Mnuchin’s program offers low-interest, short-term loans that entrepreneurs can use to cover about two months of average payroll costs and other operating expenses. It’s a bridge built with the expectation that this crisis will have a relatively short span and that small businesses — which are routinely starved for cash and can be perilous to run even in the best of times — need only tap that lifeline to survive. The reality is that this is an epic crisis likely to have very long legs, and the small business community is on the precipice.
It’s not clear that more money will be available for small businesses, since they’ve also been out-muscled and out-maneuvered by large corporations in the Washington cage match lobbyists have waged to snare a piece of the federal stimulus pie. Banks, which are conduits for federal aid, are also likely to perform financial triage when they assess which businesses get the dough. Real estate, retail, manufacturing and mining are the biggest sectors of the small business landscape, and banks may focus on them and overlook modest outfits like Gelati by Mike.
There are already worrisome signs that the federal program isn’t well-managed. Banks are reportedly troubled that Mnuchin’s program won’t be able to launch today because the Trump administration has provided no clear parameters about how to disburse the funding and has engineered “unworkable requirements for the loans.”
Mike sees other warning signs. He said it’s unclear how easy it will be to apply for a loan and how quickly the money might arrive. His accountant advised him that only businesses that have “relationships” with their bankers will get the first appointments to discuss a loan. “In plain English, the more of a hook-up you have, which would be bigger companies with power,” the more likely you are to get a loan, Mike says. A note he shared with me from his local banker advised him to email her a raft of forms to apply for a loan, while warning him that the federal government hadn’t given banks “any guidance yet as to how to process these loans.”
In the meantime, one million cases of the coronavirus have been reported worldwide, about 10 million Americans have recently filed jobless claims, and Mike is trying to soldier ahead. His revenues have plunged about 60%, he says, and to help keep his stores afloat he hasn’t been paying his mortgage or car payments. Before the pandemic, he had 54 employees, but now has 13 he considers full-time even though they are working reduced hours. Those folks had been making an average of $12-13 an hour, and Mike says he’s paying them an extra $2 an hour in hazard pay while also providing them with meals. He and his wife have stopped taking salaries.
To save money, Mike also considered cutting orders from dairy, orange juice and toilet paper suppliers because his needs have slackened. But after reading about local seniors and others who couldn’t afford to buy those things, he decided to keep paying and now delivers the goods free of charge to the needy.
Mike doesn’t allow anyone into his stores, offering curbside pick-up or home delivery instead. And he misses the daily contact with customers. “We’re making the deliveries ourselves so our customers can see that we’re still in business ourselves and that we care,” he says. “I’m the type of person who always has to be out and about, so this is hard for me.”
He also thinks his world has permanently changed.
“I think the days of people crowding our stores to order ice cream are over. People aren’t going to want to crowd in public places like my shop or restaurants any longer,” he predicts. “Unfortunately, it’s natural selection. The virus is picking and choosing business owners among us strong enough to survive. Whatever the future is none of us will keep doing business the same way ever again.”
Timothy L. O'Brien is a senior columnist for Bloomberg Opinion.