It's the American dream. Entrepreneurs across the country starting their own business. It's the biggest job creation vehicles the nation has ever seen. Small businesses are credited for two thirds of all US jobs over the past decade. These companies came into the year with a head full of steam. Then the coronavirus hit and the momentum just stopped. A full forty of small businesses do not think they're going to survive. They're just a lot of smaller businesses that
will struggle to make it through this winter. It's all local small businesses, that's who is bearing the brunt of this. We just don't know how long we might be able to stay afloat. Everybody's going to be out of work, and I'm just going to be deeper in debt. It's been very, very bad for a family for you know, the government programs were designed to bail out the big boys, but they left Main Street on. Since the start of the pandemic, we spoke to more than a hundred business
owners across the country. Many shut their doors, some survived, some adapted, and some suffered personal tragedies while trying to keep their business afloat. This is their story. Thanks for joining us on this Bloomberg Radio special report examining the pandemics outsized impact on small business Si bassk and I'm
John Tucker. It's been nine months since lockdowns hit much of the country and doors have reopened at a number of storefronts, but still two out of every five small businesses tell Goldman Sachs they're not sure if they all survive, and ten million people remain unemployed. We spoke to business owners across the country about their troubles, and there have been many, but perhaps the worst of those struggles is the personal tragedies that were endured. David Carberry runs a
digital marketing firm headquartered in Baltimore. When the pandemic hit, his sales were nearly cut in half, and then his father caught COVID while going to the hospital for a simple procedure. It was in April. My dad had just had surgery in March and we had to put him into a unit just for physical therapy. Um he had god about a replacement and with them we weren't allowed to see him, and the facility caught COVID and he did They They took him to the hospital and he
was on Evan for a couple of weeks. Unfortunately lost him like in the beginning of May, so it was pretty traumatic for us. Then there's literally Pacheco's whose translation business also suffered from the onset of the pandemic shortly after her father fell ill and she couldn't be there. On April sixteen, My dad was really really sick. Um he can hardly briefe we Um called the ambulance. He didn't make it. He didn't make it. He already had passed on the couch. Um. So I witnessed all of
this on the video. Normally I would have been there in person, right and you know, were stuck in quarantine, and all I was able to do was just watch from from the video. So it was really hard. And so many cities across the country, there are hundreds of
stories just like David's and Lilies. In their cases, personal tragedy coincided with business trouble, but more often we've seen the business trouble turn into a different kind of tragedy, employers having to shut the doors, laying off friends and family. For John's Grill in San Francisco, this year was the worst in the restaurant's one twelve year history, open since nineteen o eight, owner John Constant is the latest in our long line of constants to run the business. We
spoke to him back in March. This is my first experience with something that's catastrophic. It's been very very sad for our family, for our staff specifically, so I had to get the staff together and have that very very tough conversation with them because most of most of our staff has worked with us for five years, ten years, fifteen years, thirty years, so we have a long ten years staff. It was the saddest day of my professional career. I think we're all pretty much a family in there.
Most of these guys have seen me grow up as a kid, you know, and so it was it was a really tough tough time. We've got our staff on medical insurance until the end of April, and we will probably be one of the first restaurants open our doors for patrons once COVID nineteen is over. John's Grill did reopen and added seating outdoors, but just this month it
was forced to close again. And underrepresented communities have shown to be some of the hardest hit in this pandemic, so our businesses that are black owned and women owned. The Bank Street Bookstore in Manhattan was founded and run by women, and after forty years, one of the last sellers of children's books in New York City is closing. I mean, we've been a corner stone of the neighborhood
since we've been here for a most fifty years. We have folks coming in who remember coming when they were a kid and now are bringing their children, or people who live in the neighborhood who just had kids and are really sad that they won't be able to have their children grow up here. At the start of the pandemic, there was a big government push to rescue small business
from financial ruin. Billions of dollars were made available through the Paycheck Protection Program, but firms that borrowed largely ran out of money by October. Margaret and Nadu works at Goldman Sachs. Her job is investing in underserved communities. She says more than forty percent of business owners had to layoff staff or cut jobs by November, and many said they wouldn't make it through the year. And it goes
beyond the business owners. There's also fifty two percent of these small businesses that have foregone pay themselves, right, And it's not it's not like we can isolate small businesses like there's some aspect of the economy that's off to the side. When you have small business owners who aren't paying themselves, that struggled with your mortgage, that's a struggle with your rent, that's a struggle with how you pay for your health care, and so that impact on the economy.
