From relief to recovery: Using federal funds to spur a small business rebound

From relief to recovery

Using federal funds to spur a small business rebound

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July 7, 2021

About the Authors

Joseph Parilla

Joseph Parilla

Fellow – Metropolitan Policy Program
Sifan Liu

Sifan Liu

Senior Research Analyst – Metropolitan Policy Program

With the nation deploying COVID-19 vaccines, the pandemic in retreat, and the $1.9 trillion American Rescue Plan (ARP) delivering flexible resources to localities and states, small business support remains a key priority for local leaders as they execute economic recovery strategies.

Leaders are crafting these local recovery plans amidst widespread small business uncertainty. Over 60% of small business owners report it will take at least four months to return to normal operating levels, if ever—a share that rises to 75% for owners running small businesses in food, accommodation, and arts and entertainment.[i]

These operational challenges are why the U.S. government has deployed nearly $1 trillion in small business relief since the beginning of the COVID-19 crisis. Yet even with this historic mobilization of resources, small business relief has too often not reached the underserved entrepreneurs and communities that need it most. Disparities in household wealth and access to mainstream financial capital—two preconditions entrenched by the nation’s history of structural racism—have disadvantaged entrepreneurs of color during the crisis.[ii]

Meanwhile, even as America’s existing small business owners express continued concern about the fate of their businesses, a new cohort of entrepreneurs is launching startups at a historic clip—a rarity during a recession. New business starts grew by 24% in 2020, driven mainly by an increase in non-store retail startups selling goods and services online.[iii] As workers and families find their economic footing, new business ownership could be a path to economic self-sufficiency, and early indications suggest the startup surge is disproportionately concentrated in Black and Latino or Hispanic neighborhoods.[iv]

Resources from ARP can address both dynamics by delivering relief to small businesses still at risk of closure and catalyzing a recovery fueled by small business creation and expansion. But this will not occur automatically; it will require smart federalist approaches, organized locally, to invest Washington’s resources in comprehensive small business relief and recovery strategies.

This brief provides a framework for translating ARP into a small business recovery strategy. It begins by introducing a small business typology that can help local leaders make informed decisions about how small business interventions could reasonably influence broader economic outcomes. Specifically, this brief provides decisionmakers with strategic principles and actionable solutions across two stages:

  1. Relief: The relief stage will involve capital access and technical assistance strategies that help small businesses stay afloat until public health restrictions loosen, consumer demand returns, and existing federal small business relief programs expire. The objective for the relief stage is to avert small business destruction.
  2. Recovery: The recovery stage will involve new platform investments in small business support that leverage funding from the American Rescue Plan and, potentially, the American Jobs Plan. The objective for this stage is to recover better by catalyzing higher-quality, more racially inclusive regional economies.

Footnotes

[i] Brookings analysis of U.S. Census Bureau’s Small Business Pulse Survey.

[ii] Fairlie, Robert W., and Frank Fossen. Did the $660 Billion Paycheck Protection Program and $220 Billion Economic Injury Disaster Loan Program Get Disbursed to Minority Communities in the Early Stages of COVID-19?. No. w28321. National Bureau of Economic Research, 2021.; Liu, Sifan, and Joseph Parilla. “New Data Shows Small Businesses in Communities of Color Had Unequal Access to Federal COVID-19 Relief.” Brookings Institution (2020).

[iii] Djankov, Simeon , and Eva (Yiwen) Zhang, “US business dynamism rises” Vox CEPR Policy Portal (2021)

[iv] Fazio, Catherine E., et al. How is COVID Changing the Geography of Entrepreneurship? Evidence from the Startup Cartography Project. No. w28787. National Bureau of Economic Research, 2021.


The Brookings Institution is a nonprofit organization devoted to independent research and policy solutions. Its mission is to conduct high-quality, independent research and, based on that research, to provide innovative, practical recommendations for policymakers and the public. As such, the conclusions and recommendations of any Brookings publication are solely those of its authors, and do not reflect the views of the Institution, its management, or its other scholars.

This report is made possible by the Kresge Foundation and the Shared Prosperity Partnership, for which the authors are deeply appreciative. We also want to thank colleagues who provided valuable feedback on the report: Alan Berube, Annelies Goger, Pam Lewis, Tracy Hadden Loh, Rob Maxim, and Mark Muro. The authors also thank Michael Gaynor for editing, Luisa Zottis for layout and design, Alec Friedhoff for his design of the data interactive, David Lanham for his communications leadership, and Jade Arn and Rowan Bishop for help on outreach.