Small businesses with fewer than 500 employees account for 48% of American jobs and 43.5% of GDP, and they are facing an existential threat in the wake of the coronavirus crisis. To understand the economic impacts on small business, the authors surveyed roughly 5,800 companies nationwide. They found these companies to be cash-strapped, with many having shut down or laid off workers, and uncertain about whether federal assistance will work for them. They offer five recommendations for small businesses navigating an uncertain future: 1) Don’t rush decisions, but do make plans; 2) Get in line for the Paycheck Protection Program now; 3) Understand how your customers’ needs have changed; 4) Do some realistic accounting; and 5) Keep your best employees loyal.

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It will be years before we fully understand the economic impact of the coronavirus, but one thing is painfully clear right now: Small businesses across the country are facing an existential threat. Businesses with fewer than 500 employees account for 48% of American jobs and 43.5% of GDP. Yet while these smaller firms are an essential part of the U.S. economy, they’re often financially fragile, with little cash on hand or resources to buffer even a minor financial shock. In the throes of the sweeping disruptions caused by the coronavirus, businesses around the country have closed temporarily. Many have ongoing expenses and little or no revenue and face the prospect that they may never reopen.

For these small businesses to come back after the pandemic abates, and once again serve as an engine of American innovation, they need aid. The Coronavirus Aid, Relief and Economic Security (or CARES) Act set aside $349 billion in loans and assistance for small businesses and there may be more to come. But business owners also need to make the best possible decisions to get them through this difficult period.

Over the past few weeks, we’ve been exploring the economic effects of the coronavirus on small business and ways to mitigate the economic damage they face. To assess the current landscape, we conducted a survey of roughly 5,800 small businesses from across the United States in partnership with Alignable, a small business network. The sample includes firms from most major industry groups, states, and firm-size categories, and the share of survey responses from the largest states matches up well with the share of businesses in each of those states. While it is not fully representative of the U.S. economy as a whole, it does capture the intense distress being experienced by smaller, retail-oriented firms — a snapshot of the crisis, collected over a week at the very end of March.

We sought to understand how small businesses are dealing with the disruption and how long they expect the crisis to last. We focused in particular on their financial resilience and the challenges facing the implementation of the CARES relief package. On top of this, we spoke with banks, tech companies, and other organizations to understand how the crisis was impacting their relationships with small businesses.

Drawing on our research, discussions with business and policy leaders, and the broader academic literature, we’ve sketched out a way forward. First, we’ll provide five findings about the small business landscape that emerged through the survey. Second, we offer a set of steps small businesses can take to better navigate the current crisis.

Our Findings on the Current Small Business Landscape

1. Large numbers of small businesses have shut down and laid off huge numbers of workers.

In our sample, 45% of small businesses were temporarily closed due to Covid-19. Total employment by these businesses declined by 40% since the end of January. The economic carnage was particularly acute at the epicenter of the American pandemic: the mid-Atlantic region that surrounds New York City. In that area, more than 55% of small businesses had closed and employment had fallen by 44%. The Pacific region, with statewide closures in California and an early outbreak in Washington, has seen equally dramatic employment reductions.

The magnitude of the shock to demand for small businesses is hard to overstate. When we launched the survey on March 26, roughly 49% of the U.S. population was living under some sort of shelter-in-place or stay-at-home order. One week later, roughly 87% of the U.S. population was living under a stay at home order. This highlights both the severity of the situation, and the pace at which things are evolving.

2. Most small businesses are extremely cash strapped.

The vast majority of small businesses had less than two months of cash on hand to deal with shocks. The median business with monthly expenses over $10,000 generally didn’t even have enough cash to cover two weeks of their spending. These results suggest that without a credit lifeline or cash infusion, businesses will have to either cut their spending drastically or fold.

For banks and policymakers, this highlights the importance of not just getting money to businesses, but also in streamlining operations to the extent possible and getting money to businesses quickly. Delays in deploying aid will likely have a significant negative effect on business resilience.

3. A majority think they will be able to reopen by the end of 2020, but a large minority are less certain.

Roughly 60% of respondents expect to be able to reopen by the end of 2020. However, nearly 30% view it only as somewhat likely that they will be able to reopen, and almost 10% find it unlikely or extremely unlikely that they will be back in business by year end. Businesses with more cash on hand were more bullish on making it through the year.

