How you can help small businesses impacted by COVID-19 - Bankrate.com

How you can help small businesses impacted by COVID-19 - Bankrate.com


How you can help small businesses impacted by COVID-19 - Bankrate.com

Posted: 06 Apr 2020 02:42 PM PDT

In the midst of the Coronavirus pandemic, small business owner Brittany Franey can be found standing in her driveway passing out food orders to the neighbors in her community, who along with the rest of the world, have been quarantining in their homes for the last several weeks.

Brittney and her husband, Craig, are part owners of FS Food Group in Charlotte, NC and, like many American business owners, were forced to quickly come up with a plan to keep their restaurants running and some of their staff employed.

So, each week, through their community Facebook page, they offer family dinner deals from one of the handful of restaurants the Franey's help to run and own.

"So many of our neighbors mentioned how much they love Midwood Smokehouse, and with the close-knit community we're in, we thought that if we just deliver the food to our community, they could just come pick it up," explained Craig Franey in an interview with Bankrate.

Despite the impressive ingenuity of the Franey's during this time, the impact to their business, along with millions of other small business owners and employees across the country, from COVID-19 is shocking.

According to the National Restaurant Association,"Since March 1, the industry has lost more than 3 million jobs and $25 billion in sales, and roughly 50% of restaurant operators anticipate having to lay off more people in April."

With more than 6.6 million people filing for first-time unemployment in the last week of March 2020, many Americans now find themselves at an unprecedented crossroad. In much of the nation, the immediate need to restructure business models to comply with varying shelter-in-place orders has pushed small business owners to try new ideas to keep their livelihood alive.

Today, many of us are personally and financially impacted by the shutdowns due to COVID-19. And, if you aren't personally impacted, odds are you know somebody who is. While we are all separated by social distancing measures, as a nation we are in this fight together. By remaining loyal to your favorite local shops and restaurants, you can help your community continue to thrive through times of hardship.

How you can help your local small businesses

Order Takeout

For many Americans, the front line in the fight against Coronavirus is taking place on the couch from the safety of our own home. As we all shelter in place to "flatten the curve," restaurants, small and large, are changing their entire business model to take-out or delivery only.

One simple way that you can help your favorite local restaurant is to order their food for delivery or curbside pickup. You can do this safely from your own home (either through a popular food delivery app or over the phone) and is vital to keeping local restaurants alive during a near nation-wide shutdown.

Ordering food delivery from local restaurants not only helps support small business owners but also allows them to keep more of their staff employed. According to The National Restaurant Association, by June 2020 anywhere from five to seven million restaurant workers could lose their jobs.

Harrowing statistics such as these highlight another way you can directly support local restaurants and their employees: tip a little more than usual.

Of course, ordering delivery or tipping extra is not possible for all Americans.  If you've been laid off or temporarily can't work due to the Coronavirus, then you understandably can't spend extra money on takeout and extra tips. But, if you're still employed, consider paying it forward to the millions of Americans who don't have the same options.

It's not just more costly for the customer. According to Craig, the change to their business has added roughly 10 percent to their overhead cost. He explained, "There is a higher overhead cost to run our business differently, but we're not passing the cost off to the customer, so we're having to suck up the additional cost to keep the business afloat during this time."

If you're interested in ordering more takeout to support your favorite local restaurant and want to earn rewards in the process, here's our picks for the best credit cards to use for food purchases.

Order Online

If your favorite local business is a shop rather than a restaurant, you may wonder how you can help them while stuck at home. A simple way you can do this is to shop at your local store online as you normally would at their brick-and-mortar location.

While it may seem easier to just click that two-day delivery option on Amazon Prime, consider taking a moment to search online for the same item from a local retailer.

If the shop does not have an existing online platform, think about reaching out to them to see how they are continuing to conduct business during the coronavirus lockdown. Many small businesses are transferring their sales to online marketplaces like Etsy and Facebook Marketplace if they don't have an existing website.

