Americans May Be Ready to Spend But Some Businesses Aren't Ready to Sell.
The coronavirus pandemic has hit hard. More than 100,000 Americans have died. Businesses nationwide shuttered, and more than 44 million people have filed for unemployment insurance since mid-March. The stock market wobbles. However, as the economy reopens, and many Americans benefit from federal assistance, businesses across the country may be in line for a healthy dose of increased consumer spending.
"If jobs are coming back relatively quickly," which the May jobs report indicates, spending should pick up, says Scott R. Baker, an associate professor of finance at Northwestern's Kellogg School of Management. Baker recently co-authored a study for the National Bureau of Economic Research, which found that consumers curtailed spending since March, while incomes remained largely untouched. Baker suspects that consumers largely pushed off purchases because of financial concerns or because the businesses they'd typically patronize weren't open.
This spending hiatus pushed the U.S. savings rate to a record high of 33 percent in April--boosted in part from federal stimulus checks of up to $1,200 per person, depending on income. Americans are notably bad at deferred gratification, a trait that will favor companies that can meet any uptick in demand as the economy continues to reopen.
The House passed bipartisan legislation Thursday to give small businesses more flexibility with the loans they received during the coronavirus pandemic to keep their businesses afloat.
The Paycheck Protection Program (PPP) Flexibility Act, authored by Rep. Dean Phillips, D-Minn., and Chip Roy, R-Texas, passed with a 417-1 vote and now heads to the Senate.
"Millions of small business owners in this country are one step closer to meaningful relief," Phillips tweeted after the near-unanimous vote. "This is what's possible when leaders listen, act and collaborate.
During the pandemic, Congress allocated $659 billion to small businesses in PPP loans that could be converted to grants if they met certain requirements. The new legislation loosens some of the restrictions on the loans that businesses found too burdensome given that many are still closed or operating at reduced capacity due to prolonged stay-home orders. The legislation extends the time to use the money from eight weeks to 24 weeks. The bill eliminates the cumbersome 75/25 restrictions that forced businesses to spend 75 percent of their loans on payroll and only 25 percent on other operating expenses like rent and utilities. The formula changes to 60/40 percent. For loans that aren't forgiven, businesses would have more time for repayment, from two years to five years.
The noise TRA has been making on the PPP loan and needed changes is working. Senator Schumer is introducing a bill that will have many of the fixes they want. The pressure is on and they know we need fixes and they know it is the restaurant industry that is making the most noise. Key things that are within the proposed plan include:
Moving from 2 years to 5 for repayment
Changing the 75/25 split so you can make it work for you
Extend the forgiveness period until the end of 2020
Change the covered period from eight weeks to 12 or 24 weeks
On a call, they specifically asked about any fixes being made retroactive, and it was confirmed they would indeed apply. Note, on Tuesday they moved the Safe Harbor (the period of time when you could simply return your loan and not use) from May 7 to May 14. They believe this is so Treasury can release guidance on forgiveness early next week. In summary, it would be great if the Treasury could give us several of these fixes, but if they will not, in Phase 4 aka CARES 2.0 we believe the key items we need will be addressed. We also believe tax credits and state allocation of funding will be a big piece of the bill.
Today TRA signed on with the AHLI regarding liability. They know we need liability protection with the current environment and believe signing on to this and making it part of CARES 2.0 will be important.
They also made great progress this week on pulling together our “Blueprint for Recovery” and this plan includes the creation of a Restaurant Recovery Fund that will be driven from the state level. Kelsey and I are putting the finishing touches on this over the weekend with the goal to bring to the governor and our legislators next week. We feel strongly that we need state support in the recovery and cannot bear all the costs of getting our restaurants back on track. Remember, we were closed due to government mandate and have done everything to support public health. With this proposed fund, we feel we can ask for a fair financial recovery plan supported by the State of Texas and dollars secured from the CARES Act. Our Blueprint for Recovery plan also includes consideration on taxes, expansion of the current alcohol waiver, and relief from any pending regulatory changes. We need to create the best possible environment for our restaurants to succeed.
They had an opportunity to meet with several bar owners and operators are helping to craft a plan to get them open as soon as possible. They hope to have the framework of a plan that we can complete by early next week. This will be submitted to the governor’s office, like they did with the Texas Restaurant Promise, with the goal to provide a comprehensive plan to safely reopen bars. While it will be the Governor’s team and his medical experts that have the final say, we know giving them a plan helps a lot. We have more than 5,000 bars in Texas and they need our help getting customers safely back in the door. We are stronger together.
Some San Antonio groups wanting to provide assistance to very small local businesses seeking federal stimulus money turned to bankers at Frost Bank for tips. They are targeting businesses with fewer than 50 employees.
On a conference call Thursday, Frost Bank CEO Phil Green and other bank officials shared the ins-and-outs of the Paycheck Protection Program — a stimulus program run by the Small Business Administration that is distributing millions to small businesses to use for payroll and other expenses like rent and utilities.
