An on-board building in downtown Louisville.
Photographer: Andrew Cenci / Bloomberg
Photographer: Andrew Cenci / Bloomberg
Big companies are going bankrupt, but that’s just part of the carnage. By some accounts, small businesses are disappearing through the thousands amid the Covid-19 pandemic, and the bearing on the economy of these failures could be enormous.
This wave of silent failures does not go over in part because real-time data on small business is notoriously scarce, and because small business owners often have no debt, and therefore no need for bankruptcy.
“Probably all you have to do is call the utilities and tell them to get them out and close your door,” said William Dunkelberg, who conducts a month-long survey as chief economist for the National Federation of Independent Affairs. However, closures will be “well above normal because we are in a disastrous economic situation,” Dunkelberg said.
Yelp Inc., the online reviewer, has viewed more than 80,000 data from March 1st to July 25th. About 60,000 were local businesses, as well as businesses with less than five locations. About 800 small businesses have in fact filed for Chapter 11 bankruptcy from mid-February to July 31, according to the American Bankruptcy Institute, and the trading group expects that the total of 2020 would be 36% higher than last year.
Business Busts
Restaurant industry leads with most locations for local business
Yelp Inc.
While the busineses are individually small, the collective impact of their failures could be substantial. Companies with less than 500 employees earn about 44% of U.S. economic activity, according to a US Small Business Administration report, and they use nearly half of all American workers.
Justine Bacon permanently closes her Yoga Brain studio in Philadelphia after she decided it was too dangerous to hold indoor classes because of the pandemic. Bacon did not file for bankruptcy, she just closed shop and went out of business on June 30th.
“IK to feel it’s better to close with some money in the account and not have to worry about bankrupting the company, ‘said Bacon, 35.
No help
Chapter 11 bankruptcy provides business protection to its creditors while the owners work out a cover plan. For smaller businesses, however, the extra time can make no difference. “Bankruptcy can no longer generate revenue,” said Robert Keach, a restructuring partner at Bernstein Shur in New England and former president of the American Bankruptcy Institute.
Some owners are worried that bankruptcy could shake their credit reports and hurt their future chances of recovering. Bankruptcy companies have a nearly 24 percentage point higher chance of being denied a loan, according to the SBA, and a submission may appear on a credit report for 10 years.
That’s one of Rebecca Schner’s concerns. Things were looking up for Schner, 51, and her jewelry and fair trade store New Lotus Moon in The Woodlands, Texas. They opened in 2018 and finally started to break even at the beginning of this year.
Then the virus struck. After the store closed to customers, she said sales fell and she could not cover hair. She closed the store around mid-May, moved her jewelry boxes into storage and fired her part-time employee. She makes minimum payments on nearly $ 50,000 in loans.
‘What if I want a mobile boutique and buy a car for it? Could I get a loan? Schner sei.
Lost income
To be sure, attention to small business is high even in normal times. About half of all establishments survive at least five years, according to the SBA. But the rapid pace of the pandemic and the enormous decline in economic activity are hitting hard on typically upbeat entrepreneurs. About 58% of small business owners say they are worried about permanent closure, according to a July report Investigation of the Chamber of Commerce.
In a June 2020 NFIB survey, a net 31% of owners reported lower sales in the past three months, while 7% reported higher sales a year earlier. In the same survey, only 13% of business owners said it was a good time to expand, a dip of 24% a year earlier.
Jose Gamiz, 45, and Leticia Gamiz, 52, closed their restaurant in Glendale, Arizona on July 31. The bills began to pile up, and although thousands helped in government loans, they did not take in enough money. They had four part-time employees.
It was too much of a gamble to keep Mi Vegana Madre open, Jose Gamiz said. The couple managed to take the dangers of risk after losing the first home they bought during the 2008 crisis.
“We wanted to take that as a lesson,” Jose Gamiz said. ‘Sometimes it is okay to let it go and not spend every penny out. ”
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