It's not a it's not a future issue. That's where we are now. And the real concern here is if that impact becomes permanent. Scott Minored at Googenheim Investments thinks it will be the p p P, which was a great program as an emergency stock gap. You know, of course it's gone, so you know we're going to start seeing layoffs here. And structurally, more than half of the Americans are employed by small to medium sized business um.
A lot of those businesses are never coming back. Some won't make it out of the pandemic, but many will thanks to quick aid from the government. Back in March, the Paycheck Protection Program gave more than five billion companies a lifeline in the form of half a trillion dollars. In that cash helped Aaron Anchor's granola company in northern Maine get back on its feet after the early days
of the pandemic. You know, you had to work with your local bank on that or your bank, you know, whatever bank used, and our local bank was phenomenal, so we just decided to go with what we knew. We furloughed about sixteen people and as of now, we've brought almost all of them back. Anybody that we could we've brought back. So it was very exciting and the PPP was very helpful that At the same time, small business owners say, p p P was also plagued by several hurdles.
Some smaller firms found it difficult to even get a loan. We spoke with Brad Close, the president of the National Federation of Independent Business. You know, we saw a very, very poor rollout back in April um. The big banks mostly sent those loans to longtime customers, much larger businesses than a typical small business. You know, our average members five to ten employees. That's very common for small businesses. We are talking true small businesses, the one you find
in communities all across America. They struggled to get the banks to pay attention to them. That frustration was rampant. In the early days of the program. Jim Smith applied for a p p P loan to help his advertising company in Irvington, New York. We did apply, and I think it's been well documented how frustrating and difficult that
experience has been. You know, the bank that we were using was really prioritizing their private clients and basically telling their relationship managers not to help to facilitate the loan process for their smaller clients that don't have a minimum of ten million dollars in active business. So we'll see what happens. I know, everyone I know is really anxious about what's going to happen now with the next round. But let's just say that nobody really has any confidence
when it comes to p p P loans. More than twenty five per cent of the money went to just one percent of the borrowers. Those are mostly large firms seeking loans north of a million dollars. Lots of people we spoke to had a tough time accessing the program. Small business owners like Frank Knapp described a wide range of hurdles. Franco owns a firm in South Carolina and also heads up the Chamber of Commerce in the City of Columbia. So there's no doubt about it that that
P p P loans were important. But you know, only six all the small businesses in this country received a p p P loan out of the thirty million small businesses. Uh, it's a poultry amount. The people who were left out, the small business owners who were left out were sole proprietors, uh, they were micro businesses and a lot of those public
the majority were people of color and women. They just didn't have the banking relationships to get a loan approved, or they didn't have the resources to go ahead and fill out the application appropriately, or maybe didn't even have the forms from the I R S to do it. So we've got major issues here. It's true that black owned firms have been disproportionately hit, and so have Latino
owned firms. Westmore, CEO of the Robin Hood Foundation, has been working with corporations and donors to support those businesses. It is a massive problem, and frankly, it was something that we have been calling out for a while. Uh. And we even saw it when when the proposed Cares Act, the initial Cares Act was being pulled together because people will say, well, there was a cash assistance element to
the Cares Act. That's true. However, the cash assistant elements of the Cares Act left out millions of people, and it left them out intention So, for example, if you were undocumented, there was no cash assistance element to the Cares Act for you. If you were part of a mixed status household, there was no cash assistance for you. If you were a student, even if you were working,
there was no cash assistance element. If you were working but not making enough money to hit the income tax filing threshold, there was no cash assistance left for you, and even those that did receive assistance ran into issues. Bloomberg reporters Sally Bakewell spoke to dozens of business owners describing red tape that was both timely and costly. The business landscape in America is littered with stories like these.
I spoke to the owner of a Vinyl records store in Columbia, South Carolina, and he had got a twenty seven thousand p p P loan, but he still had to dock his own salary to keep going. Um Or there was the owner of a all female boxing gym in North Attleborough, Massachusetts. She had her PP application handed straight back to her on the same day that she applied by the bank because they thought there was too much red tape UM and so she had to use
her stimulus check to keep her business going. Um I then spoke to a business owner in Colorado and she was setting up a sustainable goods business UM and because of COVID, she lost her one contract because it was with a school who wanted to buy some of her sustainable trades for their cafeterias cafeterias, so she led for P p P and she applied for another type of emergency assistance loan. She had both of her applications rejected UM.
