According to Yelp’s recent Economic Impact Report, over 163,000 US businesses have shut down due to the COVID-19 pandemic this year. That’s bad news, of course. But the really bad news is Yelp also reports that of the 163,000+ businesses which have closed, nearly 98,000 or 60% have gone out of business permanently. They aren’t coming back.
We don’t hear much about this in the media. I’m not sure why. I would have thought this would have been a much bigger issue leading up to Tuesday’s presidential election, but it wasn’t widely discussed. In any event, I want my clients and readers to be aware of this because the situation may get even worse in the weeks and months to come.
Source: Yelp Business Closure Data; Chart courtesy of Fortune
You may recall that Congress passed the Coronavirus Aid, Relief and Economic Security Act (known as the CARES Act) on March 27, which provided $2.2 trillion in emergency loans to qualified businesses to be used for certain purposes – such as payroll, rent and other expenses. This was known as the “Paycheck Protection Program” (or PPP).
The PPP allowed many small and medium-sized businesses to stay afloat temporarily, but the funding mostly ran out at the end of July. There was/is widespread, bipartisan agreement in Washington that the PPP must be expanded to provide more forgivable loans to businesses in an effort to avoid more massive closures and bankruptcies such as those noted above.
Yet Republicans and Democrats in Washington have not been able to reach an agreement on new legislation to expand the PPP. In essence, they can’t agree on which groups should get the money and for what purposes. So, here we are over three months later and 60% of businesses which have closed are never coming back.
The struggle to reach a deal to revive the paycheck program just weeks before the election was all the more surprising because it’s one of the few issues that has had strong bipartisan support throughout the pandemic. Lawmakers overwhelmingly backed the program, which would have provided over half a trillion dollars to more than five million businesses, and employers embraced it because they could convert the loans to forgivable grants if they agreed not to fire their workers.
Now, restaurants, retailers and many other small businesses that have been among the hardest hit face critical questions about whether they can survive through what will likely be several more months of Covid-19 operating restrictions — which could escalate if the outbreak worsens. It could take that long before Congress, and possibly a new president, are able to cut a deal for a new round of forgivable loans.
The vast majority of previous PPP borrowers have already spent their loan money and over half say they will need more financial support in the months just ahead, according to the National Federation of Independent Business.
Robert Miller, who owns three restaurants in Pittsburgh that the government-backed payroll support loans helped keep afloat this year, said: “It makes the fall and winter very scary. Banks for someone like me are not going to stick their neck out and take that risk to give me more money. For me, there’s no other option.”
Hundreds of thousands of other small and medium-sized businesses are in the same boat. Thus, a new wave of business closures and layoffs could have devastating effects for any possible economic rebound, according to the Federal Reserve and other economists.
In October, Fed Chair Jerome Powell made an extraordinary plea for policymakers to do more to aid workers and businesses, warning that too little support would lead to a weak recovery and “tragic consequences” for many Americans. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste,” he added.
S&P Global Chief US Economist Beth Ann Bovino said she sees “a real need not just to keep those businesses alive but to keep the jobs safe and the economy holding up into next year.” Bovino, who estimates the loan program saved 13.6 million jobs, added, “I would not be surprised to see even more small businesses close permanently if nothing is provided.”
The bottom line is, this problem is going to get even worse before it gets better if a new PPP loan package is not approved soon. While I am no fan of government bailouts, this is a very serious situation.
According to Yelp data, the businesses that have been among the most hurt by permanent closures are restaurants, retail shops, beauty and spa services, bars, fitness centers and most other businesses which cater to consumers.
A National Restaurant Association survey taken in late August and September found that 40% of operators believed it was unlikely their restaurant would still be in business in six months without additional relief from the federal government.
While we have heard a lot about the economy improving in the last couple of months heading into the election, be prepared for a lot of bad news just ahead if Congress fails to pass new financial assistance for small and medium-sized businesses soon.
Finally, here is a list of major retailers closing stores permanently this year.
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