Storefronts on empty street

Small Businesses Need Rent Relief

4 min read • Apr 22, 2020 • Mary Kate Miller

When the coronavirus first began, the primary question was: how can the government incentivize small businesses to retain their employees despite the pandemic-caused economic downturn? To answer this question, the Paycheck Protection Program (PPP) was created under the CARES Act, providing billions of dollars in potentially forgivable loans, designed to help small businesses cover payroll costs. 

Once PPP loans began to roll out, the economic landscape had drastically changed. Retaining employees became a more complicated question—especially since many small businesses had already laid off employees so they could collect unemployment benefits through the forced businesses closures across America. 

Even businesses that have had to make the difficult choice to reduce staff are struggling financially, and it’s time we contend with the second major problem for small businesses: how can they continue to pay the rent? And more importantly, how can we prevent small businesses from being driven out of business if they can’t make rent payments due to forced closures?

Forgivable Use of PPP Loans For Rent Payments (Regardless of Loan Amount %)

Payments used for rent or mortgage interest (payments on the mortgage principal are excluded) over the first 8 weeks of a PPP loan term are eligible for loan forgiveness, but there’s a catch. Due to the extraordinary demand for the loans, it’s anticipated that 30% will be the maximum borrowers will be able to use on non-payroll related costs—rent, utilities, and mortgage interest—and have those payments forgiven. 

For larger small businesses with more employees, this ratio is easier to achieve. It’s more challenging for businesses with a smaller number of employees—and especially for self-employed individuals—to maintain that ratio.

Then you have the case of hospitality-based businesses like restaurants that have been forced to close their doors due to shelter-in-place orders. True, the PPP was designed to incentivize these restaurants to maintain their employees until they could reopen, but their financial challenges have mounted the longer they’ve remained closed. If restaurants are forced out of business because they can’t make rent payments, then there’s a 0% chance that they’ll be able to rehire employees when this is all over. 

Stimulus Checks for Business Rent Payments

Because of the unprecedented extent of the coronavirus crisis, the US government took the bold step of sending stimulus checks to every American who meets the requirements. That’s cash Americans can use to buy groceries, pay rent, and cover other costs—no questions asked. 

Providing small businesses with a similar style of stimulus check could give them the working capital they need to continue to meet their financial obligations in this time of uncertainty. 

A National Rent Freeze

Some experts have been calling for a national residential rent freeze since the crisis began. Establishing a freeze on rent and mortgage payments would relieve citizens of a substantial portion of their economic burden and prevent foreclosures and evictions (both of which are currently frozen in many areas) down the line. 

Including businesses in a national rent freeze could prevent mom-and-pop shops across the states from falling behind on rent payments until they are forced to close. Establishing a rent freeze of this style would be unprecedented and an enormous undertaking, but it could save many neighborhood small businesses. We would just need to take precautions to prevent major restaurant franchises from gaming the system, as we learned was possible with the first round of PPP loans. 

A New Government Loan Program Specifically Designed to Help Small Businesses Make the Rent

Since we’re in the realm of bold moves, the PPP was a great first step. But payroll isn’t the only challenge small businesses are facing, and they can’t take a holistic approach to tackling their financial woes through a payroll loan by itself. 

No, the PPP wasn’t designed to cover small business rent payments. The government could create a new loan program designed to help small businesses meet their space-related costs during this time of economic tumult. 

Allow Landlords to Write Off Rent Payments

At the very least, we can take steps to incentivize landlords to negotiate with small businesses on their rent payments. In the same way that small businesses needed incentives to retain employees, landlords need incentives to forgive rent payments or offer alternative repayment terms.

The bottom line is that small businesses shouldn’t be forced out of business by a global pandemic that was outside their control, but they might be. We should do everything in our power to prevent that from happening. 

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Mary Kate Miller

Mary Kate Miller is a writer based in Chicago, IL. She specializes in covering finance (personal and business), investing, and real estate. Her mission in life is to give readers the confidence and the knowledge needed to grow their wealth by making financial topics more accessible. When she's not writing about topics like business loans, you can find her playing armchair financial advisor to the Real Housewives.