She told me that one of them at one point they told her they had lost her application UM and that she needed to submit her financial details again and then when she went through all of that, there was no money left anyway. She was told there are stories like that everywhere. You know. They did, they did the right thing, They did what they could, they couldn't get the money, or they got the money, they still couldn't
catch a break. Bank Street Bookstore in New York City was one of the many small businesses unable to access government aid. Caitlin Morrissey owns the fifty year old bookstore, which started out in the lobby of Bank Street College. Since we are attached to an educational institution, some of the relief that would have been available if we were a stand alone small business, unfortunately, it just wasn't available
to us. So while we've operated fairly independently, we are under umbrella, so it affected what kinds of aid we were applicable to that The troubles spanned the country and industries. Alex Cuton ran a travel agency in Indiana and described similar roadblocks accompanied by a few answers. As a small business owner. You know, we're the last to get paid club.
You know, we pay our rent, we pay our employees, we pay you know, everything that we owe and then if there's anything left at the end of the year, we get paid. And this year I don't look to be making any money. Now, have you applied for aid? Yes, during the time that the Cares Act ten thousand dollars. You know that we were led to believe that we would receive we applied for that immediately. Did I get it? No?
And then the p P. P Whenever that program was announced and it came out, I applied immediately for that and did I get it? No restrictions tied to COVID nineteen have a small businesses across the country. Those that managed to stay afloat survived by tapping into government aid or by pivoting finding creative ways to survive or even thrive in the face of the pandemic. John Pepper is one of those small business owners. He runs a chain of eight modern Mexican restaurants in the Boston area, which
he transformed to adapt to the outbreak. The Financial district of Boston became a ghost town almost immediately. We closed those four restaurants on the eighteenth of March. A week later, I put out a video essentially two days before I thought we had to close. The rest of everything staying. Instead of letting everybody know we had closed, I felt maybe I should let people know most likely we're going to close, because I didn't see any avenue to stay open.
Turned out that that video caused a outcry of support. We raised over sixty dollars. We basically pimoted into a nonprofit model. For the last four weeks, we created this feed the front line, which now very ubiquitous term. But we ended up just keep the restaurants open to feed hospital workers throughout Boston and throughout New England. That's how we kept it going. Kim Strassner's business in Baltimore also disappeared overnight. She made personalized cutting boards that were popular
as party favors. No parties meant no business. So what we did is we pivoted. We've joined up with two other local Baltimore companies and master seamstress Jill Andrews and Dan Jansen with Imperium Shaving, and we are making cotton masks, so we're using our laser engraver to cut the fabric. Jilly Andrews, she designed the pattern and that business is
doing really well as you can expect. What is the difference in revenue from the traditional business to what you've pivoted to now, is that enough to sustain the business? You know, my husband locked his job, so we're you know, definitely as a household are income you know is down, and you know we're trying to pay our employees at fair price and sell the masks for a fair price. We're not gonna get rich off of this. You know, it's just we saw it need. It's not something you know,
we're going to get rich off of. Kimi Strassner and John Pepper adapted to survive, but other entrepreneurs we spoke to made more dramatic changes that sometimes saw a business more than double. Alex Carroll ran a tailgate events business which ground to a halt when the NBA canceled its season, so he got creative. It was a sad moment. I mean,
I won't lie. We spent a day kind of just laying around feeling sorry for ourselves, and then we quickly realized, hey, what can we do to get our employees back because we had to furlough all of them. And so that's when we started to think, when events do come back, what are they going to need. We knew they were going to need hand sanitizer stations, and that's when we started brainstorming and trying to come up with, you know,
fully customized hand sanitizer stations. It's been incredible to see all the do for small businesses all over the country that will go on the website by you know, an
automatic hand sanitizer dispenser package. They'll buy different types of sanitizer that we offer, they'll lie different types of stands and they'll all customize it with their logo and with that pivot business for Alex more than double business ideas tied directly to the pandemics seemed like an obvious shift, but some other less conventional ventures also saw big boosts during the outbreak. Paul Salek, for example, owns a flying school in Las Vegas. Amazingly enough, we've been busier than
we've ever been. Um. I think people that can afford private aircraft travel have now given themselves permission to get the license that they always wanted to get so that they can take their family and their associates on personal travel around business travel as opposed to go into the airlines. So we've we've actually seen quite the uptick in aircraft sales and people learning how to fly. It sounds like people want to avoid commercial travel altogether and just do
it themselves, and it's they think it's safe in that way. Yeah, instead of going through T s A and jumping in an airplane with the hundred fifty people you don't know, you get in an airplane with just those loved ones or those associates, and you can go, you know, pointing at a point B direct to your meeting and be home the same day. And it's always been available, but the cost of doing so has always been higher than
the airline. But now people you know, for their own personal safety and those of their loved ones, um, I think they're giving themselves the okay to go ahead with it. Well, some pivots maybe permitted. Others are business owners just doing what they can to get through the crisis. Clayton B. Sean runs Kntina Lobos and Pellham, New York. His restaurant, like many others, had a pivot to a delivery model. It kept his business of flaw, but it's not sustainable.
