August 24, 2020
By: Caity Roach (née Witucki)
Contributing Editor, Main Street Monday
Main Street Monday – 1 in 3 Firms Will Close Without Increased Sales
According to a recent study conducted by the Federal Reserve, one-third of service firms and factories will run out of money in less than a year if their sales do not increase and additional coronavirus relief does not come from the government.
Of those surveyed, 71% of service and retail firms and 82% of manufacturers secured Paycheck Protection Program (PPP) loans from banks, credit unions, and other private lenders. In addition, 20% of service firms and 17% of manufacturers received EIDL loans and only 2% got Main Street Lending Program loans.
Despite exhausting the government aid available to them, small businesses in services and retail are continuing to feel the effects of the coronavirus pandemic. Among service firms, the business activity index fell to -17.1 points this month compared with -1.8 in July. Showing that the index has not yet fully stabilized since the pandemic began. In contrast, factory and general business conditions remain positive despite falling to 3.7 points from July’s 17.2.
Already, 2020 has seen over 113 major retailers file for bankruptcy, including the vitamin and nutrition chain GNC, the gym chain 24 Hour Fitness, Hertz rental car company, and JCPenney. In contrast, some retail businesses seem to be uniquely poised to thrive during this pandemic. Businesses that focus on home improvement, casual fashion, and household cleaners have all seen a boost in sales.
In response to these new economic trends, participating SBA lenders must now consider post-COVID business conditions when underwriting new loans. In an August 7, 2020 procedural notice, the SBA recommends that lenders specifically address the impact of COVID-19 on an applicant business in their credit memo. In addition, they should also address how PPP, EIDL, and other economic recovery financing will affect the business’s cash flow.