There’s no question that small businesses and finance companies are hardest hit by the coronavirus outbreak. In this post, we’ll look at why and how these businesses are affected.
Small Businesses Don’t Have Enough Resources
It’s tough to survive as a small business owner, especially for new companies. Many run on a month-to-month basis, with just enough money to tide them over. Saving in this situation is particularly difficult.
Large corporations may be able to weather the storm because of the resources they have. For many small businesses, losing even 20% of their business income is catastrophic.
According to Forbes, three out of four small business owners in the United States worry about the impact of the coronavirus. 38% of business owners fear their businesses won’t survive.
Business owners who can run their companies remotely allow staff to work from home. Logistically, this is easier for larger companies with enough resources.
The Impact of Lockdowns
Not all countries have opted for lockdowns. Those that have, though, have limited the number of businesses allowed to operate. In most cases, only essential services such as food providers and pharmacies are allowed to remain open.
For countries like South Africa, going into this crisis with an unemployment rate of 27.52% lockdowns spell disaster. The country has a large informal sector where traders live hand to mouth. Many of these businesses won’t survive the impact of what’s being called the strictest lockdown in the world.
Businesses in other countries are also negatively affected by lockdown regulations. Even if they’re allowed to operate as essential service providers, they see a drastic decrease in demand. Instead of seeing customers every two or three days, they might see them once a week.
The lockdowns have seen the rise of the telehealth services industry. In America, even dentists now offer consultations via video messaging.
The Impact of Unemployment
Another negative effect of lockdown regulations is that companies may have to lay off staff. With no money coming in, they simply can’t pay their staff. If employees don’t get paid, they don’t have money to spend.
Consumers who are still able to work are more likely to be frugal. We’ll see this continue even after lockdowns are lifted. The COVID-19 crisis highlighted just how unstable many people’s incomes are. Many consumers live from paycheck to paycheck. Losing even one paycheck can be catastrophic.
The Effect on Finance Companies
Finance companies of all sizes are feeling the effects of COVID-19 acutely as well. With the steep rise in unemployment, consumers are unable to service their debt payments. Many face the unenviable choice of paying for food and rent or paying their debt.
While servicing your debt is the right thing to do, finance companies are in a difficult position. If a consumer isn’t working, how does the company proceed? At a time like this, taking a hard stance and instituting court actions could cause serious reputational harm.
On the other hand, finance companies need those payments to service their debts.
The impact of the coronavirus will have long-lasting effects on the global economy. While all businesses will be affected, small businesses and finance companies are likely to bear the brunt of the impact. All that they can do now is to look at innovative ways to provide service for their clients.