Coronavirus Brought About A Historic Shift: Microbusinesses Counted

Ginger Routh and her husband Josh run Circus Kaput, an entertainment agency in St. Louis, Missouri that books musicians, jugglers and fire breathers for events. Since the COVID-19 crisis took hold, they’ve seen 800 live events cancelled. 

They’ve tried to find new opportunities by showcasing their work online—Josh, an entertainer, now runs Quarantime, a twice-a-week Facebook Live show for children—but without their usual revenue streams, their business, founded in 2004, has been hit hard. 

That has had a ripple effect throughout the agency, where the Rouths have one employee and work with about 40 contractors. “Something like this stops us completely,” says Ginger. 

To protect the business, the Rouths applied for an advance on an Economic Injury Disaster Loan advance, offered under the $2 trillion Coronavirus, Aid, Relief and Economic Security (CARES) Act, right after the program launched. She also applied for a loan under the Paycheck Protection Program, which offers forgivable loans to employers who keep people working.

Legislators never paid much attention to the needs of microbusinesses in past downturns. Now the government is promising the self-employed and sole proprietors unprecedented help. So far, federal aid isn’t arriving. The U.S. Treasury announced on Thursday, April 8, that financial technology companies such as Square, PayPal and Kabbage can now work as lenders under the PPP program.

Washington’s Ignorance Of Small Business Hampers Relief Efforts

How quickly that aid comes and how easy it is to access will be the test of whether it ends up being useful in practical terms. And it may mean life or death for many of the 30 million small businesses in America. Twenty-six million don’t have employees outside their families, and many, like the Rouths.  who run payroll have tiny microbusinesses. But they are economic engines, in ways that institutional leaders in Washington, D.C. and policymakers haven’t recognized.

“We actually don’t know very much about the land of small business and we don’t know much about funding small business,” said Karen Mills, the head of the Small Business Administration under Barack Obama, and the author of Fintech, Small Business & The American Dream. “But time is of the essence. They’ve probably running out of money.”

Freelance businesses aren’t reflected in the employer statistics that show how important small businesses are to the economy. Those with fewer than 500 employees, account for about half of America’s employment, and the smallest firms, those with 20 employees or fewer, for most of the job growth. 

What the economic data has a hard time capturing is the value created when one tiny businesses collaborates with another. It’s more than the “gig economy” sometimes decried by people with secure jobs. Independent contractors and freelancers can and are taken advantage of by big platform-based businesses.

But there’s also a world of tremendous value and freedom in the tiny business economy; reflected in the fact that a growing number achieve revenue of $1 million or more in annual revenue. 

One problem now is that the crisis response has been geared to a reality of small business that is incomplete at best. Main Street businesses need to be saved; so do the tiny businesses that are the hidden strength in the economy.

‘Nobody Gets This On A Silver Platter’: Big Tech Firms Need To Step Up

The best way to reach them, said Mills, is via fintech companies such as PayPal, Square and Facebook that were not included in the CARES Act and are now negotiating to become part of the solution for distributing the $349 billion. Mills said she has been seeing proposals for the big tech firms to get involved for three weeks, and that a plan should have evolved faster.  “This is not a big moneymaker for them,” said Mills. “Nobody is going to get it handed to them on a silver platter. My feeling is all hands on deck.”

Another step that could be taken – negotiations are under way in Washington, D.C. – is to make it easier for community loan funds to access the federal money.

Some solo businesses may be closed by the time any money arrives, if it comes at all. Larger businesses that have established relationships with banks are having an easier time getting their applications submitted.

In the U.S., the average annual revenue among the 25.7 million nonemployer firms was $47,978 in 2017, the most recent year for which Census statistics were available. 

In early March, Invoice2Go, an invoicing software provider, found in a survey of more than 27,000 microbusinesses that many had already been hit hard by March, with invoiced amounts down 16% overall year over year and some industries, such as consulting and freelancing, seeing a 31% decline.

The numbers are likely to be worse for April, now that more states have issued shelter-in-place orders and the companies many tiny businesses serve are running short of cash, too. Freelancers, contractors and small businesses are often the last to get paid if there is a slowdown, because of businesses’ legal obligations to make payroll by a certain date. 

A Critical Mass

The growing critical mass among freelancers is leading to more of an outcry about their financial pain than in the past. The rise of online and app-based platforms like Uber and Lyft that make freelance work accessible to the average person has made freelancers more visible than ever before. Pretty much everyone knows someone–or has at least talked with someone during a pickup from a rideshare service–who makes all or part of their living as a gig worker, freelancer or contractor. 

More of the major organizations that take stock of the entrepreneurial landscape are treating solo ventures as “real” businesses worth counting. The Global Entrepreneurship Monitor, a vast global report by researchers at Babson College and other leading institutions, now tracks both solo entrepreneurs and gig workers. Global Entrepreneurship Week introduced The GigCON, an online event that recognizes gig workers as entrepreneurs. And the State of Women Owned Businesses, by American Express OPEN, has tracked gig workers. Until very recently, policymakers generally only cared about job-creating businesses with payrolls from which taxes could be extracted easily before workers ever saw the pay they received. 

There are also changing attitudes about where benefits should come from. Since the 1950s, health benefits have been tied to traditional jobs. In recent years, frustration with the gaps in the U.S. healthcare system and the lack of a social safety net for freelancers has led more to consider ideas like portable benefits—which, if available, would give freelancers some financial protection from events like serious illness. “There is an uncoupling of some of the things we see as tied to a firm,” says Arnobio Morelix, chief innovation officer at Startup Genome, an advisory and research firm. “In the U.S., health insurance is tied to firms, but we’re seeing awareness that is not necessarily the best mechanism.”

Ultimately, though, the test of the government’s new commitment to one-person businesses will be whether the aid that’s promised to them gets delivered at all or remains stalled. The CARES Act was a tremendous opportunity to build the confidence of millions of tiny business owners in the government and the economy—but, if significantly botched, could also end up having the opposite effect. 

“The fact that the CARES Act recognizes, for the first time, the true value of the self-employed worker in America is extremely powerful,” says Gene Zaino, chairman of MBO Partners, a provider of back-office service to independent workers that studies the freelance economy in its State of Independence report. “According to the State of Independence, within the next five years, more than half of the private workforce will be independent or will have worked independently at some point in their careers. Seeing independent contractors in the CARES Act really validates to these workers that their contributions are meaningful and that their voice is heard.”

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