Many small businesses that closed at start of pandemic may never reopen
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A report out Wednesday from the Federal Reserve Bank of New York takes a look at small businesses in the service sector. We’re talking about restaurants, retailers, live music venues. The report found that businesses of this type that closed right when the pandemic hit the U.S. are less likely to reopen than those that managed to hang on a bit longer — specifically until July 2020.
Businesses that closed early in the pandemic have a problem now. According to New York Fed economist Davide Melcangi, their customers forgot about them. “The longer this establishment remains closed, the more it loses touch with respect to their customers.”
Firms that didn’t have to close right away might have been healthier to begin with — and didn’t lose touch. Jessica Wartenweiler is co-owner of the Tinsmith, a wedding venue in Madison, Wisconsin. It never officially closed, even though most of its weddings were canceled.
“I was definitely still working every day, corresponding with the booked couples that we had, in terms of, ‘What’s going on with restrictions? Can we have our wedding?’” she said.
Wartenweiler said she and her partner were able to sell some property to limp through last year, and that gave them a cash cushion. But Wartenweiler wasn’t able to get a Paycheck Protection Program loan because her business wasn’t open in 2019. Businesses that closed in March of last year were also out of luck because the PPP program didn’t start until April.
Amanda Fischer at the Washington Center for Equitable Growth said many businesses owned by people of color fit the description of these service-sector firms that closed early. No PPP loan. And no cash cushion.
“As we know, people of color in the United States have less accumulated wealth because of systemic discrimination over decades and decades. There’s more discrimination in the banking sector, so they have fewer lines of credit to draw from,” Fischer said.
And the New York Fed said each additional week a business is closed reduces its chances of reopening by 2 percentage points.
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