The widespread crumbling of American small businesses in the year 2020 will ultimately be a second- or third-order concern, at best, as millions of people are infected by the novel coronavirus and some horrifying percentage succumb to Covid-19.
It’s worth observing, though, that just as the ultimate tally of lives lost will be bloated by a slapdick governmental response that left many folks to balance for themselves the danger of multiple existential threats, so too will the eventual failure of hundreds of thousands of small businesses reflect the confusion, incompetence, and indifference of the people whose job it is to manage this crisis.
My wife has owned and operated a boutique day spa in the Virginia suburbs of Washington D.C. for going on 15 years now. A dozen practitioners tend to rosters of dedicated clients; a small handful of support and administrative staffers keep things organized. Because it’s a very small operation, my wife is both the main administrator and also a practitioner who sees clients. It’s a demanding job, and it eats up much more of her time than a full-time job in someone else’s spa would, but she’s very good at it and is fulfilled by the opportunity to execute her own vision of how a spa should operate.
Turns out when a novel virus leaps oceans and uses close human contact to navigate its way to the most vulnerable, businesses that make their money via direct physical contact between workers and customers are put in a uniquely difficult situation. The spa industry is loaded down with standards designed to limit the transmission of diseases between parties, but zero transmission is not possible, and this isn’t the common cold.
Somewhere around 200 people come into the spa each week, and all 200 are in direct physical contact with a staff person; half or more are there to have another person’s hands and fingers directly applied to their face for an hour or longer, in services where steam is applied and hangs in the air. There is no such thing as social distancing inside a spa. Even with every safety measure applied as fastidiously as possible, two perfectly healthy seeming clients sharing a waiting room can trade illnesses in the time it takes to fill out a single-page intake form.
The right thing to do, then, is to suspend operations at least until widespread testing has begun, if not until the spread of the virus is fully understood and the brunt of the pandemic has been absorbed. While no one knows who the hell has the virus and while hospitals are having their asses kicked by the surge of infections, operating a serene little coronavirus distribution center in a densely populated area would be a very shitty thing to do for the public good.
But closing the business, even for just a few weeks, presents some immediate challenges. Practitioners depend upon commissions from services in order to pay their bills. A cut of service income is set aside to pay administrative staff. Shuttering the business for a couple months means coming up with tens of thousands of dollars to help keep these people afloat, or setting them adrift to fend for themselves. And there are other expenses applying considerable pressure to that primary concern: Lease payments are due on expensive machinery; professional insurance cannot be allowed to lapse; the landlord is expecting another rent payment, and another, and then another.
The Trump administration directed the Small Business Administration on March 12 to offer a special reduced interest rate on get-me-over “recovery” loans to businesses affected by the pandemic, money that at least in theory could provide a source of cash with which to pay staffers to stay home. But there’s a rub—or several. For absolutely no good reason, the disaster rate is contingent on a given state’s emergency posture.
So, for example, if your business is in, say, Kansas, where prominent politicians have said coronavirus is not a threat because there is not a large Chinese population, you would not qualify for the disaster rate without a statewide disaster declaration. If you want to do the right thing for your staff and community and temporarily suspend the operations of your small business ahead of this declaration, any loans you seek to increase your cash on hand will not be protected from predatory rates.
As it happens, Virginia declared a state of emergency on March 12, which meant the “recovery loans” should’ve been available within hours of the executive directive to the SBA. But here we encounter the second and third rubs. First, it turns out no one at the SBA had been given much direction about what exact governmental declaration qualified businesses in a given state for the special rate, and so no one at the SBA and none of the SBA-linked banks could say for sure whether a Virginia small business qualified. Second, and most horrifying of all, the recovery loans were not available for businesses “with credit available elsewhere.” If the SBA determined that a business had opportunities to borrow money without its protections, it was happy to dropkick that business out into the wilderness.
It’s worth noting how backward and screwy it is that a once-in-a-lifetime pandemic would force otherwise perfectly successful small businesses to take on crippling debt and pay interest to lenders, in order to provide disaster pay to workers who, like their employers, did absolutely nothing wrong. If there’s going to be a thing called a Small Business Administration — hell, if there’s going to be a thing called a federal government — it ought to have better tools at its disposal than a Rolodex of carrion-circling lenders and a negotiated interest rate. In fact, it does! It’s just that the real help is being shifted to billion-dollar companies with tycoon CEOs, while small businesses are being fed to the sharks.
