Without urgent action for small businesses, 100K could be laid off from coronavirus in NC
Gov. Roy Cooper gave it to North Carolinians straight: Closing restaurants and bars for the sake of public health was going to hurt business owners and cost people jobs.
But to those displaced workers he offered a lifeline, easing the hurdles to getting unemployment benefits.
To the business owners — mostly small operations serving food and drink or selling retail goods — he promised the federal government was about to hand them significant relief, and that North Carolina’s representatives in Washington, D.C., were working hard to deliver it.
“A lot of that [relief] has to come from the federal government,” he said, noting North Carolina was hemmed in by the laws mandating it keeps a balanced budget. “... A very robust federal package is coming and we want to make sure that our state response is coordinated with that federal package when it is finalized.”
When that federal package comes, he added, the state will compliment it with “everything we can.”
The feds package better be robust, experts warned, or the fallout from the shuttering of small businesses across the United States could have terrible consequences.
On the low end, tens of thousands of workers could be laid off, Greg Brown, director of the Kenan Institute of Private Enterprise at UNC, told reporters on Tuesday. But he added, “If we’re in lock-down for two months, which doesn’t seem unreasonable at this point based on the experience in Europe, I think it could be 100,000 to 200,000 [unemployed in North Carolina].”
That’s a number that would have seemed inconceivable weeks ago — before an outbreak of COVID-19, the disease caused by the novel coronavirus, ended an 11-year-old bull market for U.S. stocks. Now the Outer Banks are barring tourists and retailers and restaurants are making tough decisions — like Raleigh’s Hummingbird restaurant laying off 26 workers or Carrboro’s Neal’s Deli saying it will reduce hours and workforce.
The restaurant industry is “nearly impossible on a good day,” Coleen Speaks of Hummingbird told The News & Observer. “This is hitting us hardest and first.”
North Carolina has reported dozens of cases of COVID-19 and the fear is it could be about to get much worse as testing becomes more robust.
On Tuesday, The Washington Post reported that the White House was in favor of a $1 trillion package that would include direct cash payments to individuals and “support for small businesses and aid for the airline industry.”
Without drastic action, Treasury Secretary Steven Mnuchin warned Republican senators, the unemployment rate could balloon from 3.5% to 20%, Bloomberg and the Post reported.
Christian Lundblad, who teaches finance at UNC’s Kenan-Flager School of Business, said he hopes the government directly addresses the severe cash flow problems small businesses are now seeing.
“It’s not simply about just the airline industry or making sure that we jam liquidity through the banking system,” he said. “It has to be something that’s really targeted to the small business sector where we can find ways to extend credit or capital or something to help those guys manage working capital needs, which in large part are for payrolls.”
Brown concurred noting that these businesses are being shut down by the government and, as a result, are starving for cash.
Brown said that if there’s isn’t an emergency infusion of cash for small businesses over the next 30 to 60 days, they will begin folding “at no fault of their own ... and it could be permanently disruptive to the economy.” They will likely need more money in the medium term, he said, as the economy slides into a recession because of COVID-19.
That money could come in the form of accelerated U.S. Small Business Administration loans, he said. The SBA is a federal agency whose mission is to provide assistance to small businesses. The state is already waiting on a pending disaster declaration from the U.S. Small Business Administration (SBA), which could open up loans to affected businesses, The N&O reported.
If the government doesn’t get this right, said Ted Zoller, head of the Entrepreneurship Center at UNC-Chapel Hill, “It might be the end of front-facing retail.”
“We can’t dilly-dally on this matter. We have to move quickly,” he said in a phone interview. “Any retail besides a grocery store is a ghost town right now.”
Zoller said the government should extend larger unemployment benefits to laid off workers, including temporary health coverage. Additionally, he said, it should look at eviction protections for business that are shuttered and have lease payments and cash-flow relief through revolving credit without personal guarantees.
“If I was Gov. Cooper I would be talking to the regional bank leaders right now seeing what they could do to expand loans to small businesses,” he said.
Henry McKoy, director of entrepreneurship at North Carolina Central University, said the government shouldn’t just be putting loans on the table for small businesses. Rather, companies should be eligible for grants.
“The importance of the flexibility of grant versus loan,” McKoy said in an email, “is that taking on extreme debt can be overwhelming for a business. So, perhaps it would be best as a potential forgivable loan convert[ing] to a grant over time.”
Brown, of the Kenan Institute, said the focus should be placed on just households making less than $50,000 — many of which work in the industries being most directly affected by coronavirus closures. That is around 40% of households in the U.S., Brown estimated.
Giving that group $5,000 checks rather than more people $1,000 could be more impactful. That would cost “about $250 billion, which of course is a lot of money, but it’s it’s only a third of the numbers that are currently being discussed in terms of the overall size of a of a bailout package,” Brown said.
This story was produced with financial support from a coalition of partners led by Innovate Raleigh as part of an independent journalism fellowship program. The N&O maintains full editorial control of the work. Learn more; go to bit.ly/newsinnovate
This story was originally published March 18, 2020 at 7:58 AM.
