How COVID ‘Rescue’ Funds Are Mowing Down American Small Businesses

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Via the American Rescue Plan, Joe Biden and the current U.S. Congress are re-ordering the small business economy in America in a way they may not have thought through, and the consequences will reverberate throughout the economy for years to come.

Washington is about to replace most of the lost revenue of small businesses in a few select industries while leaving nearly all other small businesses hung out to dry. If you run a local movie theater, a live music venue, or a restaurant, you will be given a grant from Uncle Sam to help you build back after COVID-19. Yet hair and nail salons, independent bookstores, travel companies, junk haulers, business brokers, and countless other businesses are on their own.

The new Restaurant Revitalization Fund will replace a restaurant’s 2019 gross revenue in full — up to $10 million per business. There are, yes, a few caveats for affected owners to be aware of.

For one, the grants are limited to $5 million per restaurant location. Secondly, restaurant owners will need to subtract any revenue they earned in 2020 from the grant amount, as well as any Payroll Protection Program funds they received (although this may change). Overall, however, it’s a great deal and a needed lifeline for many restaurants.

The Shuttered Venue Operators Grant will replace 45 percent of a live performance venue’s gross 2019 revenue largely without the caveats above. This grant is for live music halls, movie theaters, museums, talent agents, and other types of live art presenters and promoters. Again, it’s a potential godsend for many of these folks.

Yet while these programs are essential, they are incredibly unfair to the rest of America’s millions of small businesses. For those not covered by those two programs, what’s being offered are loans that must be paid back with a lower limit than the gross income metric and slow underwriting — that is, if a business even has the savvy to get in on the Economic Injury Disaster Loan program.

My wife and I own a France-focused travel company named Link Paris. We’ve received some aid and are deeply grateful for it. After having our business shuttered for 15 months, however, it isn’t nearly enough. Our revenue remains down 99 percent since February of 2020 and we have no real timeline for when things will get back to “normal.” Indeed, who knows what international travel will even look like over the next few years?

That’s the issue here. Many businesses besides those in entertainment and dining have no idea what happens next. Some savvy — and understandably desperate — small business owners pivoted their businesses in an attempt to adapt to the pandemic, such as switching from selling traditional office supplies into selling COVID-19-related office equipment. Now, after spending huge sums on new inventory they must pivot once again as — at least in the United States — the COVID-19 threat (thankfully) fades.

Yet, as the Federal Reserve Bank of New York writes this week, “35 percent of [service] businesses that were active prior to the pandemic are still closed and most have been inactive for twenty weeks or longer.” They also noted that each week that goes by, the chance of a closed service business ever reopening decreases by 2 full percentage points. Washington knows what the problem is, but service businesses don’t have powerful lobbyists like the National Restaurant Association fighting on their behalf, as restaurants and entertainment venues do.

Celebrity chefs like Tom Colicchio, an early and ardent supporter of the Restaurant Revitalization Fund, did a great job exposing the country to the plight of restaurants during the lockdowns. Throughout 2020, local news stories frequently told the heartwrenching tales of bars or restaurants on the brink of going under.

The lobbying campaign was highly effective and bore fruit with the passage of the American Rescue Plan this winter. Yet, in hindsight, it missed the mark by not focusing on other industries as well.

Someday soon, we may see a scenario in which small business owners like myself and countless others will be in bankruptcy court while the local restaurant down the block will have been made whole by a huge federal grant. All things considered, it’s dangerous for the economy if Congress and the White House have chosen to pick winners and losers in this way. Surely, this is a mistake.

Washington needs to wake up to the catastrophe in the making here. The owner of the local nail salon has just as much right to not have her livelihood permanently taken from her due to COVID-19 as does the pizzeria or bar next door. Whether a business survives the COVID-19 tragedy shouldn’t be based on whether they have an influential and effective lobby like the National Restaurant Association standing beside them.

The solution is simple: Washington needs to make grant aid based primarily on revenue loss and not by industry sector. Congress and the Small Business Administration can fix this pretty quickly if they were motivated to. It’s the just and fair way to proceed, and the best thing for the macroeconomy in the long run.