Right now, I’m retired and writing. For decades before that, I worked as a market analyst—helping businesses large and small understand, measure, and forecast how advertisers spent their money. The work gave me a panoramic overview of the differences between smaller businesses and larger ones. It’s a shame to see those differences ignored today.
The recent multi-trillion dollar aid announced to help small business survive and return from the Covirus-19 pandemic can’t work, even if it was ever truly designed to do so. The base reason is simple: the funds were never targeted to reach small businesses.
Depending upon how you count them, there were between twenty-two and twenty-nine million business units operating across the nation when the pandemic shutdown hit. These range from freelancers of various stripes, supporting only themselves and their families, to small “main street” restaurants and retailers, all the way up to industrial giants like IBM, General Motors, and Apple. The vast majority of these businesses are small. Less than one in ten have more than one hundred employees. Most businesses with more than twenty-five employees have their own accountants, their own lines of credit with banks, and some form of retirement program for their employees. Less than one out of every twenty businesses has more than two hundred fifty employees.
By setting the bar for federal aid at five hundred employees, Congress targeted businesses that the nation’s biggest banks are familiar with, and comfortable doing business with. No doubt these businesses, with internal resources far beyond (really) small restaurants and services firms, were immediately ready to submit all the forms necessary to get the loans being offered. The rest of the nation’s businesses, those that really needed the funding, found themselves mired in application after application. They needn’t have bothered. The nation’s largest banks had already divided the money among their better customers—businesses with one hundred to five hundred employees they knew well. Even better, larger businesses yet were able to get their share, simply by applying separately for each subsidiary. A few of the larger, more egregious examples of this grab have been discovered by a lethargic press. The majority have not. The result is efficient. The banks were quickly able to disperse trillions in aid to less than a million businesses. Had they been forced to deal with those really needing their help, they’d have had to do much more work.
The disaster for “main street” will play out during the rest of the year. No less than one out of every four U.S. businesses with less than fifty employees will fail, and that estimate may well be conservative. Faced with overwhelming tax shortfalls, local governments will scramble to protect funding for basic services. A severe recession, perhaps deepening into depression, may ensue. The big banks and their allies in Congress got what they wanted. After this debacle, added to the wreckage of 2008, we should ask ourselves whether or not this is what we want. Perhaps the banks that were too big to fail have finally gotten too big for us to afford.