Early Pandemic Loans Bite in Sync With Inflation

(Photo credit: Marco Verch Professional Photographer/Flickr)

Sign up for smart news, insights, and analysis on the biggest financial stories of the day.

For small businesses, it’s out of the frying pan and into the fire.

Repayments on emergency Covid-19 loans issued by the Federal Reserve two years ago are starting to kick in and the timing for small business owners trying to navigate the current macroeconomic wasteland is, well, not great, according to The Wall Street Journal.

Paying the Piper

Designed to help small businesses to retain staff as lockdowns rocked the nation’s economy, the Paycheck Protection Program (PPP) was introduced under the Trump administration as part of its Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in April 2020. Separately, the Small Business Administration handed out Economic Injury Disaster Loans (EIDLs) to help tide businesses over. The PPP ended up giving out $800 billion in loans, while the SBA says it gave out $390 billion in EDILs.

With the economic strains of lockdown now a distant memory, businesses are now starting to pay back the loans — right as they face the possibility of a new recession:

  • An August survey from the National Restaurant Association revealed that while nearly 60% of all restaurants took PPP loans of some kind during the pandemic, only 23% believe they will be able to make their scheduled payments. A major reason might be found in the same survey, where 94% of respondents said their operating costs were higher than in 2019 and 65% claimed they were understaffed to meet demand.
  • The owner of a small ice cream chain told WSJ he had planned to pay back a $52,400 emergency covid loan on an accelerated schedule, but that plan has been scuppered by supply-chain issues. He has only managed to make one $100 repayment so far.

Office Space: As small businesses suffer, so too do their landlords. Small business network Alignable reported last month 37% of all US small businesses were unable to pay their rent in October. Small real-estate agencies mirrored that wider statistic, with 37% unable to pay rent on their own offices. Talk about the snake eating itself.