Buy Gift Cards

If you can't shop with your local store or restaurant online, then consider purchasing a gift card from a small business to help boost their immediate cash flow. A gift card is a great way to help local businesses now and you will have the added benefit of being able to use it down the road when life has returned to normal.

If you are purchasing the gift card with a credit card, it is important to know that the rewards you earn on the purchase will reflect where you bought the gift card. For example, if you buy a gift card to a local restaurant, it will count as a restaurant rewards point (if your card offers them). But, if you are looking to score some restaurant rewards points and you buy, say, an Olive Garden gift card from a grocery store, it will count as a grocery purchase on your credit card, not a restaurant purchase.

Consider continuing to pay (even if services are temporarily unavailable)

If you typically pay a business monthly or even weekly (such as a local gym, personal trainer, or home cleaning service) consider still paying them as if you were using the service.

Again, if you are in a tough financial situation, this may not be possible. But, if you have the means, consider the fact that canceling your payment for a personal training session or home cleaning may take away the only income that the contractor in question receives.

Continuing to pay workers who depend on hourly commission is a direct way that you can impact and aid individuals and small businesses during shutdowns because of the Coronavirus.

Final Thoughts

As we all continue to adapt to a new reality, the best way that we can keep ourselves safe and support small businesses is to consciously shop local (online or over the phone) when possible.

Yes, it may not always be the most convenient — you might have to wait a little longer or pay a little more than you would at a big-box retailer. But, as the country struggles to overcome a once-in-a-century pandemic, practicing patience and empathy and support towards our neighbors is paramount to our recovery as a nation. A decision as small as purchasing a gift card from your favorite local restaurant could make all the difference to the owners of the restaurant and the employees who count on them for income.

For more information, visit the United States Chamber of Commerce guide for small businesses during the Coronavirus outbreak.

Record government and corporate debt risks ‘tipping point’ after pandemic passes - The Washington Post

Posted: 18 Apr 2020 03:08 PM PDT

Business borrowing also is setting records. Giant corporations such as ExxonMobil and Walgreens, which binged on debt over the past decade, now are exhausting their credit lines and tapping bondholders for even more cash.

To support such borrowing, the Federal Reserve has dropped interest rates to zero and added more than $2 trillion of loans to its portfolio in the past six weeks — as much as in the four years following the Great Recession.

All this borrowing is required to plug the gaping hole the novel coronavirus has punched in the economy, as unemployment reaches levels not seen since the Great Depression. Few, if any, prominent economists or lawmakers opposed opening the government's fiscal taps amid the current economic emergency. The Senate last month approved $2 trillion of crisis spending with a vote of 96 to 0.

Yet high debt loads already are straining many corporations, which may be forced to choose between skipping loan payments and laying off workers. Millions of consumers, too, face sizable monthly bills for student loans and credit cards, a burden that could weigh on any economic rebound.

The reliance on so much debt also will leave scars after the pandemic passes, economists say, making it difficult for policymakers to withdraw support and leaving the economy more vulnerable than before this crisis began.

"We should be very worried," said Atif Mian, an economics professor at Princeton University who has written widely on the subject. "We are talking about a level of debt that would certainly be unprecedented in modern history or in history, period. We are definitely at a tipping point."

On the eve of the pandemic, the U.S. economy was humming, thanks in part to a jolt from the 2017 tax cut and the subsequent end of congressional spending limits. But Congress took those actions without any plans to pay for them.

Governments and companies often turn to lenders during times of unexpected duress. This new wave is different because it follows an era of heavy borrowing.

For President Trump, debt is a familiar tool. The former real estate executive once bragged that he was "the king of debt" and suggested haggling with holders of U.S. Treasurys over repayment terms using hardball techniques he had honed in the business world.

Treasury Secretary Steven Mnuchin said last month that the government must spend freely to help workers and businesses hurt by official shutdown edicts. "Interest rates are incredibly low, so there's very little cost of borrowing this money," he told reporters. "In different times, we'll fix the deficit. This is not the time to worry about it."