This suggests that the targeting of current aid, and the ability of businesses to make other adjustments, will help determine how many businesses will last the year.

4. Small businesses disagree (a lot) about how long the crisis will last.

Perhaps the biggest unknowns for businesses (not to mention the rest of us) is precisely how long the ongoing disruptions will last. More than a third of businesses in our survey thought that disruptions would be over by June. But another third thought that the disruptions would last beyond August.

This highlights the value of transparency and clear guidance from policymakers about what to expect in terms of disruptions for the months ahead. The government can’t promise that the Covid-19 pandemic will be over by any certain date, but it can be realistic about timelines and also commit to a course of economic medicine that will enable the economy to reopen after then pandemic ends.

5. Many businesses are unsure about whether the CARES Act loans will work for them.

While many businesses are in dire need of a cash infusion, our survey also found that many businesses do not plan to seek assistance. Businesses were concerned about whether they would qualify. They were unsure about whether they would be able to repay the loans, or whether the government would end up forgiving the loans. They were worried about the complexity of the process and the hassle involved in getting a loan. And they feared that they wouldn’t get the money in time. Their concerns highlight the importance of the loan process and implementation.

Overall, these findings suggest a situation that is challenging, complex, and rapidly evolving. With that in mind, here’s what small business owners should do right now.

Five recommendations for navigating the current crisis

Drawing on our own research, our interactions with businesses (both small and large), and the broader academic literature, we propose five steps to help small businesses navigate the current landscape.

1. Don’t rush your decisions, but do make plans.

It is easy to panic when thousands are dying, the stock market is crashing, and unemployment is skyrocketing. Don’t! Research has shown that people are more likely to make mistakes when they are cash strapped and primed to think about financial stressors — a state that describes a lot of people right now. Here are some strategies for making good decisions when the world is in flux.

First, give yourself time to decide. In the current climate it can be tempting to run out and make big decisions — to just do something. Many entrepreneurs like action and refuse to leave something sitting on their desk when they can help it. But that’s a bad strategy when every day reveals a bit more about how the Covid-19 crisis will play out. Everyone makes better decisions when they have better information, and you will have more information tomorrow than you do today. Before making any big leaps, take a cooling off period — and maybe even having a trusted third party such as a friend or colleague look over things with you — might help you avoid doing something you’ll come to regret.

What you can (and should) do right now is start making detailed contingency plans. These are overwhelming times, and “save my business” is a daunting task. But “Day 1: Call my landlord, Day 2: Sign up for a loan,” and so on feels more reasonable. Even better is to think through what you will do in 20 days if things look better or worse. Research in social psychology and behavioral economics has documented the ways in which making plans helps people achieve goals. Break your big goal into smaller goals and focus on achieving those.

2. Get in line for the Paycheck Protection Program now.

The CARES Act Paycheck Protection Program (PPP) is offering an unprecedented $349 billion dollars of loan support for small businesses — a much-needed lifeline for many. And it’s not just a loan: The Small Business Administration says that it “will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.” In principle, the program could mean millions of dollars of aid for qualifying businesses, but our survey found that concerns over eligibility, when the money would arrive, and whether the loan would be forgiven had stopped many small business owners from applying. The program’s rocky rollout likely hasn’t soothed these anxieties.

We’ll cut to the chase: If you’re thinking about applying, you should do it now. The money is being channeled through the banks and they are already swamped. One major bank reports a queue of 100,000 small businesses asking for money. All of the banks that we have talked to say that they are prioritizing their regular customers. That’s why you should apply immediately. You can take your time to decide whether you want the money later, once they’ve offered you a loan.

As to whether you’re eligible and when the money might arrive, that differs lender by lender, and often can only be resolved by applying for a loan. Whether loans will be forgiven depends on how you use the money. The government’s current guidelines make it clear that any use of loan funds for expenditures over the next eight weeks on payroll and core expenses like rent can be forgiven if at least three-quarters of the money is allocated to pay workers. Note that according to the guidelines “forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.” In other words, to have your loan forgiven, you can’t downsize. The good news is that if you get a PPP loan and still decide to reduce your payroll, you still have an ultra-low-interest loan. In a sense, the forgiveness program is a free option and options are always worth more when uncertainty is high.

