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| Small Businesses Seek a Crisis Lifeline Beyond Loans | Small Businesses Seek a Crisis Lifeline Beyond Loans |
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| As small businesses such as restaurants, bars, gyms and hair salons are forced by the coronavirus pandemic to go dark and lay off millions of employees, frantic owners are desperate for government aid to help them salvage enterprises that can’t survive for long without customers. | As small businesses such as restaurants, bars, gyms and hair salons are forced by the coronavirus pandemic to go dark and lay off millions of employees, frantic owners are desperate for government aid to help them salvage enterprises that can’t survive for long without customers. |
| But the main federal lifeline offered so far — low-interest disaster loans — is unappealing to many people running on thin margins and leery of taking on debt they can’t afford to repay. | But the main federal lifeline offered so far — low-interest disaster loans — is unappealing to many people running on thin margins and leery of taking on debt they can’t afford to repay. |
| “All we do is make enough money to make it through the off-season,” said Donna Benefiel, who owns the Sunset Produce Market in Banks, Ore., and a grocery store on the Oregon coast. “We’re not that profitable. We don’t have any reserves. How do we borrow a year’s worth of money and then have to pay it back?” | “All we do is make enough money to make it through the off-season,” said Donna Benefiel, who owns the Sunset Produce Market in Banks, Ore., and a grocery store on the Oregon coast. “We’re not that profitable. We don’t have any reserves. How do we borrow a year’s worth of money and then have to pay it back?” |
| On Monday, the Federal Reserve resurrected an asset-purchase facility from the 2008 financial crisis intended to encourage banks and financiers to make loans to small businesses and households. It also plans to announce a new Main Street Business Lending Program designed to support lending to “eligible small and medium-sized businesses” but offered few details. | |
| A disaster loan program is already up and running. Congress authorized up to $7 billion early this month for small business disaster loans through the Small Business Administration. Unlike the agency’s flagship loans, which are made by banks, disaster loans are issued directly by the government. | |
| Red tape has slowed the process. To make businesses in their state eligible for the loans, each state’s governor had to submit a formal disaster declaration request to the agency. It took until Sunday for all 50 states to have their applications filed and approved. | Red tape has slowed the process. To make businesses in their state eligible for the loans, each state’s governor had to submit a formal disaster declaration request to the agency. It took until Sunday for all 50 states to have their applications filed and approved. |
| S.B.A. representatives declined to say how many loan applications the agency has received or approved. In past disasters, it has typically taken the agency at least two weeks to make loan decisions. | S.B.A. representatives declined to say how many loan applications the agency has received or approved. In past disasters, it has typically taken the agency at least two weeks to make loan decisions. |
| Companies with up to 500 workers can borrow as much as $2 million at a 3.75 percent interest rate, which is far lower than the cost of typical small business loans. But defaulting can have catastrophic consequences: The agency asks those seeking more than $25,000 — and most small business loans are at least that much — to put up collateral, preferably real estate. That’s a standard term on nearly all S.B.A. loans. | Companies with up to 500 workers can borrow as much as $2 million at a 3.75 percent interest rate, which is far lower than the cost of typical small business loans. But defaulting can have catastrophic consequences: The agency asks those seeking more than $25,000 — and most small business loans are at least that much — to put up collateral, preferably real estate. That’s a standard term on nearly all S.B.A. loans. |
| Borrowers who own their homes often risk losing the property if they can’t repay what they borrowed. Terms like that spook business owners, especially now, when there is little clarity around when and how the coronavirus pandemic will subside, and whether mom-and-pop shops will ever recover. | Borrowers who own their homes often risk losing the property if they can’t repay what they borrowed. Terms like that spook business owners, especially now, when there is little clarity around when and how the coronavirus pandemic will subside, and whether mom-and-pop shops will ever recover. |
| Lori Lucas and her husband run This Old Couch, a vintage home décor store, out of a bright yellow farmhouse just outside Dayton, Ohio. Over Memorial Day weekend last year, tornadoes tore through the area, leaving the couple’s home damaged and local shopping at a standstill. | Lori Lucas and her husband run This Old Couch, a vintage home décor store, out of a bright yellow farmhouse just outside Dayton, Ohio. Over Memorial Day weekend last year, tornadoes tore through the area, leaving the couple’s home damaged and local shopping at a standstill. |
