Tag Archives: Small Businesses

Troubles among small businesses is trouble for the entire country’s economy as many are unable to pay rent

100-year-old-business-closes

Important Takeaways:

  • A significant number of small businesses across the nation are struggling to pay rent due to skyrocketing costs, a recent study by business networking platform Alignable found.
  • The company’s latest Small Business Rent report, published on Friday, found that 43 percent of small business renters in the U.S. were unable to pay their rent in full and on time in the month of April. Such a high delinquency rate hasn’t been reported in the U.S. since March 2021, at the height of the COVID-19 pandemic, when it reached 49 percent.
  • The delinquency rate was also four percentage points higher than in March, making it the largest month-over-month surge in over a year, according to data analyzed by Alignable. Newsweek contacted Alignable for comment by email on Tuesday morning.
  • The state with the highest delinquency rate in the country was Texas with 52 percent of small business owners unable to pay their rent in full and on time in April, followed by Massachusetts (47 percent), California (46 percent), Maryland (42 percent), New York and Washington State (39 percent). The lowest delinquency rate was in Colorado, with 26 percent.
  • Troubles among small businesses is trouble for the entire country’s economy, as small businesses employ nearly half of the entire American workforce, according to the U.S. Chamber of Commerce, and represents 43.5 percent of American GDP.

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U.S. Congress approves extension of small business Paycheck Protection Program

By Richard Cowan

WASHINGTON (Reuters) – A majority of the U.S. Senate on Thursday agreed to extend the coronavirus pandemic Paycheck Protection Program (PPP) until the end of May, giving small businesses more time to apply and the government more time to process requests.

The bill, passed on a vote of 92-7, has already been approved by the House of Representatives and now goes to Democratic President Joe Biden, who is expected to sign it into law.

The PPP provides loans to small businesses struggling to survive during the COVID-19 pandemic, which has resulted in millions of businesses curtailing their operations or even shutting down for periods.

The loans convert into grants if the recipients meet certain conditions.

Without congressional action, the program would expire at the end of this month.

Senate Small Business Committee Chairman Ben Cardin said that applications could not be completed by then, adding that the $1.9 trillion COVID-19 aid approved by Congress this month expanded eligibility to more first-time borrowers, including non-profit organizations such as the YMCA.

“We are reaching the most needy,” Cardin said in a speech on the Senate floor on Wednesday urging passage of the extension.

The legislation gives the Small Business Administration 30-days, beyond May 31, to complete processing loan applications.

The PPP was designed to stanch the loss of millions of businesses, such as restaurants that were particularly hard-hit by the pandemic. Critics complained that large companies and well-to-do law firms won millions of dollars in funding, especially in the early days of the program nearly a year ago.

Republican Senator Susan Collins called the PPP “a life-line for small businesses,” saying more than $718 billion in loans already had been approved. He said it had secured tens of millions of jobs.

(Reporting by Richard Cowan; Editing by Tim Ahmann and Edmund Blair)

U.S. Treasury launches $9 billion coronavirus aid for low-income lending

By David Lawder

WASHINGTON (Reuters) – The U.S. Treasury on Thursday launched a new program to infuse $9 billion into minority and community lenders to boost financing for small businesses and consumers struggling with the coronavirus pandemic in low-income and underserved communities.

The Emergency Capital Investment Program, funded as part of a $900 billion COVID-19 aid bill signed into law at the end of 2020 by former president Donald Trump, will provide $9 billion in capital to Community Development Financial Institutions (CDFIs) and minority depositary institutions.

These institutions, from small mortgage lenders to minority-owned banks and rural credit unions and other lenders, will be able to increase loans and grants to their communities and extend forbearance to struggling customers, Treasury officials said.

The program sets aside $2 billion for participating institutions with less than $500 million in assets and another $2 billion for those with less than $2 billion in assets. Treasury officials said equity and subordinated debt investments into these institutions will lower their cost of capital, allowing them to reach more difficult lending cases.

Treasury Secretary Janet Yellen said in a statement that the program, negotiated in part by her predecessor, Steven Mnuchin, was aimed at reducing “financial services deserts” in low-income communities that have worsened during the pandemic.

“The Emergency Capital Investment Program will help these places in that the financial sector hasn’t typically served well. It will allow people to access capital, especially in communities of color.”

Yellen’s team developed a new capital multiplier formula to reward lenders with lower interest or dividend costs on Treasury capital that is used to make the most challenging loans in the poorest communities, Treasury officials said.

The $9 billion program, coupled with $3 billion in other support for CDFIs and minority lenders as part of the year-end COVID bill, could make a large impact on community lenders.