It's basically just to stop the bleeding of cash. The perfect storm was that state taxes were do last Friday, and we had to make the decision of you know, do we hold on to that cash and take the fines um later on so that we could stay open, or do we give them all that cash and only have a week's left instead of two weeks left of what we did? And we decided to take the fine and hold on to that to try to stay alive
and pay that sales tax later. Luckily the states come down and as of now you're not gonna get fined for not paying sales tax. I bought us basically another week we can have. The hurdles are high for firms that old background back taxes at loans from the government that we're meant to keep them afloat. Government moratoriums on evictions and foreclosures are expiring in many states. The list of worries is long, and many storefronts now face fresh
lockdowns until vaccines are widely distributed. John Pepper in Boston made the best of a bad situation, using his modern Mexican restaurants to feed frontline workers. He took hundreds of thousands of dollars and p p P loans, but the road ahead for his business is still uncertain. You kept people employed, we help them figure out how to apply for unemployment, and we ensured as soon as we knew we had the p PP nobody will be left behind.
You are grateful that you did get a loan through the Small Business Administration, but it comes with some stipulations that really make you think about the future of the business. Yeah, that's for sure. How much of this sixty in our case, which is a lot of money that just sounds like a windfall at first at a glance, But how much
of that will turn into a loan? And will we be able to generate the cash flow necessary to pay it back in a short eighteen month period once we have to start paying it And that by definition, if you do the math is going to be almost impossible for most restaurant companies if they don't go for full forgiveness, the amount left over as a loan will be a very challenging number to meet from a cash flow standpoint
over the following a team months. The long term damage to small business has led to frustration aimed at Capitol Hill, as lawmakers took many months to negotiate additional aid. More than nineteen million Americans filed for unemployment. Meantime, the stock market rallied to records and the largest banks posted record results at some key businesses. Frank Knapp, a small business owner in South Carolina, is frustrated with the response from Washington.
They all know, they all know that small businesses needed to be helped so that they can survive, because like after the Great Recession, it was small businesses who created the majority of jobs to get the economy back on track, not big business. But yet all we're concerned about is Wall Street. Uh, we all be concerned about Main Street, and ironically enough, Wall Street agrees Scott and minor manages
more than two hundred billion dollars for Guggenheim investments. What the policymakers are doing here is leaving themselves open to another round of criticism, just like they got at the end of the financial crisis, which is the government programs were designed to bail out the big boys, but they left Main Street behind. We have permanently done damage to the job market which some other industry or future growth is going to have to correct for, and that's going
to take a long time. Key figures in Washington also agree with Federal Reserve Chairman j Pale acknowledging the issue, and he sees more trouble ahead. They're just a lot of smaller businesses in their communities that will struggle to make it through this winter. COVID is moving up um and the cold weather people are staying in and it's gonna be tough. There are also frustrations aimed at large corporations, especially tech companies like Amazon and Google, which have benefited
from the shift to online commerce. A report from Visa found that more than seventy percent of shoppers use most of their cash at places like Amazon and Walmart, whose founders are billionaires and who stocks have surged this year. Meantime, many small bisnesses don't have the infrastructure to effectively sell online. Jeremy Staffelman, the CEO of Yelp, is seeing this frustration firsthand. He also sees a wide divide and access to cheap debt.