| The couple took a $16,000 disaster loan from the S.B.A., which they began repaying this month — just as the pandemic crisis set in. The idea of piling on more debt is frightening, but they may have to do it. “It may be our only option to pay the mortgage,” Ms. Lucas said. “We also don’t draw a paycheck, so we can’t even apply for unemployment.” | The couple took a $16,000 disaster loan from the S.B.A., which they began repaying this month — just as the pandemic crisis set in. The idea of piling on more debt is frightening, but they may have to do it. “It may be our only option to pay the mortgage,” Ms. Lucas said. “We also don’t draw a paycheck, so we can’t even apply for unemployment.” |
| Nearly half of America’s private-sector workers get a paycheck from a company with less than 500 employees, and a third of those work for a business with fewer than 100 workers. | Nearly half of America’s private-sector workers get a paycheck from a company with less than 500 employees, and a third of those work for a business with fewer than 100 workers. |
| Following the outbreak, countries like Denmark, Germany and France have offered large payroll subsidies and other aid to help companies pay bills and keep workers employed. Michael and Melody Shemtov, who co-own nine restaurants in South Carolina and Tennessee, are wistfully eying that kind of forceful government support. This past week, they laid off more than 250 employees, a process they described as heartbreaking. | Following the outbreak, countries like Denmark, Germany and France have offered large payroll subsidies and other aid to help companies pay bills and keep workers employed. Michael and Melody Shemtov, who co-own nine restaurants in South Carolina and Tennessee, are wistfully eying that kind of forceful government support. This past week, they laid off more than 250 employees, a process they described as heartbreaking. |
| “When you terminate staff, their health insurance is terminated as well,” Mr. Shemtov said. But with no cash coming in, they said they had little choice. | “When you terminate staff, their health insurance is terminated as well,” Mr. Shemtov said. But with no cash coming in, they said they had little choice. |
| Restaurants and retailers nationwide, big and small, are making the same grim calculation. Unemployment claims rose 30 percent the week of March 8 and could reach unprecedented heights. | Restaurants and retailers nationwide, big and small, are making the same grim calculation. Unemployment claims rose 30 percent the week of March 8 and could reach unprecedented heights. |
| The Trump administration and lawmakers have discussed plans for a bailout that could top $2 trillion, including direct payments to individuals and aid for battered industries like the airlines. A memo circulated on Wednesday by the Treasury Department proposed $300 billion for small business “interruption” loans. | The Trump administration and lawmakers have discussed plans for a bailout that could top $2 trillion, including direct payments to individuals and aid for battered industries like the airlines. A memo circulated on Wednesday by the Treasury Department proposed $300 billion for small business “interruption” loans. |
| That would be a vastly larger program than anything the government has previously run. Last year, the Small Business Administration backed $28 billion in loans issued by banks; its disaster program lent out just over $2 billion. | That would be a vastly larger program than anything the government has previously run. Last year, the Small Business Administration backed $28 billion in loans issued by banks; its disaster program lent out just over $2 billion. |
| The agency is used to ramping up quickly to disburse loans after natural disasters like floods and earthquakes — after Hurricane Harvey in 2017, it processed most loan applications in less than three weeks — but its track record with large economic disasters is troubled. | The agency is used to ramping up quickly to disburse loans after natural disasters like floods and earthquakes — after Hurricane Harvey in 2017, it processed most loan applications in less than three weeks — but its track record with large economic disasters is troubled. |
| In the aftermath of the 2008 financial crisis, Congress ordered the S.B.A. to partner with banks on zero-interest loans of up to $35,000 to “viable” small companies hurt by the recession. The program was laden with complex rules, and fewer than 9,000 companies took the loans. Nearly half of the applications approved did not meet all of the agency’s rules, auditors estimated. | In the aftermath of the 2008 financial crisis, Congress ordered the S.B.A. to partner with banks on zero-interest loans of up to $35,000 to “viable” small companies hurt by the recession. The program was laden with complex rules, and fewer than 9,000 companies took the loans. Nearly half of the applications approved did not meet all of the agency’s rules, auditors estimated. |
| And many vulnerable businesses cannot afford to wait weeks for a cash infusion. The median small company takes in $381 a day and spends $374, a 2016 analysis by the JPMorgan Chase Institute found. The typical business has enough savings to survive just 27 days. | And many vulnerable businesses cannot afford to wait weeks for a cash infusion. The median small company takes in $381 a day and spends $374, a 2016 analysis by the JPMorgan Chase Institute found. The typical business has enough savings to survive just 27 days. |
