Time for Congress to recognize the new normal for small businesses

In addition to its devastating toll in human lives, the Covid-19 pandemic careened through the landscape of America’s new and small businesses like a bulldozer. Between February and April of 2020, the number of active businesses in the U.S. plummeted by 3.3 million, or 22 percent, the largest drop ever. Hundreds of thousands never reopened.

Fortunately, most small businesses did survive, thanks in large part to the rapid implementation of government assistance like the Paycheck Protection Program and the Federal Reserve’s Main Street Lending Program — and thanks to technology. Forced by local restrictions to limit foot traffic in stores or to close physical locations entirely, small businesses increasingly turned to online platforms like Facebook, eBay, Amazon and Shopify to open digital storefronts; social media sites like Instagram and Twitter to market to customers; video conferencing platforms like Zoom and Microsoft Teams to interact with suppliers and pitch potential investors; and financial tools like Intuit QuickBooks, PayPal, Venmo and Square.

Post-pandemic, there is no going back. E-commerce sales as a percentage of total business sales jumped from 10 percent in 2019 to more than 15 percent by the summer of 2020 — a level that has persisted ever since. E-commerce is now a major aspect of new and small businesses’ operation and success.

But there’s a big problem — government policy regarding small businesses has not been modernized to recognize the economic benefits of digitalization. For example, small businesses remain uncertain whether loans backed by the Small Business Administration’s flagship 7(a) program can be used to enhance their digital capabilities. That uncertainty has slowed adoption and integration of digital tools.

Fortunately, bipartisan legislation introduced by Sen. Todd Young (R-Ind.), Sen. Jacky Rosen (D-Nev.), Sen. Ted Budd (R-N.C.) and Sen. Jeanne Shaheen (D-N.H.) — The Small Business Technological Advancement Act — will make clear that small businesses can use SBA-backed loans to pay for digital tools, software and apps. Congress should pass the legislation immediately.

The trend toward the digitalization of small business has been underway for years, but the pandemic dramatically accelerated the shift, in large part because of the warm embrace by the American consumer. According to a recent analysis, the pandemic compressed into just months the adoption of e-commerce by customers that would have otherwise taken a decade, with three out of four Americans having tried a new shopping method due to Covid.

Particularly significant is the accelerated shift to online shopping by older consumers. A survey released in November 2020 by digital consulting firm Mobiquity found a 47 percent increase in the number of baby boomers reporting that they had ordered delivery from a restaurant through a website or app, a 193 percent increase in the number ordering groceries online and a 469 percent increase in the number who have used tele-medicine.

And such trends are likely to persist. Speaking at a European Central Bank forum in November 2020, Federal Reserve Board Chairman Jerome Powell said, “We’re not going back to the same economy. We’re recovering, but to a different economy — one that is more leveraged to technology … I think you’ll see more telework. You’ll probably see an acceleration of automation. All of that was in the process of happening, but you’re going to see much more.”

According to a survey by Visa, more than 80 percent of consumers indicated that digital aspects of the small businesses experience — such as a user-friendly website or online loyalty program — are motivating factors when deciding where to shop. In addition, 61 percent of respondents said they plan to increase their online purchases over the next five years, while 78 percent plan to maintain or decreasetheir in-store purchases. In the Mobiquity survey, nine in 10 baby boomer respondents said they will continue to use remote e-commerce technologies after the pandemic.

Given this reality, digital storefronts and sophisticated e-commerce capabilities are no longer novelty complements to businesses’ principal identity — they are core operations. Digital tools facilitate business operations, including product and service delivery; the processing, payment and tracking of payroll expenses; human resources; sales and billing functions; accounting; and tracking of supplies, inventory, records and expenses. Indeed, according to a 2022 analysis by the Chamber of Commerce, small businesses that incorporated technology platforms and tools into their operations since 2020 have increased sales by 82 percent, profits by 84 percent and 74 percent of them increased employment.

The pandemic dramatically accelerated the shift to technology-powered e-commerce, permanently changing the nature and operation of the U.S. economy and the competitive requirements of business success. American prosperity now depends in large part on new and small businesses operating, selling, growing and thriving online.

It’s time for Congress to acknowledge and support this new reality by passing the Small Business Technological Advancement Act.

John R. Dearie is the founder and president of the Center for American Entrepreneurship.