Latest Relief Package May Not Save Some Small Businesses From Bankruptcy
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The $2 trillion spending package signed into law by President Trump at the end of December earmarked some $284 billion for businesses. That will come as a relief for many, but for thousands of small firms, it's too late. From our daily economics podcast, The Indicator from Planet Money, Stacey Vanek Smith and Brittany Cronin spoke to a business owner forced to file for bankruptcy because no one helped her with the one - with one of her biggest costs, her rent.
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BRITTANY CRONIN: Daniella Stromberg - she's the owner of d'mai Urban Spa in Brooklyn, N.Y. When she opened back in 2004, Daniella wanted to create a little oasis where you could come in, kick back and, you know, treat yourself.
STACEY VANEK SMITH: Yeah, spa.
CRONIN: And over the years, she developed a little community. Most of her customers were regulars, and many of her workers had been with her for more than a decade.
VANEK SMITH: Back in June, her spa was temporarily closed under New York shutdown orders. And Daniella suspected it would be months before she could open again.
DANIELLA STROMBERG: I kept waiting for our government to make a plan.
VANEK SMITH: After closing her spot in March, Daniella Stromberg went looking for help anywhere she could find it. She applied for one of the PPP loans from the government, and she was approved.
CRONIN: But those loans helped businesses cover payroll. And Daniella didn't just have payroll to worry about. She also had to pay rent, around $28,000 a month.
STROMBERG: I'm a day spa. I'm utterly vulnerable. So how would I then pay the full rent?
VANEK SMITH: Daniella returned to the one person who could really help her solve her rent problem, her landlord.
STROMBERG: I needed an exit strategy.
CRONIN: Then in July, Daniella caught a break. Governor Andrew Cuomo announced that New York City would enter phase three of reopening, which meant that spas could reopen.
VANEK SMITH: Daniella and her staff started coming early, staying late.
CRONIN: But the numbers just weren't adding up. Daniella could only open two of her seven treatment rooms because of social distancing. So even after reopening, Daniella's revenues were down 70% from the previous year.
VANEK SMITH: And then in September, Daniella received a final offer from her landlord. It was two months of half-off rent. And if she wanted an additional month at 50% off, she would have to sign five more years on to her lease.
STROMBERG: What did he think was happening in two months? Like, that's just magic thinking.
VANEK SMITH: Daniella was at the end of her rope. She told her landlord she would be out by the end of the month.
CRONIN: Daniella's spa is one of more than 100,000 small businesses estimated to have closed this year.
VANEK SMITH: When a business closes, it's still on the hook for the money it owes. Some business owners, like Daniella, file for bankruptcy as a way to deal with their outstanding debts.
CRONIN: Kate Waldock is an economist who specializes in corporate bankruptcy. She says when a business closes, it sets off a chain of reactions that ripples through the economy. First, the business owner stops paying their landlord.
KATE WALDOCK: Then the landlord isn't making any money. And chances are they probably can't lease that space to a new tenant, and so it's probably sitting empty. And so all of a sudden, the landlord can't make mortgage payments to the bank.
VANEK SMITH: When the virus is finally under control and businesses can start reopening again, Kate says it will take a lot of cash to jumpstart the economy.
CRONIN: But for Daniella Stromberg, it's just too late.
VANEK SMITH: Stacey Vanek-Smith.
CRONIN: Brittany Cronin, NPR News.
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