UPDATE (12:15 p.m. May 12, 2020): A statement from Meritage Hospitality Group: On April 6, 2020, (Meritage) was approved for loans through the various subsidiary entities under the CARES Act Payroll Protection Program. Because of shifting rules, unclear guidance and stabilized drive-thru sales, the company from April 6, 2020, forward chose not to accept any loans or participate in the payroll protection program but did elect to participate in the other tax benefits provided under the CARES Act.
A new report shows the backbone of America — small businesses — may be injured beyond repair as the result of the COVID-19 crisis.
A report published by Main Street America, a program of the National Trust for Historic Preservation, reveals about 3.5 million U.S. businesses are in danger of permanent closure over the next two months, and nearly 7.5 million are in danger of closing over the next five months as a result of the COVID-19 crisis. As a result, about 35.7 million Americans employed by small businesses may face unemployment.
According to the U.S. Small Business Administration, there are about 30.2 million small businesses, or companies with 500 or fewer employees, in the United States.
Main Street America (MSA) is a network of over 1,600 commercial districts comprising about 300,000 small businesses. To assess the impact of COVID-19 on these businesses, MSA conducted an online survey during the week of March 25 to April 6.
The Impact of COVID-19 on Small Businesses report is based on the survey results — which MSA said is “the first and most extensive” survey to date assessing the impact of the pandemic on small businesses, especially those that employ 20 or fewer people.
More than 5,850 small business owners responded in 48 states and the District of Columbia, of which 91% of respondents reported owning businesses with fewer than 20 employees.
Respondents came from more than 1,000 locales across the country, including big cities such as New York and Chicago and small towns like Three Rivers and Niles in Michigan.
Nearly 40 percent of the small businesses represented in this survey operate in towns with fewer than 10,000 residents.
Matthew Wagner is vice president of revitalization programs at the Chicago-based National Main Street Center, the nonprofit that oversees the Main Street America program, and was one of the report’s authors.
He told the Business Journal that MSA staff expected small businesses to report they are facing a great deal of pressure for the immediate term, such as the next 90 days, but the number of businesses that said they could not survive long term without further aid was “staggering.”
Wagner added it also was surprising that two-thirds of respondents reported they have no e-commerce capabilities, including no website, and the remaining third that do have that capability reported e-commerce comprises less than 25% of total sales.
He said for businesses to survive in the new, post-COVID world, this will be an important shortcoming to address, as prior to the pandemic, e-commerce sales were growing at 15% of the retail market.
“You have to balance and create multiple opportunities for people to shop at your store. And e-commerce needs to be part of that business model. I think we’ve got our work cut out for us relative to what the new norm of shopping may look like,” Wagner said.
The report suggests web development and e-commerce training for small businesses could be a needed area of investment for the federal government to consider as part of future aid packages.
Regarding the aid piece, Wagner said he believes the number of small businesses in danger of closing will hold steady according to the report’s projections of 7.5 million as long as there are gaps and shortfalls in federal aid during the worst financial crisis this nation has seen since the Great Depression.
Recent news reports across the U.S. have detailed the challenges businesses are encountering when applying for assistance.
One such challenge, Wagner said, is that a loophole in the federal stimulus legislation allowed large businesses to swoop in and capture funds from the Paycheck Protection Program if they had individual locations with fewer than 500 employees.
This meant many giant restaurant chains were able to claim funds that were desperately needed by mom-and-pop operations.
Grand Rapids-based Meritage Hospitality Group — which has a portfolio of 337 restaurants and over 11,000 employees in 16 states — was one such example. The company, which makes most of its revenue as a Wendy’s franchiser, reported April 16 it was approved by the SBA for a $29.1 million loan under the PPP.
A statement from Meritage CEO Robert Schermer revealed the company is doing just fine, thanks to the PPP loan and the nature of its business model.
“Our geographical footprint and drive-thru operations have allowed us to continue serving the changing needs of guests as people adapt to local government orders,” he said. “We are grateful to our employees, delivery drivers and supply-chain operators for continuing to deliver essential restaurant food items.”
Patrice Frey, president and CEO of Main Street America, said the MSA survey report confirms what was already known: that small operators that aren’t doing fine need more aid.
“We remain deeply concerned that many of our nation’s smallest businesses are the most vulnerable to revenue disruption caused by the pandemic, and these businesses are the least able to obtain funds absent a well-developed relationship with an existing lender and/or technical assistance in securing funds,” she said.
“Congress must ensure there are sufficient funds to support all small businesses in need, particularly those with under 20 employees.”
The U.S. House of Representatives was set to pass an additional $484 billion stimulus package of new pandemic relief funds, including $320 billion to replenish the PPP, on Thursday, April 23. The House and the Senate were locked in debate over follow-up legislation that will allocate even more aid dollars at press time.
As well as advocating for this additional aid, the MSA report also called on Congress to fund the SBA and partner organizations like local Main Street programs, chambers of commerce and Small Business Development Centers to expand technical assistance to small businesses.
These local economic development organizations act as connectors and educators for the nation’s smallest employers and can help ensure stimulus dollars reach these businesses, according to MSA.
“Most small businesses, the ones that really need the help the most, don’t have large accounting staff and attorneys and everyone else to help them through this process,” Wagner said. “And so resources like main streets, chamber of commerce, local economic development corporations — these are all really important connectors for small businesses to help walk them through the process, help them find out where there are resources and who to talk with about that.”
Similarly, state and local governments must continue to prioritize and fund these essential downtown and citywide small business support organizations, MSA said, as these programs will help expedite the recovery process once the pandemic subsides.
Wagner added that banks across the U.S. have faced difficulty in disbursing federal stimulus funding to small businesses, and he believes that could be fixed by community banks, community development financial institutions (CDFIs) and fin-tech companies such as Square and Quicken being enlisted to help with disbursement.
Nationally and locally mapped survey data is available at bit.ly/MSAsurveymaps, although communities in West Michigan where five or fewer small businesses answered the survey were included in the overall survey results but not on the map.
The full report is available at bit.ly/MSA-COVID-19-report.
Wagner said MSA intends to use the same pool of respondents to create and distribute follow-up surveys as more aid becomes available.
A page of resources for small businesses looking for economic recovery assistance is available at bit.ly/MSAhowwecanhelp.