Why 200,000 more small businesses closed in 2020.
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Many small businesses struggled to survive during the pandemic. Quite a few did not make it. According to the Federal Reserve, 200,000 small businesses closed in 2020, including about 130,000 sole proprietorships. Small businesses like restaurants, salons, retail stores, and more had to close their doors to the public in March 2020 to comply with strict stay-at-home instructions. Many thought these closings would take a few weeks, but unfortunately it turned into months for many businesses in the US. This was just the tip of the iceberg of many decisions that hurt small businesses during the pandemic.
Shops have to close
Stay-at-home orders were a tool to help prevent the spread of the coronavirus, but many Americans wondered why large companies like Walmart and Amazon could stay open while small businesses were told to stay nearby. Those closings only helped these already giant businesses become even more profitable at the expense of small businesses, with Amazon's profits rising nearly 200% during the pandemic and Walmart increasing 45% to $ 15.6 billion in the first three quarters .
Related: PPP paid over 4,000 companies twice, the government guard says
Help has been sought from large corporations
Shortly after home stay orders were issued, the Coronavirus Aid, Relief and Economic Security Act (CARES Act), a US $ 2.2 trillion economic stimulus act, was passed, benefiting individuals and individuals affected by the pandemic Company offers facilities. The Paycheck Protection Program was the largest loan program, with nearly $ 350 billion in funding available to small business owners. The goal was to provide a forgivable loan to small businesses with fewer than 500 employees to cover eight weeks of payroll. However, when the program started, small businesses struggled to apply for the loan as many large businesses that had good lender relationships were preferred to small businesses. In fact, an April 2020 survey by the National Small Business Association found that 52% of small businesses that applied for PPP loans failed to get them.
More information was released during the year highlighting the challenges small businesses faced when applying for a loan. According to the Small Business Association in December 2020, more than half of PPP funds went to 5% of recipients, all of which were larger companies. When the second wave of funding was available at the beginning of the year, the requirements for a second PPP loan were changed so that only companies with fewer than 300 employees who can show a reduction in gross income of 25% or more are permitted. $ 15 billion has been given to community financial institutions and business owners in low-income neighborhoods. Unfortunately, these changes came too late for more than half of the small businesses that were unable to borrow almost a year earlier.
Related: 4 Small Business Digital Strategies To Recover From A Pandemic
After more than a year overcoming the challenges, small businesses are more vulnerable than ever and are still working to recover. The MetLife & U.S. Small Business Index Chamber of Commerce found that in the first quarter, 59% of small businesses predicted it would take six months to a year for them to return to normal. As small businesses struggle to recover, President Biden's proposed tax policy is the next hurdle for owners. We'll discuss the impact of the capital gains tax proposals on small businesses in my next article.