Here Are the Obstacles Small Businesses Say They Face In Reopening After Covid-19
by Larry Janezich
Over the past two weeks, CM Charles Allen has repeatedly warned that economic recovery from COVID-19 will take several years and that a lot of Capitol Hill’s small businesses and restaurants may not be able to reopen once the crisis is past.
CHC asked several local business stakeholders to explain why reopening will be so difficult.
Julie Aaronson, Executive Director of CHAMPS says, “In general, most long term contracts still need to be paid regardless of whether or not the business is operating. While rent is usually the largest monthly expense, several others exist. For example, IT contracts, trash and sanitation, payroll fees, credit card processing fees & other bank charges, utilities, etc. Even if late fees are forgiven, the debts will still pile up making bankruptcy the only viable option for many businesses.
Many of the small businesses on Capitol Hill (especially restaurants) rely on discretionary spending. If higher income individuals begin losing income then they will necessarily decrease spending. Unfortunately, it’s not easy for many businesses to “scale down” to a lower price point. That part of the market is already filled by chain restaurants or big box retailers.”
Martin Smith, Executive Director of Barracks Row Main Street (BRMS), agrees with Allen and says, “We really need a stronger federal response – the Paycheck Protection Program and Small Business Administration assistance are mini steps in the right direction but it’s assistance that comes as the result of the federal government’s ability to engage in deficit spending – an option that states and local government don’t have. The city will not be able to do enough – they can waive penalties for late taxes, but I don’t know how much more the city can do.” Asked whether BRMS could use the $500,000 grant it received from DCCD to assist its 168 businesses, Smith said those funds are designated by the agency for façade improvement and BRMS has no discretion to repurpose them – he said he would love to, but thinks it unlikely. Asked if it were possible to repurpose funds from the city’s $150,000 annual grant to Main Street organizations, Smith said that a significant amount of those funds have either been spent or committed during the first half of the year.
Charles McCaffrey, Executive Director of Eastern Market Main Street, said most small businesses operate on a 3.5- 5% profit margin, and that’s based on a 75% capacity. With any reduced capacity, the loss of revenue is significant. He says, “Our MainStreets have already seen a decline in business as competitors – the Navy Yard, the Wharf, Union Market – have emerged, and that has resulted in a decline in revenues. Then add the virus, and for some businesses it’s going to be devastating. As people focus on essentials – food, rent, and healthcare – they are not focused on restaurants and retail consumption. Once you get to the point where you can reopen but income hasn’t been coming in, if too much debt has stacked up, businesses may see no sense in reopening if all they will do for the next 3 – 5 years is repay debt.” McCaffrey has urged his members to apply for everything available in the form of city and federal government assistance.
There was funding available for small businesses from the city and the federal government, but those pools of assistance have dried up, and so far, few if any of the grants and loans have been distributed. Those governments have blamed the overwhelming demand and a clunky distribution system for the slow response.
The city council passed Emergency Legislation to address COVID 19 in March. Among the provisions was a $25 million public health emergency grant program to assist businesses with fewer than 500 employees who have suffered because of the health crisis. Applications were overwhelming and the application process closed the first week of April. CM Chares Allen says the office of the Deputy Mayor for Planning and Economic Development (DMPED) is processing applications and preparing to announce awards later this month. The legislation also provided for mortgage and rent payment deferral for up to 90 days without penalty, as well as a freeze in all rent increases.
On Friday, Mayor Bowser was asked about pressure from a group of business owners for additional relief for small businesses. Bowser said that in light of a projected $600 million shortfall in revenues for the current fiscal year, she could “not make any commitment for any other relief at this time.”
The two sources of small business assistance from the federal government have also been tapped out. The Small Business Administration’s (SBA) $349 billion Pay Protection Program (PPP) established by the Congressional CARE Act – passed last month in response to the health crisis – ran out of money on Thursday. It provides loans to small businesses at 1% which are forgivable if the money is used for payroll expenses. That program was administered through banks, some of which accepted applications only from current customers. An additional $250 billion refunding of the program is stalled in Congress.
The SBA’s Economic Injury Disaster Loan Program (EDIL) providing loans and grants on a first come first served basis is also out of funds. The CARE Act provided $10 billion in grant money and was quickly overwhelmed by 3 million applications.
Congressional Democrats want an agreement on an additional $50 billion in funds for the EIDL loan program and $15 billion for grants, as well as additional aid for hospitals before they sign off on the administration’s request for the $250 billion in additional funds for the Paycheck Payment Program. Negotiations are continuing over the weekend and an agreement could be reached this week. It is likely that substantially more funding will be necessary.
Aaronson says that a number of CHAMPS members have applied for the DC grants and SBA EIDL and PPP funding, but she is not aware of any who have received checks. She said, “While the money may be in the pipeline, it is needed as quickly as possible…. Some businesses saw a decline even before the shutdown order, so they are operating on 6 weeks or longer of reduced/no sales and income. They are anxious about how to pay bills, how to help their employees, and how to plan when we do not yet have a sense of when or how we can reopen safely.”
Additionally, she said, some businesses have expressed concern about how to pay next month’s rent, and while they are hopeful their landlords will take advantage of the mortgage deferment that was included in the Council’s emergency legislation, there’s no guarantee landlords will pursue or qualify for the deferment.
According to one source, most small restaurants operate on thin margins with substantial fixed expenses with lots of perishable inventory. A retail store with a 5000 square foot store might have $20,000 a month expenses and 10 employees but a restaurant with 5000 square feet will likely have $200,000 expenses and 50 employees.
The source said that the PPP requires a restaurant to hire the same amount of staff before the forced closures and it will cover salaries for approximately 2 months – but a restaurant full of employees but no customers is pointless and the restaurant will still end up closed. In addition, Unemployment Insurance provides [$440 for 39 weeks plus $600 for 13 weeks for those who lost jobs because of the health crisis] – more than some employees made before closures. It’s going to be hard to hire those people back.
The source says, “Even when government says we can reopen, demand won’t be like before especially without a vaccine or the like.”
Washingtonian Magazine has a piece – How to Help Struggling DC-Area Restaurant and Bar Workers here: https://bit.ly/3ezdAG9
Eastern Market Main Street created a Go Fund Me campaign to raise fund to help the small businesses of their Main Street here: https://bit.ly/2wVWNw4