Research from the Federal Reserve Bank of Richmond shows that as of August 2019, there were 1,076 certified U.S. CDFIs, which could be banks, community development corporations, venture capital funds, loan funds, or credit unions with a mission to serve low and moderate income communities. The number of non-certified CDFIs is unknown, the bank said.

But most are tiny. The Richmond Fed survey found that nearly half of CDFIs surveyed had assets of $25 million or less, with 5% holding assets of less than $1 million and just 6% holding assets of over $500 million.

(Reporting by David Lawder; Editing by Chizu Nomiyama, Kirsten Donovan)

Biden to revise small business loans to reach smaller, minority firms

WASHINGTON (Reuters) – U.S. President Joe Biden will launch changes on Monday to the main U.S. coronavirus aid program for small businesses to try to reach smaller, minority-owned firms and sole proprietors left behind in previous rounds of aid.

Biden administration officials said that for two weeks starting on Wednesday, the Small Business Administration will only accept applications for forgivable Paycheck Protection Program (PPP) loans from firms with fewer than 20 employees to ensure that they are not crowded out by larger firms.

The changes, to be formally announced by Biden on Monday afternoon, come as small business bankers say demand for Paycheck Protection loans is slowing as firms reopen. The White House released a fact sheet outlining the changes on Monday morning.

When the PPP was launched in April 2020 at the height of coronavirus lockdowns under a $3 trillion relief bill, its initial $349 billion ran out in two weeks. Congress approved another $320 billion in May, but the program expired in August with about $130 billion in unused funds.

The program was re-launched on Jan. 19 with $284 billion in new funds from a coronavirus aid bill passed at the end of December, and a Biden administration official said about $150 billion of PPP money is still available.

But Biden administration officials said there are still many minority and very small firms in low-income areas that have not been able to receive aid.

The changes aim to make it easier for firms with no employees — sole proprietors, independent contractors, and self-employed people such as house cleaners and personal care providers — that could not qualify previously because of business cost deductions.

The Small Business Administration will revise the rules to match the approach used to allow small farmers and ranchers to receive aid, the businesses said.

The officials said the program will also set aside $1 billion for businesses without employees in low- and moderate-income areas, which are 70% owned by women and people of color.

The SBA will provide new guidance making it clear that legal U.S. residents who are not citizens, such as green card holders, cannot be excluded from the program. The Biden Administration will also eliminate exclusions that prohibit a business owner who is delinquent on student loans from participating in the program.

Business owners with non-fraud felony arrests or convictions in the previous year are excluded from the program. However, Biden administration officials said they will adopt bipartisan Senate proposals to remove this restriction, unless the applicant is currently incarcerated.

According to the White House fact sheet, the Biden administration is also improving the program’s operations by strengthening and streamlining fraud checks, revamping the loan application and government web sites that communicate with small businesses, talking more with borrowers about their needs, and deepening the government’s relationship with lenders.

(Reporting by David Lawder; Additional reporting by Lisa Lambert; Editing by Jacqueline Wong and Chizu Nomiyama)

U.S. Congress wrangles over details of coronavirus economic aid as deadline approaches

By Susan Cornwell

WASHINGTON (Reuters) – After months of feuding and with a weekend deadline fast approaching, U.S. congressional negotiators were wrangling over details of a $900 billion COVID-19 aid bill that leaders have vowed to pass before going home this year.

The legislation is expected to include $600 to $700 stimulus checks, extend unemployment benefits, help pay for vaccine distribution and assist small businesses struggling in a crisis that has killed more than 304,000 Americans and thrown millions out of work.

Congress passed $3 trillion in economic aid last spring, but lawmakers have argued ever since about how much more may be needed. With rates of COVID-19 infections soaring to new highs, and with the American economy showing signs of weakening, leaders of both parties in the House of Representatives and the Senate this month began to compromise in hopes of passing a bill.

“We’re making progress,” House Speaker Nancy Pelosi told reporters on Wednesday evening. But she declined to predict a timeline for finishing the COVID-19 aid proposal, saying, “We’ll be ready when we’re ready.”

Lawmakers were aiming to attach the measure to a massive spending bill that must pass by Friday night to avert a government shutdown.

The House Democratic leader, Steny Hoyer, said that if the Friday midnight deadline is not met, he could envision another stopgap spending bill of three or four days’ duration to keep government agencies open while negotiations continue.

“I don’t want to shut down the government,” Hoyer said.

STICKING POINTS

The rough outlines of the legislation emerged from various lawmakers’ accounts, but negotiators and aides were still working on several sticking points.

