The pandemic has impacted New York almost harder than any other state. Nearly 34,000 residents have lost their lives to the COVID-19 virus, 24,000 from New York City alone. Businesses have closed their doors, and life in the City has altered dramatically. According to a report by the New York City Partnership, an estimated one-third of the City’s 240,000 small businesses are likely to close their doors because of the pandemic. Every day now, there seems to be a news story about how the City’s residents are fleeing its overcrowded confines; thereby, decreasing the amount of revenue for small businesses that relied on their neighbors to stay afloat.
Last month, a group of 163 business leaders, including chief executives from “Goldman Sachs, JetBlue, Mastercard, Morgan Stanley, Pfizer, and Warby Parker […] top law firms and real estate developers,” signed a letter to the Mayor of New York City. In their letter, the executives warned of decaying conditions in the City’s “neighborhoods and business districts” and “upbraided the mayor neglecting ‘public safety, cleanliness, and other quality-of-life issues,'” which the business leaders said, “had led to widespread anxiety among New Yorkers.” The executives’ letter fits in with the general concern for the City’s life and businesses.
While it is essential to focus on the plight of the City’s business hubs and large corporations, it is also necessary to highlight the issues that are affecting the City’s small businesses. Many of the City’s small businesses have had to layoff employees or shut down their operations entirely. As a recent article in the New York Times pointed out, many of the City’s small businesses are “located far from tourist and commuter hubs,” causing small businesses to “face daunting challenges as their foot traffic dwindle, and many are struggling to pay rent and keep workers employed.” I will briefly discuss three issues that the City’s small businesses will have to contend with as the City continues to open back up.
Cash Flow Problems
Many small businesses are facing cash flow problems. A recent survey of more than 5,800 small businesses found that 75% only had enough cash on hand to last two months or less. On March 27, 2020, at the pandemic’s height, the federal government passed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) to provide emergency assistance to individuals and businesses. The CARES Act created the Paycheck Protection Program (PPP), which allowed companies with a certain number of employees to take out low interest and forgivable loans to maintain their payroll and pay for certain utilities.
The initial phase of the PPP program lapsed on June 30, 2020. However, congress subsequently refunded the program until August 8, 2020. Congress and the Trump Administration have been in discussion for several months about a stimulus package that would include additional
PPP funds. However, the parties have not come to terms on an agreement.. If the government is unable to come to terms with a new round of PPP funding, small businesses facing cash flow problems will be left to their own devices to obtain loans through traditional channels.
In June of this year, a poll conducted by the U.S. Chamber of Commerce estimated that more than 40 percent of U.S small businesses could go under by the end of the year. Businesses who accumulate debt and are looking to have their debt discharged can file for Chapter 11 bankruptcy, which “allows a company to negotiate with creditors for better terms – a process that is known as debt restructuring – and in some cases dismiss debt.” But this process can be time-consuming and expensive and is generally “better suited for larger firms.”
The Small Business Restructuring Act, which took effect in February, allows small businesses to avail themselves of Subchapter 5 of Chapter 11 “Subchapter 5 gives firms with less than $2.73 million in debt the power of reorganization with a few key simplifications.” Once the bankruptcy process has been, a judge is now allowed to “enforce a restructuring plan, even if creditors don’t agree, and the owner can continue to operate the business.” Small business owners who forgo the bankruptcy route will still be on the hook for the debt and will likely have to pay this debt through other means or risk litigation.
Compliance with Opening Regulations
After New York State’s shutdown of its economy and the eventual ebbing of the state’s infection rate, the governor instituted a phased reopening process consisting of four phases. Each phase required the state’s residents to practice social distancing and to wear masks in public. Additionally, each stage of the reopening process included regulations that both individuals and businesses had to follow. For example, restaurants could only entertain outdoor diners, and hair salons were permitted to operate with their waiting areas closed. Every part of the state has now entered the fourth phase. However, indoor dining in restaurants will not resume until September 30 and only with strict requirements. These rules limit capacity to 25 percent, and bar service is not allowed. Customers must also undergo temperature checks as they enter a restaurant, and establishment owners must space tables 6 feet apart.
The government will seek to enforce these rules, and noncompliance will precipitate citations and fines. It is incumbent on small businesses to know these requirements and adhere to them as they continue to open their operations.