How to Support Local Businesses Now

Small businesses, and restaurants in particular, felt the effect of cold weather on their sales this winter. While many have COVID exhaustion and are looking forward to reopening at a normal capacity once herd immunity is in place, it is imperative not to forget about the immediate challenges that small businesses are facing right now and will continue to face as we shift towards spring. Let's take stock of what's actually going on with small businesses right now:

1. The traditional lending landscape has become increasingly challenging

Image via Jeswin Thomas on Unsplash.

Small businesses are typically funded through institutional loans. It's extremely rare for a small business to be bootstrapped, or self-funded, because there are many upfront costs to starting a business that require an influx of capital that most people don't have on hand. There are limitations to traditional lending in general but, during a pandemic with revenue drastically impacted and local regulations constantly changing, the lending sector has been thrown into turmoil as a result of the increasing risk. Communities may feel confident in the longevity of their beloved restaurants and businesses, but given capacity limitations and other changing regulations, the entire small business asset class has become exponentially riskier using traditional underwriting models.

The lending landscape is difficult right now, as small businesses are more in need of capital than ever before, yet the heightened risk profile for small businesses is not conducive to lending. Small business lending has continued to fall throughout the course of the year. Small business owners with existing banking relationships are at a slight advantage, but given the volatile state of capacity limits, consumer confidence, and stay-at-home orders, even the most qualified small business may be unable to secure capital with favorable terms. According to American Banker, a survey from the Federal Reserve shows that the percentage of senior loan officers reporting tightening credit standards has risen to levels not seen since the 2008 financial crisis.

2. Government relief stalled after the PPP last spring

The original Paycheck Protection Program, the "PPP," was designed to provide small businesses with ~8 weeks of relief. Qualified businesses that used these funds to keep staff employed and make payroll would have their loans forgiven, meaning that workers would get paid and businesses would get, essentially, a grant. While in theory this was a great program that could help millions of business owners and workers, in practice it simply didn’t go far enough. Misaligned incentives put smaller businesses at a massive disadvantage as compared to larger businesses with existing business relationships.

While the boost from government programs helped last summer, and the recently passed American Rescue Plan includes help for small businesses, many restaurants and venues found themselves in dire situations during the winter months when outdoor dining often wasn’t a viable option.

3. Consumer confidence has been shaken, and regulations are apt to change

It's not just about whether communities are willing to eat and shop locally—it's about whether they're even allowed to. Uneven regulations across the country have not only fueled a worsening of the pandemic, they've led to confusion and uncertainty around what behaviors are safe and socially acceptable. Is take-out the only option? What about eating on a patio, or dining indoors with limited capacity? In a survey we conducted with Brato Brewhouse in the fall, 62% of respondents were unwilling to dine indoors even if regulations allowed. Only 30% of respondents were very confident in the ability of restaurants to keep them safe while another 33% trusted local authorities on new regulations. This survey was focused largely on the Boston market and is not meant to be representative of a larger population. It is possible that if we ran this survey elsewhere, the results would look quite different.

Either way, consumer confidence is shaky, and a consensus on socially acceptable behavior does not exist. That lack of such consensus makes it extremely difficult for small businesses across a number of industries to predict traffic and revenue. When faced with uncertainty, the best thing for small business owners to do is secure working capital to continue pivoting, making payroll, and making other payments until there's more clarity on what the future of the business looks like. Unfortunately, without solid lending or relief opportunities, businesses have limited options on where to turn for that safety net.

So what can be done?

Community support is pivotal. According to the Wall Street Journal, Americans are starting businesses at the fastest rate in more than a decade. In fact, applications for employer identification numbers (EINs) increased by nearly 1 million in 2020 versus 2019, according to the U.S. Census Bureau. In stark contrast, the pandemic has caused the permanent closure of more than100,000 small businesses in the U.S.

Community investment can also have a powerful impact on businesses because it provides flexibility that a single take-out order does not. Investment by communities can empower a small business owner to make strategic moves to promote long-term growth, allowing them to attempt to put their business in the  best possible position for the future.

Here are five actionable ways you can invest in small businesses during COVID:

1. Shop locally online. Many local retailers have started selling their product online with delivery, in-store pickup or shipping options. While brick and mortar stores come with their challenges at this time, shopping online and locally is a great solution to help main street thrive!

2. Order delivery or take-away. While restaurants remain closed to indoor dining in many places, ordering takeaway food from your favorite local noodle shop or brunch destination serves as a great (but hopefully temporary) replacement.

3. Buy gift cards. If your go-to coffee place or brewery is closed for the time being, buy a gift card for when they're ready to welcome guests again. Oftentimes businesses will offer perks for spending a certain amount on gift cards which will benefit both of you in the long run.

4. Participate in virtual events. Most brick and mortar businesses are offering online experiences to replicate what we're missing in person. Our team did a biscuit-making class over Zoom. Other employees have participated in virtual wine tastings, concerts, readings and more.

5. Get involved in the business. Many small businesses are looking beyond traditional financing options to start, adapt, or grow, and are turning to their communities for support using equity, debt and donation based crowdfunding to get the working capital they need.

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About the Author

Nick Mathews (CEO) and his team at Mainvest are helping to rebuild the American Dream, one small business at a time. An expert in marketing and operational strategy, Nick led the team that launched Uber in Boston back in 2013. While launching Uber in new markets, both suburban and urban, he experienced firsthand local challenges around economic development. He founded Mainvest in 2018 with the goal of empowering communities to determine their own economic development, utilizing new regulations and novel investment vehicles to align incentives between local community members and small businesses.