RESEARCH Quick liquidity to small businesses could mitigate impacts from coronavirus

JPMorgan Chase Institute Take

Efforts to provide small businesses relief from impacts of the coronavirus (COVID-19) pandemic have developed. Cities like New York and Seattle will delay tax collections and make low-interest loans available. The Trump Administration has mirrored those proposed solutions, with the President announcing on March 10 that he would ask Congress to increase funding for the Small Business Administration (SBA) lending program to $50 billion.

JPMorgan Chase Institute Take:

Small businesses tend to have volatile and irregular cash flows. Cash liquidity and cash flow are critical predictors of small business survival—those with less liquidity and irregular cash flows are least likely to keep their doors open. With rapidly unfolding reactions to the coronavirus keeping more and more Americans home, this unforeseen event is a cause for concern to the 30.2 million small business owners who make up this key pillar of the U.S. economy, and the millions more they employ.

Firms with more of a cash buffer may be best equipped to weather the impacts of COVID-19 but JPMC Institute research shows that 50 percent of small businesses have less than 15 cash buffer days, meaning the small business economy could be majorly disrupted by the current climate.

Getting liquidity to small businesses through available policy levers, like delayed tax payments, grants, or loans, is the right idea. But doing it quickly is important and some of these solutions, like making loans, take time. Delivering with speed is a critical factor that the most effective solutions will need to consider, weighed with targeting to businesses that are least likely to be able to sustain a long-term revenue shock.

Authors

Chris Wheat

Director of Business Research