Coronavirus 'good scenario' could be 20% of small businesses fail
The former head of the Small Business Administration under Barack Obama hailed the arrival of the coronavirus stimulus package, but warned of catastrophic outcomes for a large number of American small businesses.
“I think we are going to lose a lot of small businesses here,” said Karen Mills on Yahoo Finance’s The Final Round. “There’s always small businesses on the edge. You know, this is clearly going to push some of them over.”
According to Mills, currently a Senior Fellow at the Harvard Business School, small businesses have just around 27 days on average in cash. Restaurants have even less, with 17 days of cash on average. And if you run out of cash, Mills said, "you're dead."
“I think that this is going to be maybe 20%, even 30% of small businesses could fail even in a good scenario,” she said.
There are a few reasons. While Mills applauds the number, $347 billion to small business, she is still concerned whether it will be enough. Furthermore, there’s another problem — the logistics of getting that money to businesses before the cash runs out.
“A lot depends on what happens between the banks and the fintechs and the Treasury and the SBA in the next week,” she said. “When I read the bill, it was pretty clear that they were going to rely on the old piping system of the lender banks.”
In Mills’ view, that system may not have the speed required, and banks ought to partner with PayPal (PYPL) and Square (SQ), which have extensive small business networks.
The stakes here are made even higher by the fact that small businesses are delicate.
“If we don't keep these small businesses afloat they're very, very hard to restart,” she said. “If we want to have a very V-shaped, U-shaped curve here in a recovery, we need to keep them solvent for a period of time.”
The current bill has eight weeks of help, but again, Mills said more may be required.
“I’m hoping that we use all of that $349 billion and then need to re-up it because that will mean we’re stimulating what needs the money,” she said.
The former Small Business Administration chief ended with a message to large businesses on how they can help their smaller counterparts: “pay your bills.”
“We need to make sure that big companies pay their bills on time or in advance,” she said. “One thing we did in the last crisis that actually was very valuable was the government paid its bills in 15 days.”
Mills said she hopes the White House will continue to pay its small business contractors in 15 days or even right away.
“Any agency that has a bill that is owed to a small-business contractor, I say roll up the truck, unload the cash, and get that cash into the supply chain — into those small businesses right now,” she said.
Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.
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