Small Businesses During the Covid-19 Pandemic
The COVID-19 pandemic has had significant effects on the global economy and has triggered substantial short-term and long-term economic contraction. The introduction of lockdowns and restrictions in NSW has adversely impacted small businesses because they are more likely to be in industries such as food service, accommodations, and educational services highly affected by restrictions on movement and physical distancing. The plummeting of trade in Sydney due to COVID-19 along with issues arising from Government protocols, insufficient staff, and financial instability have been putting many small businesses at risk of the financial crisis.
During the lockdowns and restrictions on movement in 2021 aimed at containing the spread of the Delta variant of COVID-19, economic activity was disrupted with businesses operating on reduced incomes and forced to close down due to difficulties in paying bills and wages. According to ABC News, small businesses reported “massive losses, with some saying revenue has dropped by up to 90 per cent”, thus contributing to closures. Additionally, shops required to shut down for deep cleaning after becoming a COVID-19 contact site incurred cleaning expenses and experienced a decrease in trade. Although some businesses experienced growth in sales distributed through supermarkets and online platforms, COVID-19 had ultimately affected businesses through a decline in overall revenue, cancellation of orders, and shortages in staff.
Furthermore, the ripple effect of COVID-19 on the economy can be seen in the financial consequences faced by individuals within the small business sector. According to Westpac, 80% of small business leaders have experienced an increase in the cost of doing business, and 42% of small business owners say the availability of staff has impacted their business growth. Businesses had also reported a 48% reduction in revenue two weeks into the 2021 lockdown compared to normal operations prior (Business NSW, 2021), suggesting risks of debt distress, high inflation and high unemployment as a result of needing to shut down or scale back operations because of insufficient workforces. Additionally, many small businesses who were already facing difficulties in managing shortages of staff before the Omicron surge had since struggled to stay open with increased staff isolating or recovering from COVID-19. The lockdown measures had exacerbated the situation wherein businesses were already challenged by trading conditions due to international border closures. Businesses’ subsequent declining cash on hand had required them to dramatically cut expenses, take on additional debt, or declare bankruptcy, thus highlighting a need for immediate funding and financial support.
Initially, minimal funding and financing sources available had caused an immense crisis for small businesses within NSW. Many businesses primarily relied on Government support measures and temporary changes to help manage operating costs. With this, the broader economic recovery had led to improvements for small businesses whose confidence about their outlook had grown up until 2021 [see Figure 1]. However, according to a survey conducted by Business NSW, the confidence of over 2000 businesses had “plummeted” following the Omicron surge. Further, the Reserve Bank of Australia had stated that “small businesses tend to experience a number of difficulties accessing finance due to their smaller scale, less diversified nature and lack of collateral”. Thus, these pre-existing issues in receiving financial support add an additional strain on the management of small businesses during the pandemic.
Since the prior lack of financing sources, the NSW Government had offered several grants, rebates and other relief for eligible small businesses to provide support in dealing with the impacts of COVID-19. These include the 2020 Small Business Support Program, rent relief under the Retail and Other Commercial Leases (COVID-19) Regulation 2021, and support from banks and other financial institutions in relation to the Australian Banking Association. Although applications for these schemes have closed, these measures helped support worker availability by assisting reduced costs to small businesses and enabling healthy staff to return to work.
By analysing the impacts of COVID-19 against existing financial risks, it is evident that small businesses are highly vulnerable to permanent closure. Thus, as restrictions ease and businesses reopen, ongoing interventions are crucial to not only provide small businesses immediate relief but also to sustain recovery by maintaining longer-term resilience.