Pandemic Closes Small Businesses, Stimulus Aid Recipients Struggle
This week, we talk about the small businesses facing bankruptcy after using all the government aid they received.
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Hi Dave! The Covid-19 pandemic has been affecting daily life in the U.S. for nearly nine months. Many small businesses have taken a hit, even after receiving aid from the government.
Yes, Maitane. A Wall Street Journal analysis recently found that about 300 companies that received as much as half a billion dollars in pandemic-related government loans have filed for bankruptcy. Many of them say the funds from the Paycheck Protection Program weren’t enough to keep them going amid the health crisis and the lack of additional stimulus payments.
The number of companies closing could be higher as the Journal analyzed only the big borrowers from the program, which accounted for just about 13.5% of the total participants. Also, instead of filing for bankruptcy, many small businesses simply liquidate when they run out of cash.
Among the hardest hit is the hospitality industry, as the pandemic has decimated travel for much of the year. Keith Clark, a business owner who had been running a wedding and events venue in Northern Virginia for 20 years, said he used a PPP loan to cover the salaries of his employees when the pandemic started. The revenue of his business fell 90% to $567,000 this year and he considered filing for bankruptcy, but as the coronavirus cases escalated over the summer he decided to shut down. He said he couldn’t envision a reopening.
Brick-and-mortar operations, like the one Mr. Clark ran, have been hurt because of the lack of in-person customers, but ecommerce seems to be accelerating. A recent McKinsey survey found that three out of four people have tried a new shopping method due to the health crisis, and that more than half of all consumers intend to continue using curbside pickup and grocery-delivery services after the pandemic is over.
Yes. Company executives expect these pandemic-driven changes in consumer behavior to continue after the crisis and are speeding up digital investments. Stefan Larsson, the president of Calvin Klein and Tommy Hilfiger parent PVH, says the company is building new data systems and warehouses as part of its bet on e-commerce.
That makes sense. Anything caught your attention on the stock markets lately, Dave?
Yes! Tesla will join the S&P 500 index of leading U.S. companies on Dec. 21 after posting a net profit for five consecutive quarters. Admission to the S&P 500 comes almost three months after the company first qualified to get a spot on the benchmark. S&P Dow Jones Indices says companies need to post a net profit for four quarters in a row to join the blue-chip index.
What am I looking at? The chart above shows the year-to-date stock performance of electric vehicle maker Tesla. Its shares jumped more than 14% in after-hours trading following news it would be included in the S&P 500. Joining the index, which contains heavyweights like Apple, Microsoft or Amazon, means that Tesla will be added to the portfolios of investors that have bought funds that track the returns of the S&P 500.Tesla’s huge market capitalization of $386.83 billion means S&P may need to add the stock in two tranches over two days. The funds may also be forced to sell billions of dollars of shares in other companies to make room for the EV maker. A company’s market capitalization is calculated by multiplying the number of shares outstanding by the price of a single share.
This is good news for those who see the future of cars as electric. Now let’s open it up to our readers: How is the pandemic affecting the small businesses in your area? Do you know of any local businesses that have been forced to close?
Share your thoughts below, email us or catch us on Twitter. Your words could appear in our next edition! Have a great week and remember to wash your hands. 👋
Meet the team:
Elevate the Conversation is produced by the editorial teams of The Wall Street Journal and Dow Jones Newswires. Here's a little bit more about us, along with our contact information. We'd love to hear from you.
Dieter Holger, Reporter: I have a knack for uncovering values-based investing trends and I’m obsessed with spreadsheets and charts. I really enjoy ‘80s music, skateboarding and yoga (but I’m bad at both). dieter.holger@wsj.com@dieterholger
Maitane Sardon, Reporter: I have a passion for amplifying the voices of those at the center of stories. I love running on Barcelona’s beaches and binging on chocolate ice-cream to compensate (it’s all about balance). maitane.sardon@wsj.com@sardonmaitane
Dave Sebastian, Reporter: I'm interested in covering the intersection of business and economic trends—and the people behind them. In my free time, I like to check out dim sum spots in New York, and I can't wait to venture out again after the pandemic. dave.sebastian@wsj.com@depsebastian
Catherine Lindsay, Editor: I like breaking down complex ideas and explaining them. On the weekend, you’ll find me wandering the city with my film camera at the ready. catherine.lindsay@wsj.com@CathsLindsay
Tammy Lian, Designer: As a visual producer, I'm always excited by the challenge of creative problem solving. In my spare time, you can usually find me taking care of my ever-growing collection of plants and drinking tea. tammy.lian@wsj.com@violian.tammy
Out in rural Virginia, the COVID crisis seems to be helping local wineries and craft breweries that can offer an outdoor space to gather. You practically need a reservation to get a table on weekends - a first. However, it remains to be seen if customers will continue to flock to the outdoor patios when the temperature drop.