Two contentious issues appear to have been left by the wayside. The measure was not expected to include a dedicated funding stream for state and local governments, which has long been a Democratic priority but opposed by Republicans, or new protections for companies from lawsuits related to the pandemic, something high on the Republican agenda.

But an argument broke out over whether to increase reimbursements from the Federal Emergency Management Agency to local governments for expenses related to COVID-19, like personal protective equipment for schools. Republicans were wary.

“If it’s simply a way of disguising money for state and local governments, we’ll have a lot of opposition,” said the Senate’s No. 2 Republican, John Thune.

Thune said the proposed direct payments to individuals would be around $600 to $700 per person, roughly half the amount lawmakers approved last spring. Some lawmakers such as Senator Bernie Sanders, an independent who caucuses with Democrats, were pushing for more.

Lawmakers were discussing $300 weekly in federal unemployment benefits – which would also be half the amount passed last spring, that expired in the summer – and about $330 billion to help small businesses, Thune said.

The $900 billion price tag for the package would be paid for by $600 billion in repurposed funds from other parts of the budget, and $300 billion in new money, according to a senator privy to the discussions.

The U.S. economy is clearly weakening after an initial rebound from recession triggered by the pandemic earlier this year. Consumer spending, buoyed through the summer and early fall by more than $3 trillion in federal assistance, has hit a wall as new lockdowns limit business activity and keep people home.

The Federal Reserve on Wednesday promised to keep funneling cash into financial markets further into the future to fight the recession, even as policymakers’ outlook for next year improved following initial rollout of a coronavirus vaccine.

(Reporting by Susan Cornwell; editing by Grant McCool)

Mnuchin, Powell hone in on need to aid U.S. small businesses

By Howard Schneider

WASHINGTON (Reuters) – Top U.S. economic officials on Tuesday urged Congress to provide more help for small businesses amid a surging coronavirus pandemic and concern that relief from a vaccine may not arrive in time to keep them from failing.

“These businesses cannot wait two or three months,” Treasury Secretary Steven Mnuchin said during a hearing before the Senate Banking Committee, urging lawmakers to repurpose funds he is clawing back from other Federal Reserve loan programs to put perhaps $300 billion into grants for struggling businesses.

Mnuchin’s decision to shut those emergency programs at the end of this month was the focus of partisan bickering at the hearing, with Republicans agreeing that other forms of help are more appropriate now that a vaccine is in view, and Democrats arguing the Fed programs should be left in place until the economic recovery is more complete.

But there was broader agreement that the next few weeks could be critical in determining whether the country’s better-than-expected recovery can be coaxed along until the impact of the vaccine is felt – or will weaken in the meantime as the virus spreads, and some families begin to run out of cash.

Fed Chair Jerome Powell, speaking at the same hearing, said he agreed that grants would be more appropriate at this point to help at-risk businesses and families survive the winter.

“People that are in public-facing jobs, in public-facing industries – they may see the light at the end of the tunnel the middle of next year … They may need more help to get there,” Powell said, referring to restaurants, hotels and entertainment venues that have been the hardest hit by the pandemic.

Job losses in those industries have fallen most heavily on women and minorities.

“Some of these businesses – what they need is fiscal policy, a grant, to get through this last bit of the pandemic, rather than borrowing more,” Powell said.

The Fed chief’s comments shifted attention from the looming Dec. 31 end of Fed emergency programs established early in the pandemic to keep credit flowing to small businesses and local governments, and toward ways to fill the cracks beginning to show in the U.S. recovery.

In the medium term, with a vaccine on the horizon, there is “upside risk,” Powell said, but substantial uncertainty in the meantime about how much longer some families can hold out.

After weeks of deadlock over further government spending for pandemic relief, there may be renewed momentum towards some sort of deal.

(Reporting by Howard Schneider; Editing by Tom Brown, Chizu Nomiyama and Paul Simao)

White House says ‘not optimistic’ about COVID-19 aid, talks with Congress are off

WASHINGTON (Reuters) – White House chief of staff Mark Meadows on Wednesday said he was not optimistic that a comprehensive deal could be reached on further COVID-19 financial aid and that the Trump administration backed a more piecemeal approach, even as he said negotiations with Congress were over.

“We’re still willing to be engaged, but I’m not optimistic for a comprehensive deal. I am optimistic that there’s about 10 things that we can do on a piecemeal basis,” Meadows told Fox News in an interview.

Meadows did not say what 10 items the administration wanted to tackle, but reiterated President Donald Trump’s position tweeted late Tuesday night that he would back separate legislation addressing airlines, small businesses and stimulus checks for individuals.

