Stay-home decrees crush small business, erasing millions of jobs

First came the order to close up. Then the laying off of staff. Now small-business owners across the U.S. are bleeding cash and wading through paperwork to get financial assistance.

“I keep hearing that help’s on its way, but I can’t see much information,” said Susan Choi, the owner of a Hayward, California-based party-equipment rental business she founded with her mother in 1998. A week ago, she had to let go of her eight employees.

Large swaths of the U.S. are under confinement orders that are becoming stricter by the day as authorities try to contain the coronavirus outbreak. Among the hardest hit are clothing shops and other mom-and-pop stores that are the engine of the economy.

The impact is hard to overstate. The restaurant industry alone is set to lose 7.4 million jobs, consulting firm Challenger, Gray & Christmas Inc. estimates. The shutdowns across the country could send the jobless rate spiraling to 30% in the second quarter, Federal Reserve Bank of St. Louis President James Bullard told Bloomberg.

Help is on the way. It’s just not fast and sweeping enough for many. Congress has yet to pass a rescue package that could include about $350 billion in loans for small businesses that would convert into grants if they retain most of their workforce. Those companies can apply for low-interest disaster loans from the Small Business Administration. The catch: it can take as long as 21 days to process an application. Once approved, it might take another week to go through, the agency says.

Every day counts when half of small businesses have a cash buffer of less than a month, according to a JPMorgan Chase Institute study.

As of Monday, all states were approved for coronavirus disaster loans. The SBA’s site warned: “We are experiencing high volumes of traffic and the site might be slow.”

“For the last several days, it’s been a constant stream of emails and phone calls to everyone in the office,” Robert H. Nelson, the SBA’s Massachusetts district director, said Thursday. “Are we in uncharted waters? Maybe so,” said Bill Koontz, an agency spokesman in Sacramento, California.

Industry advocates say loans aren’t enough, especially for the smallest outfits. An instant cash injection is the only way to save them from failing, according to the Small Business Majority. The group, which represents a network of more than 58,000 small-business owners nationally, is calling for $500 billion of support split equally between cash grants and low-interest loans.

“We have to move quickly and at scale,” said Mark Herbert, the group’s vice president.

Julie Verratti, co-founder of Denizens Brewing in Silver Spring, Maryland, had to furlough 30 employees a few days ago. While her company may be able to operate for the time being, others won’t. She’s urging Congress to take immediate action by calling a temporary halt to rent, mortgage and commercial-debt payments.

“I’m not against SBA disaster loans, but they’re not part of the solution in the first wave,” Verratti said. “That’s the second or third wave.”

The SBA may be the only entity that will lend to small businesses during this crisis. Banks aren’t set up to make fast working-capital loans, said Kurt Chilcott, chief executive of San Diego-based SBA lender CDC Small Business Finance. Such loans would be too risky, especially when no one knows when businesses will rebound, and federal regulators would need to relax all kinds of rules, he said.

In some cases, emergency funds set up by states could provide some “bridge” funding until the company gets its disaster loan from the SBA, he said. Florida’s program, for example, offers as much as $50,000 generally, or $100,000 in certain cases. However, the mix of state and federal money probably won’t cover the overwhelming need.

“We’re still going to lose a lot of smaller or not particularly well-capitalized small businesses,” Chilcott said.

Small businesses employ almost half of the private workforce in the U.S., and contributed about two-thirds of net employment gains in the U.S. since 2011, according to the SBA. The tiniest firms, of 20 or fewer people, account for about 20 million employees. Their collapse under the current stay-at-home orders will reverberate across the economy.

Other hard-hit countries are grappling with the same conundrum — seeking to contain the virus without destroying small and medium-sized businesses. From Italy to France and Germany, governments are weighing measures including loan guarantees, moratoriums on repayments and support for furloughed workers.

In the U.S., many are seeking creative ways to generate sales. Kimberly Anderson, who had to shut down her fashion boutique in Philadelphia a week ago, took pictures of her inventory and reached out to clients via Facebook, Instagram and text messages. She contacted designers to try to get light spring looks for her customers.

The mother of two applied for an SBA loan, but was unable to complete the application right away because she didn’t have all the required documents at hand.

“I’ve been so overwhelmed,” Anderson said. “I know there’s a list of things I have to do, like looking into funding and seeing what the state of Pennsylvania is offering right now, if anything.”

In Atlanta, Amy Wilson closed her Zone of Light Studio last Monday. The eight-year-old business, which offers after-school programs for children and event space for weddings and parties, generated $300,000 in revenue last year. It is now taking in nothing, while monthly bills for rent, insurance and utilities total $11,000.

“I have a little bit saved up, but that will last two or three months,” Wilson said. “If it ends in May, I have lost $70,000, but I will be OK. If it goes through July, it will be awful for me. I will be in big trouble.”

For Choi, the owner of the party-equipment business in the Bay Area, the week has been tough. After initially being told her county didn’t qualify for a disaster loan, she was able to apply. A few days later, she was told her loan was moving forward and could possibly close in a few weeks.

“How long is this going to go on?” she said. “That’s the most nerve-wracking part.”