Research on small businesses in the U.S. shows that if their revenue were cut off, half would make it only 27 days before they would run out of cash.
Many businesses are hitting that milestone just as $350 billion in emergency government grants and loans have been depleted, said Cathy Clark, faculty director for the Center for the Advancement of Social Entrepreneurship (CASE) at Duke University’s Fuqua School of Business.
Just days before the funds were claimed, the National Federation of Independent Businesses reported that 70% of U.S. small businesses had applied for aid through the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
“So if 70% applied and … the money is already allocated, it looks as if the $350 billion will not be enough,” Clark said.
Fortunately, as Congress considers additional relief, there are billions of other dollars in bridge financing available, Clark said in a recent question-and-answer session for Fuqua followers on LinkedIn (see video).
CASE has compiled these resources, including $20 billion apart from the main federal relief bill, in a searchable database the organization launched March 24. More than 14,000 users have flocked to the site, called COVID19 Capital Relief, in just three weeks, said Clark.
“We're hoping that our resource could be used in the interim by businesses and organizations to see what cash they can get quickly from other sources,” Clark said. “We recommend that entrepreneurs look not only to their banks, but to community organizations, community banks, community development finance institutions, some of whom have radically outperformed the national banks in terms of getting the money out the door fast, and also allowing the smallest enterprises to compete with larger enterprises for those funds.”
One entity that gives specific consideration to smaller businesses is a Community Development Financial Institution, which are designed specifically to assist entrepreneurs in economically distressed areas, Clark said.
She shared an example from Darrin Williams, CEO of Southern Bancorp Inc., in Little Rock, Arkansas, who said one of the institution’s banks processed $16 million in loans on the first day of the Paycheck Protection Program, which provides business relief under the CARES Act. One was in the amount of $8,000 for an African-American owned radio station, and another was a request for less than $2,000 for a small photography studio, Clark said.
“Those of us who understand banking know that it's extremely difficult to process the smaller ticket items,” she said. “But community development funds are doing that, and they're paying very close attention to how to serve the organizations most in need.”
By assembling the database of relief efforts, Clark says CASE intends to create a baseline for research that could offer valuable policy insights down the road.
“The ultimate question is: did it have the impact that we hoped,” Clark said. “When people get these loans or get these grants, does it help them stay in business? And does it help them adapt in the way that we want? We're currently in several discussions with groups about how we can collaboratively address these questions through longer term research.”
For more than 20 years, Clark’s focus has been researching and developing opportunities in the areas of social entrepreneurship and impact investing – opportunities designed to yield social or environmental benefit in addition to financial gain. In this new environment businesses are operating in – weighing layoffs against furloughs, for example -- every business has theoretically become an ‘impact business,’ Clark said.
“They're having to make severe important choices about how to stay afloat: whether to cut employees' pay or time, whether to pay rent, whether to temporarily shut down, or whether to permanently close,” Clark said. “And when you let go of workers in the U.S., they lose not only their ability to pay rent and buy food, but often their health insurance. During a pandemic, that's clearly a potential wrecking ball on people's lives.”