“We applied the things that we learned from the very strenuous process of applying for those PPP loans through the SBA and kind of put a presentation together,” Frost spokesman Bill Day said. Frost Bank was among the banks that processed the most loans in San Antonio during the PPP’s first round of funding, which provided $349 billion to businesses last month. The second round, with $310 billion, is under way.
Retail is already being reshaped by Covid-19 as shoppers are stuck at home and companies are forced to find new ways to sell their goods and stay relevant. Even as states begin lifting restrictions, it isn’t clear when and how consumers will be ready to shop. Longtime retail analyst Dana Telsey, who heads up Telsey Advisory Group, says executives are comparing the crisis to wartime, and trying to reinvent themselves for a rapidly changing new normal.
Telsey, one of Barron’s 100 Most Influential Women in U.S. Finance, had a long history as a retail analyst and money manager before starting her own business. The New Yorker has seen retail go through various iterations, not just in her career but also growing up: Her family owned a bookstore on Madison Avenue and her mother and grandmother both worked in retail. We talked with Telsey to see what retailers need to do in a postpandemic world, which companies can make the transition, and whether it’s time to start shopping. An edited and condensed version of our conversation follows.
Barron’s: What is the mood among retail executives?
Dana Telsey: Even the strongest of the strong companies are saying there is no road map—and [things] can change by the hour. They are watching their cash, evaluating their cost structure, and looking at store bases. When you think about fixed and variable costs, almost everything has become variable.
The COVID-19 outbreak has wreaked financial havoc around the globe, leaving many small-business owners struggling in its wake. According to the National Federation of Independent Business (NFIB), as of March 30—still early in the crisis—92% of small businesses said they had suffered negative effects as a result of the pandemic. Just 5% of small-business owners said they had experienced no effects at all.
While the short-term outlook for small businesses varies greatly by industry, it’s important to consider what recovery mode will look like once the economy begins to return to a state of normalcy—or establishes a new normal. Having an exit strategy in place for after COVID-19 can help you be prepared to hit the ground running and rebuild. If you’re not sure what your coronavirus exit plan should include, this guide can help with getting your business back on track.
1. Assess the Financial Damage
The first step in developing a rebuilding plan for COVID-19 is determining just how deeply your small business has been affected.There are different layers involved, starting with the hard numbers. If you haven’t updated your financial statements—such as profit and loss or cash flow statements—recently, it’s helpful to do that now. You can then compare them to last year’s numbers to see how much your business may be down. And while only a small percentage of business owners say they’ve benefited from the pandemic, 3% according to the NFIB, it’s possible that the damage might not be as bad as you think.
"It’s never to early to begin planning for re-opening! Our team has built what I believe is a very strong phased approach towards responsibly re-opening our venues in what is sure to be a challenging environment. I wanted to make this plan public in the event that it is useful to some, as well as to collaborate with others who may have their own plans. We are stronger together!" - Mitchell Roberts CEO of EVO
A few key points of advice to those looking to establish their own plans:
1.) Expect and prepare for heavy lead times and unexpected costs. Operating in the upcoming “new normal” will almost certainly require equipment that you most likely do not have. (Masks, Touchless Thermometers, Sneeze Guards, etc.) These items are currently seeing 2-3 week lead items. Get ahead of that.
2.) Don’t forget your team members. I’ve seen a lot of great guest-focused precautions, but don’t forget to take care of your staff too, as they are the ones on our front lines.
3.) Last but not at all least, weigh the impact of public perception. As important as it is that our guests ARE safe, it’s equally important that they FEEL safe. Public Perception will be the fuel that ignites our return to normalcy.
Here are some of the steps they will be taking in EVO restaurants
- reducing table capacity to 50%
- limiting groups to no more than 4
- removing bar stools from the bar
- using disposable paper menus
- sanitizer on every table
- masks required unless eating
- mask & nitrile gloves required for servers
Currently exploring mobile ordering as well.
Texas Gov. Greg Abbott’s “retail-to-go” phase of reopening the state’s economy starts Friday. But your favorite store may not be ready, and don’t expect to stroll into the mall.
A week’s notice may not be enough for some, from individual shop owners worried about new world protocols to store managers who must get payment systems turned back on and clearance from corporate offices outside Texas that are preoccupied with bigger issues.
And small shop owners said they haven’t received funds from federal loans yet to pay the employees they need to offer retail to go.
The COVID-19 pandemic has taken an especially hard toll on small retailers, which tend to have limited access to capital and minimal cash reserves. A March 30th survey by the National Federation of Independent Business found that the COVID-19 pandemic has negatively impacted 92 percent of small employers. About half the employers who participated in the survey can survive for no more than two months under current conditions.
Shopping center owners aren’t standing idly by in the face of this existential threat, and it’s not hard to understand why. Nearly 70 percent of shopping center tenants are small businesses that employ fewer than 10 people, according to ICSC. These small businesses play an outsize role in many shopping centers by helping distinguish one property from the next. “Small businesses are the heart and soul of our properties. They build long-lasting emotional connections with communities,” said Trademark Property Co. CEO Terry Montesi.