| Ms. Benefiel is already calculating how the dominoes will fall in the collapse of her produce stores. She relies on the spring and summer tourist trade to carry her family and her four employees through the lean winter months. This year, the entire season could be wiped out, and without sales, she can’t pay fixed expenses like rent and utility bills. | Ms. Benefiel is already calculating how the dominoes will fall in the collapse of her produce stores. She relies on the spring and summer tourist trade to carry her family and her four employees through the lean winter months. This year, the entire season could be wiped out, and without sales, she can’t pay fixed expenses like rent and utility bills. |
| “The first thing that’s going to happen is that we’re going to lose our business because of lack of income, and we’ll get evicted,” she said. “The second thing that’s going to happen is the same thing to us, personally. | “The first thing that’s going to happen is that we’re going to lose our business because of lack of income, and we’ll get evicted,” she said. “The second thing that’s going to happen is the same thing to us, personally. |
| “We’re not going to be able to pay the mortgage on our house,” Ms. Benefiel said. “Our credit is perfect, but by the time we get through this, it will be so horrific that even if we had any money, we wouldn’t be able to rent a place.” | “We’re not going to be able to pay the mortgage on our house,” Ms. Benefiel said. “Our credit is perfect, but by the time we get through this, it will be so horrific that even if we had any money, we wouldn’t be able to rent a place.” |
| Entrepreneurs desperate for quick cash, at nearly any cost, have flocked to online lenders and loan brokers. Daily loan requests at Lendio, a loan marketplace, jumped from $130 million right before the World Health Organization declared the virus outbreak a pandemic to an average of $212 million in the days after. | Entrepreneurs desperate for quick cash, at nearly any cost, have flocked to online lenders and loan brokers. Daily loan requests at Lendio, a loan marketplace, jumped from $130 million right before the World Health Organization declared the virus outbreak a pandemic to an average of $212 million in the days after. |
| But the credit available has dwindled. Two of Lendio’s 75 lenders have stopped making any new loans, and most of the rest have restricted the industries and geographic areas they’re willing to fund. | But the credit available has dwindled. Two of Lendio’s 75 lenders have stopped making any new loans, and most of the rest have restricted the industries and geographic areas they’re willing to fund. |
| “Many of the business owners that are seeking capital are those that have been the most affected by the coronavirus — restaurants, event centers, bars,” said Brock Blake, Lendio’s chief executive. “Those are the exact businesses that the lenders are removing from their credit box.” | “Many of the business owners that are seeking capital are those that have been the most affected by the coronavirus — restaurants, event centers, bars,” said Brock Blake, Lendio’s chief executive. “Those are the exact businesses that the lenders are removing from their credit box.” |
| Kabbage, one of the largest online business lenders, acknowledged that the market has shifted fast. The lender is not increasing rates but has to manage its risk, meaning that some customers will have less access to credit, said Kathryn Petralia, the president of Kabbage. | Kabbage, one of the largest online business lenders, acknowledged that the market has shifted fast. The lender is not increasing rates but has to manage its risk, meaning that some customers will have less access to credit, said Kathryn Petralia, the president of Kabbage. |
| What many entrepreneurs want is government help to delay or reduce fixed costs like rent and to keep their workers solvent. But the federal options being discussed for helping companies with problems such as making payroll also require business owners to take on more debt — something most are loath to do. | What many entrepreneurs want is government help to delay or reduce fixed costs like rent and to keep their workers solvent. But the federal options being discussed for helping companies with problems such as making payroll also require business owners to take on more debt — something most are loath to do. |
| “That’s all but useless for our clients,” said Ned Staebler, the chief executive of TechTown Detroit, a business incubator. “If we don’t do something big and creative to get money into the hands of business owners immediately, you’ll be seeing a lot of vacancies and empty storefronts. We’re at risk of about half the small businesses in this country being gone.” | “That’s all but useless for our clients,” said Ned Staebler, the chief executive of TechTown Detroit, a business incubator. “If we don’t do something big and creative to get money into the hands of business owners immediately, you’ll be seeing a lot of vacancies and empty storefronts. We’re at risk of about half the small businesses in this country being gone.” |