3. Figure out how your customers’ needs have changed.

This Covid-19 pandemic is a shock for the whole world. Almost all of your customers’ lives are different than they were a month ago, and they will probably be different again in six months. They may never be the same. Your short-term cash flow depends on providing them with goods and services during the crisis. Your long-term viability depends on understanding how their needs will be different when the pandemic is over.

The first thing to consider is that people are building new habits right now. There are millions of isolated households whose normal routines have been upended, and just like them you have to experiment if you want to remain a part of their lives. Some restaurants are offering takeout comfort food, even if they usually just serve in their dining rooms. Retailers are emphasizing online experiences. Your customers don’t need a vapid email about how you care about them, but they do need entertainment and comfort and hope. Some of their new habits will persist after the pandemic, which means it is particularly important for you to figure out how to continue to offer services that deliver value during the crisis.

Think hard about how the post-pandemic world will change your business model — and bring your customers into your planning process. When many of your customers will be poorer, but they will also be eager to enjoy themselves after the long seclusion. Many will still be scared about the risks of contagious disease. Some of them may have decided that they like ordering online. Reach out to them to learn how their lives have changed and figure out the most exciting thing that you can offer your customers once they can leave their homes. Ask them what they are looking forward to and help them look forward to the day that they can buy from you again.

4. Do some realistic accounting.

Perhaps you can reinvent your business and keep revenues up during the pandemic. Perhaps you can thrive in the post-pandemic world. But most businesses are suffering enormously, and after you’ve searched for creative solutions and have given yourself time to plan, you’re likely going to need to make some hard decisions.

First, try to form realistic estimates of your cash flow both during and after the pandemic. Compare that cash flow with your fixed expenses and with those expenses that you can cut. Remember that sometimes it makes sense to cut the more flexible expenses early, so that you can still keep paying the more vital expenses later.

Next, figure out which expenses can be delayed. Oakland has gone so far as to put a two-month freeze on landlords’ ability to evict renters and small businesses. Be transparent to landlords — or whoever you need to pay — about your situation. But be aware that it might not be easy to catch up.

Finally, stay abreast of other forms of public assistance and other ways of bridging the gap as they become available. This landscape is also evolving, and fast. For example, there are a number of new relief grant programs available for small business, provided by organizations including Facebook, Verizon, the James Beard Foundation, and Amazon.

5. Keep your best employees loyal.

Your workers are always your most valuable asset. If you lose your best ones during the crisis, rebuilding your operations is going to be even more difficult. Even if you have to cut labor costs dramatically during the crisis, you want to maintain your ability to rehire your best workers when the world is open for business again. The key here is to focus on the long term and to be human.

The small business loans are designed to stop you from firing workers, but Congress has also added an extra $600 weekly bonus for unemployed workers, meaning some workers will be better off if they are laid off. If that might be the best plan for you and your workers, you should make sure that a temporary layoff doesn’t become a permanent separation. Use furloughs rather than firing. Talk to your employees about these choices and make sure that the decision feels mutual and temporary. If you do have to make some tough decisions about who you want to keep, focus your attention on retaining people who feel like the best fit and who really care about being part of your company.

Finally, this is a time to be human with people. No matter what happens with your business, this is likely a devastating time for employees for all kinds of reasons. Many of them have elderly relatives, for instance. Do everything you can to make sure that they are safe and to show that your care about their well-being. Generosity during a crisis can make a relationship far stronger.

Small businesses are facing unprecedented struggles, and banks and policymakers must step up to help them. For example, banks and policymakers need to make sure to create a clear and credible set of guidelines for businesses. They can eliminate uncertainty about getting a loan and offer clarity about rules surrounding loan forgiveness. We’ve heard large banks assume that inbound requests are all they need to worry about, but our research indicates a need for more outreach and relationship building with small businesses.

Yet, there are also steps that small businesses can take to make sure they are doing the best they can given the situation. To navigate the current crisis, it is necessary for owners and managers of small businesses to act both with a sense of urgency and with prudence. It’s important to understand the broader landscape. And it’s critical to be aware of the potential for avoidable mistakes in decision making in these situations. By taking stops to avoid such mistakes, and by thinking through the broader set of levers available right now, it is possible to navigate this complicated landscape.