The next-best option for my wife’s efforts at keeping her staff on their feet involved emptying savings accounts used for reserving money for taxes and liabilities (think gift certificates, which accrue impressively but which are not payment for services rendered, cannot expire, and are refundable). A day spa, even a reasonably successful one, is a low-margin business: A savings account reserved for liabilities holds roughly $10,000; another savings account reserving estimated tax money holds another $4,500; one single payroll for half a month’s regular work runs $23,000 to $32,000. Emptying those accounts would mean dealing a grievous self-wound for very fleeting, dubious benefits. It would cover somewhere around half of a paycheck per staff person but would make it far more likely that the business would fold before the end of the current crisis, depriving these people of a job to which they would otherwise happily return.
So this is all pointing at layoffs — a strategic termination so that her people could collect unemployment and the company could still be around to gather them back up again in a few months. But first, my wife had to see if she could lower her non-payroll expenses to as close to zero as possible if she was to have any chance of avoiding the devastating defeat of cutting loose a good and loyal and dedicated staff of excellent people, many of whom have families to support.
This meant seeking forbearance from lenders, banks, and the landlord. The first two calls were to lenders, and they were not encouraging. The first lender said my wife could go through the usual payment deferral process, but that her interest rate would increase and penalties would accrue, and there would be an eventual balloon payment at the end of her loan period. The second lender had disconnected their telephone and was unreachable for four days. Both lenders ultimately settled on limited forbearance through April — payments could be missed, but hundreds of dollars in penalties would accrue per payment missed, and the sum of missed payments, plus penalties, would be added to payments beginning in May. Her interest rate would jump, per the original agreement, to reflect missed payments.
The word from the landlord was even more troubling. My wife pays $4,500 in monthly rent to a developer that manages an impressive spread of commercial real estate. Their representative announced in a bemused tone that they had not even considered whether they would need to offer any sort of relief or forbearance to their tenants. After having the situation explained to them, their best offer was one month of forbearance in exchange for extending the lease period by a full year, and they indicated they’d be offering this deal to their tenants on a case-by-case basis. Two days later, they sent a form email to their tenants announcing that the deal would, in fact, be two months of forbearance in exchange for two years added to existing leases.
What has been lacking in all this is firm direction from the federal government. It has been in their power all along to suspend collection of rent, mortgage, and debt payments, and to mandate two or three months of social distancing and a halt on all nonessential business. Hilariously, they’ve managed to suspend rent payments for airlines at airport terminals, once again directing relief at massively profitable, publicly traded, billion-dollar businesses and ignoring everyone else.
They’ve left it up to governors and mayors to determine how much traffic and business to permit; they’ve left it up to banks and landlords to determine how much relief is appropriate; they’ve left it up to business owners to figure out how to balance the threat to the public of staying open versus the threat to the business of shutting down; they’ve left it up to individuals to hammer out arrangements for keeping a roof overhead and food on the table. There are no right answers. The only thing that seems to matter to anyone with any power is whether money continues to flow upward. It only ever flows upward; the only thing that trickles down is pressure.
What is likely to finally kill my wife’s business, in a blast of dark cosmic humor, will be the administration’s favoring of the market over public health. While society was settled on indefinite self-isolation and a hiatus for all nonessential work — something the federal government never quite got around to championing but which was nonetheless taken for granted by all nonsociopaths — it was possible to make limited headway negotiating forbearance from banks and lenders and landlords, using phrases like “act of God” and “force majeure.”
If and when the president arbitrarily declares the battle won after a few short weeks of half-assed social distancing — long before a framework for widespread testing has been established, to say nothing of any formal measures to quickly increase the stockpile of masks and ventilators — small businesses will be forced to ignore the urgent pleas of the scientific and medical communities and reopen for business or face down creditors and landlords without the backing of an official mandate. Small businesses will have to choose between operating as coronavirus distribution centers or sinking immediately under the weight of debt.
Here is where things stand for my wife and her business: Her rent has been deferred for one month, at the cost of another full year on her lease; her two loans have been deferred for two months each, but not without penalty. Insurance for her company and its practitioners has not been deferred. Bills will begin piling up in earnest, thousands and tens of thousands of dollars at a time, beginning [checks watch] uhh yesterday. An end to social distancing is months and possibly a year away; Virginia’s current stay-at-home order runs into June. There is no telling how soon it will be anything other than catastrophically reckless to reopen her doors and accept business, but the people upstream have drawn their line. The clock is ticking.
Most painfully, the staffers who could not survive without immediate income have agreed to have their employment terminated, so that they can collect unemployment and seek Medicaid. My wife, who is a good practitioner and a good business owner and has not done anything wrong to put her business at risk, is in an impossible, untenable position. Because she will have to start paying rent again in one month, and because she will have to start making loan payments by summertime, and because she has several very talented and qualified and hardworking staff people in the wind, there will be enormous pressure on her to turn the lights back on before the end of April. If she does, she and all the other small businesses forced into the same position will be active vectors for coronavirus, despite every possible effort. If she doesn’t, it is very likely she never will again.