Many shopping center landlords are providing small-business tenants with some type of short-term rent relief, typically on a case-by-case basis, while steering them to resources designed to help them weather the economic storm and prepare for what’s expected to be a gradual return to normalcy.
On March 27, when both branches of Congress and the White House came to an agreement to provide sweeping financial assistance via the $2.2 trillion CARES Act, many of us in the restaurant industry cheered with a big sigh of relief. This pandemic, and the consequential shut-down of an entire industry that relies upon the gathering of people - at a moment when people cannot gather- had already shown that no restaurant is unsinkable. With slim margins in our industry to begin with, restaurants of all sizes and flavors were vulnerable and laying off people by the hundreds. Indeed, both Shake Shack and Union Square Hospitality Group needed to make those tough decisions too, furloughing or laying off hundreds of team members throughout our respective companies—one a publicly traded company, the other an independent restaurant group.
Restaurants function as the lifeblood of the U.S. economy and the nation's spirit. The bulk of the over $800 billion that restaurant-goers spend on dining out flows right back into the economy with much of that impact going to the very small businesses this PPP loan was intended to reach. The CARES Act was touted as the largest economic stimulus package in U.S. history and on its initial face, for restaurants, there seemed to be a lot to like in the bill.
With the country facing a prospective permanent loss of restaurants up and down the food chain, the bill arrived just in the nick of time. The onus was placed on each business to figure out how, when, or even if to apply. The “PPP” came with no user manual and it was extremely confusing. Both Shake Shack (a company with 189 restaurants in the U.S., employing nearly 8,000 team members) and Union Square Hospitality Group (with over 2,000 employees) arrived at a similar conclusion. The best chance of keeping our teams working, off the unemployment line and hiring back our furloughed and laid off employees, would be to apply now and hope things would be clarified in time.
The PPP funds are exhausted. Time for Plan B. National Small Business Town Hall #4
Learn from the expert panelists about where the CARES Act is at as of 4/17 and hear answers to small business owner's burning questions including: Where to go from here? How to use the funds? Explaining the fine print?
March 26, 2020 — DENTON — Women-owned small businesses in Texas suffering financial losses associated with the coronavirus pandemic were thrown a lifeline today after the Center for Women Entrepreneurs at Texas Woman’s University announced a million-dollar grant program to help get them back on their feet.
Texas Woman’s University Chancellor Carine M. Feyten announced that the Center for Women Entrepreneurs is launching the AssistHER grant program, which will provide 100 $10,000 grants to women-owned small businesses in Texas that have been impacted adversely by the coronavirus pandemic. Grant funds can be used for operating expenses (excluding payment of sales tax and payroll, advertising, purchase of food for consumption, penalties and fees, and charitable donations), technology upgrades or help adapting to a new business model.
To be eligible for the grants, businesses must be at least 51% owned by a woman, have a demonstrated need due directly to COVID-19, and be owned and operated in Texas. Awardees will be required to complete online training on how to maintain business operations in the current environment and report all expenditures of grant funds. Eligible businesses must be up to date on payroll, sales and other taxes and be properly permitted.
APRIL 15, 2020 — The UTSA Institute for Economic Development today launched the Small Business Development Center COVID-19 Business Recovery Accelerator (SBDC COBRA) to help small businesses weather the financial hardships caused by the coronavirus pandemic. COBRA is the only recovery accelerator of its kind in Texas to help stabilize and rebuild the small-business economy.
COBRA will provide small businesses with the counseling and resources to pursue loans from the financial industry and to begin recovering from the economic impact of the COVID-19 pandemic. The accelerator will serve businesses in Bexar County and 10 surrounding counties. It will be funded by a $1.2 million grant from the U.S. Small Business Administration.
“For nearly 40 years UTSA’s economic development programs have been creating jobs, growing businesses and strengthening the economy,” said UTSA President Taylor Eighmy. “UTSA is committed to leveraging its knowledge enterprise to support the community in this time of need. I can think of no better way to do that than to pave the way for small businesses to get emergency financial relief.”
Jenna Saucedo-Herrera, president and CEO of the San Antonio Economic Development Foundation, answers your questions on KSAT.
San Antonio is considered to be most prepared for a recession, according to a recent study by Moody’s Investor Service reported by Yahoo News.
Moody’s looked at the largest 25 U.S. cities and used four main factors to determine how prepared a city was for recession -- Fiscal volatility, reserve coverage, financial flexibility and pension risk.
San Antonio’s bond ratings are among the highest of any major city in the United States.
Austin, Boston, Charlotte, Denver, San Francisco, and Seattle are also best positioned to weather a recession, the study found.
Chicago and Detroit are considered the least prepared. Both cities have credit ratings that fall under the non-investment grade category, which is the lowest rating.
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