How Small Tech Businesses Are Faring With Covid-19

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Big, flashy tech companies dominate the news – Apple, Intel and Cisco among them. But smaller enterprises, such as manufacturers’ representatives (reps), support these businesses by creating and driving electronics component demand.

One of the critical factors to arise during the Covid-19 pandemic has been the devastating impact of the government mandated economic shutdown on small businesses. Rep organizations can be as small as one or two individuals.

Like other small businesses, reps have been impacted by the Covid-19 economic shutdown that has harmed both their suppliers and customers around the world, notes Dale Ford, chief analyst for the Electronic Components Industry Association (ECIA).

Given the lack of visibility on how this has impacted this important business community and what help it has been able to procure from the government, ECIA conducted a survey of its rep members on the topic of Covid-19 impact and government assistance.

The survey, conducted between April 28 and May 1, reveals that all manufacturer representatives have seen their business disrupted to some degree.

Given the lag in compensation that flows to manufacturer representatives it is important to look out over the coming 2 to 3 months to determine expectations for future impact, Ford said in a release. This metric gives cause for the greatest concern with 90 percent of members expecting serious to severe impact on their business in the coming two to three months.

At this point, no workforce reductions have been reported. However, compensation reductions are being implemented among many representative firms.

Small business accounts for half of the U.S. economy and is a vital contributor to employment in the country. As a result, two bills have been passed by congress and signed into law that allocate significant funding to support small businesses during this crisis. The management of the loans and grants has been delegated to the Small Business Administration (SBA) working together with banks.

Unfortunately, the demand for help has overwhelmed SBA and bank resources and surveys have shown that most small businesses are still waiting for help many weeks after submitting applications for either Paycheck Protection Program (PPP) assistance and/or Economic Injury Disaster Loan (EIDL) assistance.

Reps have been relatively successful in receiving approval and funding for their PPP loan applications but lag behind the overall small business community, ECIA found. Eighty-six percent of manufacturer representatives applied for PPP loans and 50 percent received approval with most receiving funds at this point.

By comparison, a survey performed by NFIB, the largest small business association in the U.S., released on May 5, found that “the PPP is very popular among small businesses, with 77 percent of owners (NFIB members).”

However, the system continues to hit snags. Anger has erupted as reports have emerged that seem to indicate banks and the SBA are favoring and disbursing funds to larger businesses and publicly traded companies in violation of a general sense of fairness.

In spite of the fact that only 4 percent of loans have been given in amounts greater than $1 million, over 45 percent of the total funds disbursed have gone to those qualifying for loans over $1 million leaving many smaller businesses struggling for help, said Ford.

Finally, the process has a complete lack of transparency with applicants unable to get any idea of where they are in the processing of their applications. About 61 percent of PPP loan applicants have received their loans. This is a significant improvement over the status of loan applicants prior to approval of the second round of funding. The full results of the NFIB survey can be found here.

Business consultant McKinsey & Co. warns that jobs in small companies remain vulnerable because of the pandemic.  Before Covid-19, small businesses provided nearly half of all US private-sector jobs, yet they account for 54 percent (30 million) of the jobs most vulnerable during the pandemic. Specifically, half of jobs at firms with fewer than 100 employees are vulnerable, compared with 40 percent of those at large private-sector employers. That estimate is based on analysis of whether jobs are typically deemed essential and whether they require close proximity to others.

ECIA’s  full report provides additional detail on how the Covid-19 pandemic has impacted manufacturer representatives and the status of their efforts to obtain loans and grants through the SBA and associated banks.