Some argue that even more spending is needed to save the economy. Economist Joseph Stiglitz, a Nobel laureate, says the government should guarantee workers' pay and forbid evictions or foreclosures. Larry Fink, the chief executive of BlackRock, a New York-based investment firm, told CNBC last week that an additional $1 trillion may be needed for small businesses.

But once the coronavirus has been tamed and the country regains its swagger, U.S. leaders will need to find an exit from the extraordinary levels of government borrowing.

Building a consensus for the blend of tax increases and spending cuts needed to shrink the mammoth post-crisis debt will be tough to manage. Neither political party emphasized spending limits in recent years. And the presumptive Democratic nominee for president, former vice president Joe Biden, proposed relatively modest tax increases compared with his former rivals. Republicans, meanwhile, reflexively oppose tax hikes.

The Fed, likewise, will face difficulty extricating the economy from today's elevated levels of financial support. The Fed had only partial success in unwinding its efforts to buttress the economy after the 2008-2009 crisis before the pandemic drew it back into an emergency posture.

Economists typically worry that excessive debt could lead to a crisis triggered by investors suddenly concluding that they will not be paid their promised returns and starting a fire sale of government securities, causing interest rates and inflation to soar. That scenario has afflicted numerous smaller economies. But such an outcome seems less likely for the United States, given the primacy of the dollar in the world economy and the country's long track record of relative economic stability.

Still, for four decades, the U.S. economy has grown steadily more addicted to borrowed money. Total government, business and household debt now exceeds 250 percent of annual output, three-quarters greater than in 1980, according to government statistics.

To Mian, the author of "House of Debt," which examined the role of household debt in the 2008-2009 financial crisis, the U.S. debt burden will reshape the economy in subtle but powerful ways.

An era of perpetually ultralow interest rates distorts the economy by eliminating the traditional market discipline that discriminates between worthy investments and unprofitable ones. If money is virtually "free" for many years — as it has been since 2008 — even bad ideas can attract financing.

As the United States once again turns to debt to rescue the economy, it is locking in a future of lower growth. The national credit card is being used largely to stop today's financial bleeding, rather than for investments — in the medical system, infrastructure and education — that would boost future growth.

Japan has been stuck in an endless loop of disappointing growth, low interest rates and mounting debt, and the United States could face a similar future.

The United States is ensnared in a "debt trap," Mian said.

In the aftermath of the Great Recession, government debt exploded as the United States ran annual trillion-dollar budget deficits for four years through 2012. But even before robust growth returned, Washington embarked on spending cuts and tax increases that cut the deficit starting in 2013.

This year, the deficit will reach a postwar peak of 18.7 percent, according to the nonpartisan Committee for a Responsible Federal Budget. Only when the United States fought Nazi Germany was Washington bathed in more red ink.

Even budget hawks who warned for years that Washington was courting financial calamity with its unbridled spending concede that the pandemic requires high levels of government borrowing. And indeed, there is almost universal support for the $2 trillion financial rescue package President Trump signed last month with the aim of saving the economy from depression.

But the pandemic's costs are only beginning. House Democrats are negotiating with the Treasury's Mnuchin over an additional $250 billion of loans for small businesses as well as $150 billion more for hospitals and state and local governments.

By the end of September, the public debt will be larger than the $21 trillion economy, according to CRFB calculations. The recession's impact will push the debt past the previous record of 106 percent of the economy, set in 1946.

Today's low interest rates make the massive federal debt relatively affordable. The government pays less than 1 percent interest to raise money by selling Treasury securities to investors.

But Torsten Slok, the chief economist at Deutsche Bank Securities, says that interest rates are being kept low only by massive purchases that the Fed began last month to settle markets unhinged by the pandemic.

In March, to smooth out dysfunctional trading, the Fed began buying $75 billion worth of government bonds every day.

