matter of huge urgency.”

Read: How the Dow’s coronavirus plunge shows investors are fast-forwarding the ‘2008 playbook’

In an email sent to customers, Seamless said dining in at restaurants is down as much as 75%. Wells Fargo analysts said mall traffic was down as much as 45% over the past weekend.

Moreover, small-business owners weren’t flush before the outbreak. The median income for self-employed people in California with their own incorporated businesses was $57,420 in 2016, according to data Brown, from the Opportunity Fund, provided. For self-employed workers who are unincorporated, the figure is $25,034. And 17.5% say they don’t have health insurance.

“There will absolutely be businesses that will fold,” Brown said. “We’re still at a critical period where depending on what a variety of stakeholders do will determine what will happen.”

Consumers can still shop, but activity is moving toward household necessities and online purchases.

See: Amazon ‘out-of-stocks’ rise and deliveries taking longer due to coronavirus-related demand

/zigman2/quotes/207374728/composite
US : U.S.: NYSE
$ 129.52
+0.17 +0.13%
Volume: 2.06M
Aug. 7, 2020 11:56a
P/E Ratio
24.62
Dividend Yield
1.67%
Market Cap
$366.31 billion
Rev. per Employee
$223,654
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/zigman2/quotes/203508018/composite
US : U.S.: NYSE
$ 204.13
+0.95 +0.47%
Volume: 1.12M
Aug. 7, 2020 11:56a
P/E Ratio
32.37
Dividend Yield
2.45%
Market Cap
$151.08 billion
Rev. per Employee
$100,120
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/zigman2/quotes/205971034/composite
US : U.S.: NYSE
$ 97.29
+0.05 +0.05%
Volume: 3.67M
Aug. 7, 2020 11:56a
P/E Ratio
13.10
Dividend Yield
3.70%
Market Cap
$296.35 billion
Rev. per Employee
$497,647
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