Inflation eases, but consumers, small businesses may not feel it
Small businesses are still struggling post-pandemic.
In addition to inflation and a looming recession, some businesses now have to start paying back loans they took out during the COVID pandemic.
At Teddy and the Bully Bar near downtown D.C., business post-pandemic has never been the same.
“I’m still climbing the hill,” said founder and owner of PRG Hospitality Alan Popovsky.
COVID closed two of Popovsky’s four restaurants.
Government loans saved the other two, but with city centers struggling to bring back traffic his revenue is still down more than 45% from pre-pandemic.
Popovsky says they’re struggling to stay open
And now, it’s time to pay back those loans.
“It’s very difficult. We just got overpaying back the landlord. You’re just a hamster spinning on a wheel,” he said.
At the start of COVID with business stalled, nearly 4 million small business owners took out what are called economic injury disaster loans, or EIDL loans, from the federal government. On average about $100,000 in many cases, just to stay afloat.
30 years with a fixed interest rate of 3.75%, and unlike some other pandemic programs, EIDL loans were expected to be paid back down the road.
Now, the first monthly payments are coming due.
Most businesses will owe money by the end of January.
“It’s daunting,” Popovsky said.
He says he owes more than$ 3,700 per month, roughly $780,000 in all. A lot of which he says he’s spent on rent and payroll.
“We can’t afford anything. But what we’re doing is we’re paying interest only right now,” he added.
So you haven’t made a dent on the actual loan?
“Have not made a dent on the principle,” he said.
A new survey from a leading Small Business Association found only 36% of its members have reached their pre-pandemic sales levels amid staffing shortages, supply chain issues and inflation.
Now add a possible looming recession just as these loans come due.
“It is one more cost that they’re going to have to deal with. Some small business owners, unfortunately, are going to struggle and kind of meeting those obligations,” said Executive Director of NFIB Research Center Holly Wade.
Lisa Klein says COVID is still keeping some clients away from her physical therapy practice making it tough to pay off her EIDL loan.
Nearly $1,000 each month with $80,000 to go.
“All the costs of everything have gone up. We can’t pay the staff what we’d like to pay the staff. The whole business is still suffering. And this is just kind of adding insult to injury,” said Klein, who owns Klein Integrative Physical Therapy.
The Small Business Administration says struggling businesses can declare hardship and make small partial payments in the coming months. But interest keeps accruing, forcing owners like Klein to weigh short-term protection against a big bill down the line.
“We have no choice because if we don’t keep paying it, it’s going to accrue more interest,” Klein said.
According to the Small Business Administration, borrowers are still responsible for repaying the loans, even if their business closes, unless the debt has been discharged in bankruptcy.