The financial impact of COVID-19

Expert says pandemic will change business models moving forward.

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The novel coronavirus, COVID-19, has grown into a global health crisis that is also impacting worldwide economies.

On the macro level, the Dow Jones Industrial briefly fell 3,000 points earlier this month, and as of March 23, it stood below 20,000 points.

At the local level, State and local mandates have prompted businesses to close in an effort to discourage large gatherings and slow the spread of the highly infectious disease.

For small business owners, these restrictions have forced some to operate with small skeleton crews–– if they are considered essential businesses–– while others have laid-off workers.

Laura Gonzalez, associate professor of finance at Cal State Long Beach, said life under mandatory quarantine is going to cause two immediate financial problems.

“One is lack of liquidity within and between industries that do not have income, which is likely to affect at least one-third of the workforce,” Gonzalez told the Signal Tribune. “Businesses will default on payments, including rentals, even after reducing their workforce and altering operations.”

She added that many businesses will close and all are likely to change as a result of the pandemic.

“These changes can be seen in the increase of hiring towards extra-delivery teams, but overall, there is an increase in layoffs and changes in all industries. This is happening around the world, which is going to create limitations going forward,” Gonzalez said.

“The second most significant problem is that financial markets are based both on fundamentals and trust. Trading has been well over fundamentals for years, and trust has suddenly come to a halt for an undetermined period of time,” Gonzalez said. “Markets are also factoring in the uncertainty about the financial situation following the pandemic.”

She noted that growth expectations and investments will depend on stimulus packages and the capacity of businesses to serve a new market. Currently, U.S. legislators are debating the best way to deliver monetary aid to Americans–– such as direct loans.

“The federal government is finalizing support for small businesses, but it is not clear yet who will get what under what conditions,” Gonzalez said.

Until lawmakers come to an agreement, folks across the nation are losing their jobs or seeing reduced hours.

Gonzalez recommended for those being laid off to be informed about when their last paycheck will come, and whether they qualify for unemployment benefits.

“It is also important to know the health coverage they can rely on,” she added. “The first step in budgeting is to forecast changes in income and expenses, and decide priority changes.”

As the world continues to battle an invisible enemy, Gonzalez mentioned that there is some light at the end of the tunnel.

“There is no doubt that there will be opportunities in a few months,” she said “The organization of businesses and society is going to change worldwide, and it is clear that qualifying for jobs that allow teleworking is key for a better future. Therefore, this is a good time to think how we can acquire and increase those technology-oriented skills.”

From this economic uncertainty, Gonzalez argues new businesses will grow.

“There will also be new small businesses and franchises,” she said, “and demand for a high-quality, sustainable domestic supply chain.”