Businesses need supports, especially small businesses need support. And I think the initial stimulus package was a positive, and you know, we've been all waiting and hoping for another one. And I think, you know, we shouldn't just have socialism for big companies where they can borrow endlessly with cheap debt from the powered by the Fed. We we should extend a helping hand to all these great small business owners
that are just trying to get by. Survey data from the Federal Reserve shows that lending standards to small and medium sized businesses are challenged. Bloomberg Sally Bakewell spoke with bankers across the industry to find out why it all
comes down to one simple reason. Risk no one wants to lend to a business, but really you have no guarantee that it will exist in twelve months, So that concern was taking all of this risk, and I think that is why we saw at the beginning of programs like the Paycheck Protection Program that a lot of it went to the bigger, more sturdy, more well established clients, which meant that of course, again the smaller ones were shut out. Troubles for small business owners have ripple effects
that hit all parts of the economy. If small firms don't survive, economists say workers could stay at employed longer, and right now small business is struggling to keep staff on board. On November, survey from Goldman Sachs found at least two and five were laying off staff or cutting employee pay. Romano Martin used her life savings to build and renovate a thirty four lane bowling alley in Brooklyn. She's open now, but operating at limited capacity to keep
customers safe. And it's because we just don't know how long we might be able to stay a out. We have a lot of obligations and a lot of catching up to do. Have you applied for or received any government aid and what's that process. We have the p p P which allows us to hire our employees back, but of course with the type of rent that we're paying, um,
it does not cover at all. I mean, we we have our life savings in this place, and we've improved it so much, and you know, with the video wall and the lighting, and it's just sad to see if we possibly have to give it up and close our doors for good. That Goldman sat survey we mentioned earlier also found more than half small business owners have stopped paying themselves and more than a third are dipping into personal savings to stay afloat. That was the case for
Amy Wilson when we spoke to her. She owns an event space in Atlanta, Georgia. Revenue was plunging this summer during what normally would be her busiest months. We pay an average of ten thousand dollars of months for our expensive is including insurance and rent and water and internet. So we pay almost ten thousand dollars a month no matter what, and our biggest months or this summer because
we have summer camps. And the lovely thing about us is we hire school teachers and art teachers, so it gives teachers and educators a great side huspital to work. A couple of weeks and everybody's going to be out of work, and I'm just going to be deeper in debt. Sadly, rent forgiveness for business owners has become an untenable issue as they're locked into leases while suffering significant sales declines.
Frank Fellucci of Sweet Catch Cooke in New York saw sales plunge about you know, we were able to get some of the PPP money that has run out, and then I took out some of the small business emergency loans. You know, eventually that's going to run out as well. Until things get back to normal, whatever that new normal is going to be. Businesses are going to be hard
pressed to continue and it's a it's a struggle. I mean, I'm gonna have to negotiated with four of my five landlords, which looks a good deal at the time, but now they're probably they're not workable. Is there a firm date by which you have to make some tough decisions? You know, I think landlords are willing to work with me. I can last longer, but if they're going to insist on a set round based on previous you know, pre COVID numbers,
then I'm out of business. As businesses suffer, so do the local economies of the cities and towns where they operate. Brad Close, as president of the National Federation of Independent Business, When you look at the small business economy in America, it's the third largest economy taken by itself, in the whole world. We've created half the GDP for the country,
in almost half the new private sector job. That's a very large swath of the total US economy and has the ability to impact large and small firms in every industry. Margaret and that Do runs the Urban Investment Group in Goldman Sachs. A full forty of small businesses do not think they're going to survive, and that is that's the
highest number we've seen since April. So businesses have you know, they've expressed all of the creativity that they can, they've moved online, they've tried different strategies about revenue, but at the end of the day, without additional support, many won't survive. And these small businesses are interconnected. Take James Low, he runs the Baltimore School of Music with fifteen employees. Group classes were canceled because of COVID nineteen and people were
less interested in virtual lessons. His firm was classified as an essential service because schools in the area didn't provide music lessons, yet his service was expendable when the pandemic hit in Baltimore. Can be kind of tricky because a lot of our public schools do not have music programs, so we do provide some essential services. We've also had a lot of our students who have been faking their own economic challenges that have had to pull back on
any extra spending in their life. So we've had people that have been furloughed or have lost their jobs that have had to cancel their music lessons because of that as well. And we did apply for p p P and we were able to get that, so we've got a bit of a cushion. The problem for us is we don't know how long this is going to go for There are white concerns that the pain amongst small businesses could create permanent damage to the economy even once
the pandemic passes. Brad Close at the n f I basis. It could also scar communities that see downtown neighborhoods forever changed. It is something that's very important. It's in all of our communities. When you look at the businesses out there that are supporting local communities, sponsoring the Little League, the high school marching band, doing the charity drives, it's all local small businesses and that who is that's who is
bearing the kind of the brunt of this. These economic shutdowns in the COVID pandemic right now at the business level, so they definitely need help. We want to see more open, but we want to see them stay open first and foremost small businesses need more money to survive, and until vaccines are distributed widely, we risk losing more of the mom and pop firms that form the backbone of the economy.
But until then, business owners are staying resilient, pivoting, adapting and reimagining using every level they have to stay aflow. This is a Bloomberg Radio special report looking at the pandemics outsized impact on small business. If you joined us late, catch the full show online as a podcast available on the Bloomberg Surveillance and Bloomberg Business Week feeds, on Spotify, Stitcher, Apple, or wherever else you get your podcasts. I'm Bask, I'm John Tucker, and this is Beienberg.