First Steps toward Recovery: Saving Small Businesses

Report #254, December 2020


California has taken strong first steps toward helping small businesses survive the pandemic, but the state must do more, including an expanded loan program, deeper collaboration with the private sector, and additional emphasis on organizations that focus on the underserved, according to a new report from the Little Hoover Commission.

The report, First Steps toward Recovery: Saving Small Businesses, details how the pandemic has impacted small businesses – which accounted for nearly half of the private sector workforce prior to COVID. The Commission notes that the pandemic hit minority- and women-owned businesses hardest and has magnified the structural inequalities facing California.

“California’s small businesses have been devastated by the pandemic with marginalized groups feeling the worst of impact,” said Commissioner David Beier, member of the subcommittee studying economic recovery from the pandemic. “It is crucial that we are intentional with our economic rebuilding efforts and that we actively work to support small businesses in underserved communities in their efforts to survive and reorient towards a changing economy.”

Although the state’s budget outlook has recently improved, the Commission acknowledges that California still faces budget constraints and that state government lacks sufficient resources to fully address the enormous impact of COVID on small businesses. The Commission details the need for the state to leverage private resources – financial, institutional, and human talent—toward addressing the economic impact of COVID.

“California’s fiscal challenges have strained its ability to fully address the enormous impacts of the pandemic,” said Vice Chair Sean Varner, who also served on the study’s subcommittee. “By leveraging public-private partnerships, California can foster and enhance economic recovery while also addressing the pandemic’s disparate impacts.”

The Commission also calls on the state to work with institutions that focus on underserved communities, especially Community Development Financial Institutions (CDFIs), which have a strong record of supporting minority- and women-owned businesses by providing them with credit and technical assistance.

The Commission identifies the California Rebuilding Fund as a key mechanism for supporting small businesses and encouraging economic recovery.  The Rebuilding Fund is a partnership of state and local governments and private organizations – some for-profit, some nonprofit – that will aggregate and leverage funding and work through CDFIs to provide financial support to small businesses in underserved communities.

The Commission urges the state to expand the Rebuilding Fund, both by maximizing private participation and by increasing the size of the state’s contribution. The Governor’s Office recently announced that the state will add $12.5 million to its initial contribution of $25 million.

“The state’s recent additional investment into the California Rebuilding Fund offers a critical step towards developing a robust public-private partnership to support small business recovery,” said Chair Nava. “We ask that the state continue its work in expanding the Rebuilding Fund to meet the scale of the crisis confronting small businesses.”

In addition to increasing the state’s contribution to the Rebuilding Fund, the Governor’s Office recently announced several other measures to support small businesses, including $500 million for COVID relief grants for small businesses. These measures complement the aims and recommendations outlined in the Commission’s report and demonstrate the bold leadership in support of small businesses that the Commission encourages.

Written testimony from hearing witnesses can be found in the corresponding event agenda.

Relevant Reports

(Report #257, February 2021)