Trump called off talks with lawmakers on pandemic aid in a tweet on Tuesday, rattling Wall Street as U.S. stocks sank. He later pulled back saying he would support a few stand-alone bills.

U.S. stock indexes appeared set to open higher on Wednesday, and airline stocks were also higher.

“The stimulus negotiations are off,” Meadows later told reporters at the White House on Tuesday. “Obviously we’re looking at the potential for stand-alone bills. There’s abut 10 things that we agree on and if the Speaker is willing to look at it on a piece-by-piece basis then we’re willing to look at it,” he said referring to U.S. House Speaker Nancy Pelosi.

The Democratic-led House has already passed full legislation seeking a wide range of aid as the novel coronavirus continues to spread, infecting an estimated 7.5 million Americans and killing more than 210,600 — the highest in the world.

Pelosi on Tuesday said lawmakers would pass more aid, despite Trump’s refusal to negotiate.

(Reporting by Lisa Lambert and Susan Heavey; Editing by Alex Richardson and Chizu Nomiyama)

U.S. disasters cause insurance double whammy for pandemic-hit businesses

By Suzanne Barlyn and Alwyn Scott

(Reuters) – As insurers brace for an expensive natural-disaster season because of storms and wildfires ravaging parts of the United States, the novel coronavirus is giving them an odd financial break.

Many companies that were damaged or evacuated because of natural catastrophes were already generating far less revenue due to the pandemic. That means they will get lower payouts upon filing business-interruption claims, according to analysts, lawyers and industry sources.

It is another hit for small businesses that rebuilt after major disasters in recent years, only to see revenue screech to a halt during the pandemic, and then enter another aggressive disaster season. It could leave some companies unable to survive, said John Ellison, an attorney at Reed Smith LLP who has represented policyholders in cases stemming from hurricanes Katrina, Rita and Sandy.

“There is a reasonable chance that any business in that situation is not going to make it,” he said.

Claims are never simple to file or process, with insurers, lawyers and accountants quibbling over calculations. They rarely cover all losses.

The past several months have been particularly tough for policyholders in states like California, Iowa and Louisiana. They were already battling insurers in court over pandemic claims and then suffered damage from Hurricane Laura, wildfires and a destructive, fast-moving storm that devastated parts of the Midwest.

Most disaster claims are for property damage, but a “significant” amount still comes from business interruption, based on the way insurers have attributed losses after major disasters, said Piper Sandler analyst Paul Newsome.

Insurers do not disclose how much of their total disaster losses are for business interruption.

The amount of payouts for disasters during the pandemic depend on the business, said Loretta Worters, a spokeswoman for the industry-funded Insurance Information Institute. A liquor store whose business is booming might have higher revenues than six months ago, she said.

Many insurers make a 12-month income projection when calculating the claim, Worters said.

Business-interruption policies cover losses based on recent income trends, so payouts will almost certainly be lower for companies whose operations suffered because of the pandemic, said Credit Suisse analyst Mike Zaremski. Government-imposed lockdowns, supply-chain disruptions and weaker customer demand have hurt many businesses.

That is the situation in Guerneville, California, a wine region where many businesses had to evacuate because of wildfires after already being hurt by the pandemic.

For instance, Big Bottom Market, a gourmet deli there, had to close from March to May. When it re-opened, business was initially off by 40% compared with the prior year, said owner Michael Volpatt. Introducing new services like catering stemmed the tide, but July revenue was still down 9%, Volpatt said.

An Aug. 18 mandatory wildfire evacuation forced Big Bottom Market to close for 12 days. The store escaped property damage but lost over $20,000 in revenue, said Volpatt, who is preparing an insurance claim.

Business interruption was already a sore point between insurers and customers, who are battling in court about whether policies cover pandemics. Only a few of nearly 1,000 lawsuits that are pending have produced rulings, with mixed results.

Hair-salon owner Berlin Fisher is a plaintiff in one such case filed in July. A Hiscox Ltd unit denied business interruption claims for Fisher’s two California salons, whose revenue was wiped out by a measure barring indoor haircuts, he said. Fisher’s San Francisco salon went under as the pandemic dragged on.

A Hiscox spokesman declined comment.

In June, Fisher began cutting hair under a tent in Guerneville to make ends meet. He evacuated four weeks later because of the fires and filed another claim, which is pending.

Fisher pays about $100 monthly for the policy, but said it may not be worth the expense.

“There’s a huge discrepancy between what people who sold the insurance told me then and what actually happens,” he said.

(Reporting by Suzanne Barlyn and Alwyn Scott; Editing by Lauren Tara LaCapra and Dan Grebler)