It's not the news you would like to hear, but it's the truth: tough as things are, they're going to get much worse before they get better.
Unemployment is currently at over 15% and it will likely surpass 20%. Some are managing only becuase of that extra stimulus money they received and because they've been able not to pay their rent or utility bills thanks to a government edict; but the stimulus money is largely being spent quickly and as good as that may be for the economy in the short-term, it's not a long-term solution.
Those who aren't paying their rent or utility bills, etc. now are going to be faced with paying their regular monthly bills plus paying those 'skipped' bills for months to come. Many barely manage month to month and when those extra bills become due, they won't be able to make it.
The Paycheck Protection Plan (PPP) loans have helped some businesses to survive, but many have applied but are still awaiting the loans. Congress allocated $349 billion to the program in the original stimulus package, and lawmakers then added another $310 billion in late April. Thus far, over 4.1 million PPP loans have been approved.
One of those still waiting is Byron Sackett, former operator of Homestead's Restaurant and now involved in the catering business with Homestead's Events. Sackett told us he has had 32 weddings either postponed or cancelled. "That's not just a big hit for us," he told us, "it's a big hit on the area economy." Sackett said the average wedding brings in over a hundred people from out of town, "and they spend money on lodging, on food, on gas, sometimes on shopping. "All that is lost."
Sackett says some restaurants are actually doing better during the COVID-19 pandemic. "Fast food places that did more business at their drive-thru's than inside are doing quite well. Some of them are franchises, so while they may be part of a national chain, they're eligible for the PPP stimulus money, and what it amounts to for some is that their labor costs are being paid over the next several months by a PPP loan they don't have to repay if they used it for payroll." Caterers and others who rely on gatherings are having no such windfall, and while restaurants may be able to reopen to inside service next month, it may be much, much longer before events return to anything close to normal.
Sackett, like many others, had trouble getting a PPP loan during the first round when some banks favored bigger customers over small businesses. His application is now awaiting approval in the second round.
"That $600 extra unemployment money is another potential problem," he told us. "When we are able to return to doing events, we're not sure we'll be able to find enough help. Some can make more money not working than working."
Small businesses in several area towns can apply for loans under special programs created by the municipalities. City Manager Steve Zickefoose told us that Lincolnton's loan program has given out $209,000 in loans to 16 small businesses. That leaves over $90,000 which any small business with 50 or fewer employees in Lincolnton could get in a loan.
Loans of $5,000 per month, up to a total of $15,000, are paid over three months to qualifying small businesses operating inside the Lincolnton city limits. They must have been in operation on March 10th of this year, and chain stores are not eligible. The loans are for 36 months at a 6.75% interest rate with payments deferred for one year.
Unlike the federal PPP program, the loans are not forgiveable; they do have to be repaid. As for those PPP loans, a new report from the inspector general for the Small Business Administration issued Friday finds that those loans could ultimately leave many small businesses weighed down by debt.
The inspector general determined that “tens of thousands of borrowers” who participated in the first round of funding have used more than 25 percent of the money they were allocated to cover rent and utilities, meaning they are likely to be stuck with new debt, because any amount of nonpayroll costs in excess of 25 percent must be repaid within two years.
For some, like Sackett, the repayment isn't the problem--it's getting the loan in the first place. Small businesses were unable to get loans in the first round because bigger businesses were able to take up most of the available money. In the second round, more small businesses will likely qualify, but the question now is 'when.' "We haven't seen any money yet," Sackett told us, adding that expects it may be several more months before he does. Many small businesses can't survive without the money and may not survive long enough to receive it.
Among the items discussed at last Thursday's City Council meeting was the $200,000 Targeted Incentive Plan, which would provide up to $200,000 for opening new businesses in the downtown area. The City would provide funds for specified expenditures on a one-to-one matching basis; and if the business remains in business for five years, the loan would be forgiven. Like several other items in the budget discussion, the program was labeled 'freeze,' meaning it may or may not develop depending on what happens with the economy. The original discussion of the program last year was centered around new or expanded restaurant operations, but Zickefoose said it wouldn't have to be a restaurant--and it wouldn't have to be just one business, it could involve several. The plan will still be in the 2020-2021 budget, but like several other items, it was followed in the list by the word 'freeze,' labeling projects as possible but not guaranteed.
As for the new restaurant that is planned for E. Water Street at the Courtsquare, work toward its opening is continuing. The City Council chose Local Roots from three applicants for renovation of the old building on the corner next to the Bank of America parking lot. Ethan and Rachel Herman, Wes and Deana Spainhour, are proceeding with the project. They had originally planned to open late this year or January 2021, but with the COVID-19 pandemic, the opening date may have to be pushed back a bit. The building currently belongs to the city. The entrepreneurs are investing approximately $400,000 of their own money for remodeling and equipment and will enter into a “lease with option to buy” agreement for the building.