Coronavirus surge is killing America's small businesses

The resurgence of the virus has introduced a far darker reality for many small businesses. PHOTO: NYTIMES

NEW YORK (NYTIMES) - On the last Friday of June, after Governor Greg Abbott of Texas said that bars across the state would have to shut down a second time because coronavirus cases were skyrocketing, Mick Larkin decided he had had enough.

No matter that Larkin, an owner of a karaoke club in Wichita Falls, Texas, had just paid US$1,000 for perishable goods and protective equipment in anticipation of the weekend rush. No matter that the frozen margarita machine was full, that 175 plastic syringes with booze-infused Jell-O were in place, or that there were masks for staff members and hand sanitizer for guests.

That day, June 26, Mr Larkin and his partner dumped what they had just bought into the trash and decided to close their club, Krank It Karaoke, for good.

"We did everything we were supposed to do," Mr Larkin said. "When he shut us down again, and after I put out all that money to meet their rules, I just said, 'I can't keep doing this.' "

It was harrowing enough for small businesses - the bars, dental care practices, small law firms, day care centres and other storefronts that dot the streets and corners of every US town and city - to have to shut down after state officials imposed lockdowns in March to contain the pandemic.

But the resurgence of the virus, especially in states such as Texas, Florida and California that had begun to reopen, has introduced a far darker reality for many small businesses: Their temporary closures might become permanent.

Nearly 66,000 businesses have folded since March 1, according to data from Yelp, which provides a platform for local businesses to advertise their services and has been tracking announcements of closings posted on its site. From June 15-29, the most recent period for which data is available, businesses were closing permanently at a higher rate than in the previous three months, Yelp found. During the same period, permanent closures increased by 3 per cent overall, accounting for roughly 14 per cent of total closures since March.

Researchers at Harvard believe the rates of business closures are likely to be even higher. They estimated that nearly 110,000 small businesses across the country had decided to shut down permanently between early March and early May, based on data collected in weekly surveys by Alignable, a social media network for small-business owners.

Christopher Stanton, an associate professor at Harvard Business School who was one of the researchers, said it was difficult to accurately gauge how many small businesses were closing because, once they shut their doors for good, the owners were hard to reach. He added that it could take up to a year before government officials knew the true toll the pandemic was taking on small businesses.

At the moment, 39 states continue to record growing numbers of new cases daily.

It is not clear how many of the businesses Yelp is tracking count as "small" - defined by the Small Business Administration as those with 500 or fewer employees. But the company found that, among the tracked businesses - which include restaurants, retailers and other independent, consumer-facing operations - retail businesses, led by beauty supply stores, have been closing at the highest rate since the pandemic began. Restaurants are the next hardest-hit group.

Small businesses account for 44 per cent of all US economic activity, according to the SBA, and closures on such an immense scale could devastate the country's economic growth. If they were grouped together, small businesses would be among the country's biggest employers, said Satyam Khanna, a resident fellow at the Institute for Corporate Governance and Finance at New York University School of Law who has written about the effects of the pandemic on small businesses.

So when small businesses close en masse, an entire sector of the economy suffers, Mr Khanna said. There is lower cash flow, higher debt and more unemployment. "That leads to a big drag on the eventual recovery," he said. "Because they are such an important source of jobs, losing them the way we are losing them now is going to make things far worse than they otherwise need to be."

Because small businesses depend heavily on foot traffic and operate on thin margins, they are especially vulnerable to the ripple effects of a widespread shutdown.

The government's Paycheck Protection Program, rolled out in April and administered by the SBA, earmarked US$660 billion (S$917.6 billion) of aid for small businesses but stipulated that a loan would be forgiven only if most of it was used to pay employee wages for eight weeks. The rules were later relaxed, but in a sign of how many small-business owners did not feel confident that they would be on steady ground by the time repayment was due, roughly US$130 billion of aid money remained untapped when the program ended in June.

Even for those who took a PPP loan, survival is no guarantee. Nick Muscari, a 38-year-old restaurateur in Lubbock, Texas, received one. His restaurant, Nick's Sports Grill and Lounge, had been the culmination of Muscari's life's work - his years of toil as a waiter, pizza cook and manager at restaurants and bars beginning in his teenage years. Three years ago, he bought out the two partners who helped him start the restaurant in 2010. He considered it a crowning achievement, but to do so, he had to borrow money. He still owes a bank US$80,000.

Mr Muscari tried to ride out the spring lockdown that temporarily shuttered his restaurant with the help of the PPP money. But when the state's second closure order took effect June 26, he decided to close for good.

Mr Muscari, with the business closed and its 30 employees jobless, has nothing left but his house and his car. He also expects his landlord to try to sue him for the eight years' worth of rent he is contracted to pay on his defunct restaurant's space.

Many small businesses are also finding it onerous keep up with constantly changing local guidelines, while others are deciding that no matter what their local officials say, it just is not safe to keep going.

Gabriel Gordon, owner of a tiny but popular barbecue restaurant in Seal Beach, California, decided to close permanently after studying the restaurant's layout. He had determined that the kitchen would never be safe for multiple staff members to occupy at once while the virus was still active in the area.

"It's essentially two hallways that are 11 feet wide," Mr Gordon said, describing the shape of the restaurant, Beachwood BBQ. "There are food trucks that are larger than my kitchen."

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