Over 100,000 small businesses have closed forever as America’s pandemic toll escalates

The carnage was even greater in the restaurant industry, where 3 percent of restaurant owners have gone out of business, according to the National Restaurant Association.

Tearful, heartfelt announcements of small business closures are popping up on websites and Facebook pages across the country. Analysts warn this is only the beginning of the worst wave of bankruptcies and small business closures since the Great Depression. It’s just not possible for small businesses to survive without generating weeks of income followed by reopening at half capacity, say many owners.

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The result is likely to further shift the balance of power and jobs to large corporations, which have a better chance of surviving the uncertain year ahead, by borrowing money or drawing on large cash reserves. Emergency measures by the Federal Reserve, backed by the Treasury Department, have made borrowing nearly free for large corporations.

“We’re going to see bankruptcy activity unheard of in their lives,” said James Hammond, executive director of New Generation Research, which tracks bankruptcy trends. “This will hit everyone, but it will be more difficult for small businesses because they don’t have a lot of cash to spare.”

While 4.2 million businesses have received emergency loans from the Small Business Administration, that is a fraction of the 30 million small businesses in the nation. Many small business owners say that Congressional financial bailout is not well designed to help very small businesses, called micro-businesses, that have high overheads like rent.

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“It would not be surprising if well over 1 million of these micro-businesses ultimately failed,” wrote Mark Zandi, chief economist at Moody’s Analytics, in a recent statement to customers referring to companies with fewer than 10 employees.

Small businesses employed more than half of America’s workforce in the 1980s and 1990s, but that dynamic has changed over time. As of 2017, only 47 percent of those in the private sector were employed in small businesses, and the pandemic appears to be lessening that again.

In April, smaller companies had far more layoffs than larger ones, according to ADP, an early warning sign.

Small business loss often creates ripple effects in communities, especially in smaller towns where small shops and restaurants remain the lifeblood of Main Street. These business owners are often interdependent, which means that one closure forever can lead to more to follow.

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“This is culturally devastating for the communities. Small businesses really help bring a sense of identity and place to communities, ”said Patrice Frey, president of the National Main Street Center, which works to restore downtown hubs. “It is very difficult to see how these companies can easily be replaced, especially in rural and distressed areas.”

After decades in business, places like Ricardo’s Mexican Restaurant in Las Vegas, Biba Restaurant in Sacramento, Great Scott Music Joint in Boston, and Tony Ciccarelli Hair Salon in Troy, NY, are closing forever. Many made their announcements just before rent was due on May 1st.

Bridget McGinty is among those who had a reputation for closing permanently on May 1st.

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McGinty and her sister ran Tastebuds, a popular lunch spot in Cleveland, for 19 years. The deal was on “life support” last month, she said, and she didn’t think they could survive the summer paying rent and making virtually no money as downtown Cleveland remains largely deserted.

“There were just too many things against us,” said McGinty, still choking on having to say it out loud.

Congress approved more than $ 700 billion for small businesses, mostly in the form of loans and grants from the paycheck protection program. The money comes from the Small Business Administration, although entrepreneurs apply to their local bank for it.

Permanently closing entrepreneurs like McGinty say the process was too slow and the money will only cover about two months of expenses when it does, although it will likely take months for restaurants, gyms, and stores to fill up again.

Neil Bradley, Chief Policy Officer of the US Chamber of Commerce, is calling on Congress to devise a special “bridge program” to help restaurants, cinemas, hair salons and other places that cannot be fully opened for a long time. Negotiations between Congress and the White House on the next economic aid package have stalled, however.

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Another major complaint is that small businesses have to spend three quarters of PPP money on payroll in order for it to become a non-repayable grant. Congress designed the PPP program in such a way that jobs can be saved. However, it creates problems when rent or other expenses make up a greater proportion of a company’s obligations than payroll.

“What we keep hearing is that the federal incentive for the restaurant industry isn’t really working,” said John Barker, president of the Ohio Restaurant Association. He calls on Congress to “incorporate at least some flexibility” into how and when the grant money can be used.

McGinty is an example. Closing your decision means your five employees will have to look for new jobs. After using up the $ 15,000 in cash she had in the bank, she applied for a PPP loan, but quickly found that it wouldn’t work well for her since her overheads are equal to, if not greater than, overhead the wages for their workers. In addition to renting, restaurants have the added cost of replacing all groceries as most of what they had in their fridges in March has gone bad.

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“It will be this long before restaurants get out of debt or just break even,” said McGinty. She urged landlords to “only give out the rent” for April and May. Otherwise, it will become an “intolerable future burden” that small business owners will find difficult to pay later this year.

The economists who have tracked permanent small business closures found that 34 percent of small businesses said they were either paying reduced rents or delaying payments, according to a poll conducted April 25-27. The researchers conducted informal surveys of 50,000 small business owners who subscribe to the Alignable Business Network. Respondents come from a variety of industries and broadly reflect government data on small business characteristics.

While entrepreneurs debate whether to take PPP money, some are choosing to reinvent their business model, often by doing more online and cutting labor costs.

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Dave and Stacy Dockins spent the last night in April holding hands and coming to terms with one of the most difficult decisions of their marriage. The couple have been running the popular Fort Worth Yoga Project Studios for 15 years. But on May 1st, they decided to close all three of their yoga studios.

From now on, the yoga project will only be online – with a fraction of the former employees.

“We were afraid it would come to that. We are running out of money, ”said Dave Dockins after four different banks failed to process his PPP loan applications. “It’s still very raw for my wife and me. This is the hardest decision we’ve ever made.”

They said the closure was their only option as they could no longer afford the rent and other overheads. The PPP was a poor option for them as their trainers are typically contractors – 1,099 workers – who are not eligible for wage pay.

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Another problem with the PPP loan is that it only covers eight weeks of expenses and the money must be used once the business owner receives it. This is difficult for restaurants and other businesses that are still closed or have a skeleton crew to take away. They don’t all need their workers.

Some business owners say the money would be more helpful later in the summer when, hopefully, they could try to get more customers.

“If restaurants are only allowed to open at half capacity, that’s a nail in the coffin right there,” said Justin Barrett, chef and owner of Piecemeal Pies in White River Junction, Vt Small Business Pending Vaccine. “

Piecemeal Pies is a small 25-seat restaurant that specializes in British meat pies and cider. Customers loved to sit at the counter or communal table – attractions that have become liabilities in the age of social distancing. You created Pie Day Friday for customers to order to take away, but it doesn’t generate a lot of sales and doesn’t require all nine of its employees.

Barrett got a PPP loan, but the money will be gone by mid-June.

Dave and Stacy Dockins say they are “working the hardest we’ve ever worked in our lives” while broadcasting yoga project sessions from their home and trying to establish an online membership.

McGinty’s Cleveland restaurant won’t reopen, but she’s still busy: she’s spent the past few days moving most of her equipment and furniture to a Catholic pantry and community center between talking to her landlord, her bank, and her insurance agent Community donate.

Everyone tries to be quick, but nobody sleeps well at night.

Andrew Van Dam contributed to this report.