Over 100,000 small businesses have permanently closed due to the coronavirus

In April, an NBER study shed some light on just how financially fragile small businesses how and how uncertain most of them were regarding the duration of virus-caused disruptions.

The survey — which was conducted on 5,800 small businesses, found that many businesses had more than $10,000 in monthly expenses but less than one month of cash on hand. This means that a lot of small businesses have been at a high risk of going under. 

It is not too surprising then to hear that a new survey estimates that over 10,000 businesses may have closed permanently due to economic disruptions caused by the virus. 

But already, economists project that more than 100,000 small businesses have shut permanently since the pandemic escalated in March, according to a study by researchers at the University of Illinois, Harvard Business School, Harvard University and the University of Chicago. Their latest data suggests at least 2 percent of small businesses are gone, according to a survey conducted May 9 to 11.

This, of course, has far-reaching impacts on the future and structure of the economy

Analysts warn this is only the beginning of the worst wave of small-business bankruptcies and closures since the Great Depression. It’s simply not possible for small businesses to survive with no income coming in for weeks followed by reopening at half capacity, many owners say.

The result is likely to further shift the balance of power — and jobs — toward big businesses that have a better chance of surviving the uncertain year ahead by borrowing money or drawing on large cash reserves. Emergency actions by the Federal Reserve, backed by the Treasury, have made borrowing money almost free for large companies.

The COVID-19 lockdowns have been bad for small businesses. With new evidence still coming out, it is hard to estimate fully the cost that these businesses have been forced to bear. But preliminary evidence already suggests that the costs are bound to be massive once they are tallied up.