The Fed has cut back to daily purchases of $30 billion, but that is still a staggering amount of central bank support. At the peak of the Fed's controversial crisis-fighting efforts in 2010, it was purchasing only $110 billion of government securities each month.

Today, it buys that much in less than four days.

The Fed wants to avoid compromising its traditional independence by financing limitless government spending. Running the monetary printing press at the behest of politicians historically has been a recipe for financial crisis in multiple countries.

The central bank's desire to bring an early end to its unusual market role may collide with the Treasury Department's need to sell an unprecedented amount of government bonds to raise money for anti-pandemic spending.

"Who's going to buy all these Treasurys? Foreigners? Private investors?" Slok asked. "It all adds up to supply growing at levels we have never, ever seen before."

Such worries are exaggerated, according to Guy Lebas, the chief fixed-income strategist with Janney Montgomery Scott.

"The point at which the size of the U.S. debt is too great for the market to take on is eons away," he said. "If anything, the covid crisis has increased global demand for U.S. debt."

Most economists expect inflation and interest rates to remain low for years. But they could be wrong. Rising public debt is "the most important predictor" of future crises, including defaults, sudden increases in borrowing costs or runaway inflation, according to a January study by four economists at the International Monetary Fund.

"Governments should be wary of high public debt even when borrowing costs seem low," the study concluded.

For scores of companies that borrowed heavily in recent years, the pandemic is raising borrowing costs just as a fierce economic downturn obliterates their earnings and imperils their ability to repay their debts.

Total business debt topped $16 trillion last year. As the Fed reduced interest rates to zero in 2008 and kept them there for several years, companies took on more and more debt, including to buy back their own stock and raise shareholder dividends.

In recent weeks, corporations have drawn more than $200 billion from their standing credit lines. JPMorgan Chase alone has provided $50 billion to corporate borrowers via revolving credit lines and in March extended $25 billion of new credit.

"This already dramatically exceeds what happened in the global financial crisis," Jamie Dimon, JPMorgan's chief executive, wrote in his annual shareholder letter.

In a survey of top banks' corporate loan portfolio managers, 60 percent said they expected borrowing costs to continue rising for many companies over the next three months. And 90 percent said they expected more corporate borrowers to default, according to the International Association of Credit Portfolio Managers.

"People believe credit risk is going way up," said Som-Lok Leung, the executive director of the industry group.

Likewise, with almost all Americans covered by mandatory government stay-at-home orders, the economy is in free fall. Earnings for oil and gas companies could be cut in half, according to Capital Economics, a London-based investment analysis firm.

The grim outlook already has prompted layoffs at companies such as Halliburton and Apache.

Investors, meanwhile, are starting to worry that prominent companies such as Ford and Delta Air Lines may struggle to repay their debts.

The number of companies in danger of having their credit rating lowered is at a 10-year high, according to S&P Global Ratings. Among the companies drawing greater scrutiny are Chevron, Honda and the Walt Disney Co.

For now, American consumers — whose borrowing played such a critical role in the 2008 crisis — have mostly been affected by job losses, furloughs and wage cuts, not debt.

While household debt hit a record $16.1 trillion last year, it remains much smaller relative to the economy than in 2008.

But those statistics mask underlying vulnerabilities. Even as the majority of Americans firmed up their financial position, 40 percent — nearly 50 million households — have fallen further into debt since the financial crisis, according to Moody's Investors Service.

The most indebted households also are likely to have family members lose their jobs in the wave of unemployment that's washing over the economy, according to Asti Sheth, Moody's managing director for credit strategy. The nation's four largest banks have set aside so far this year more than $18 billion to cover their anticipated losses on consumer and other loans, a level of reserves not seen since the 2009 financial crisis.

"The distribution of debt and income is uneven," Sheth said. "And that is something we're watching."

Congress has granted some mortgage relief, and Trump has suspended student loan payments for most borrowers through Sept. 30. But that won't be enough to avoid a debt-driven economic spiral, according to Tomasz Piskorski, an economist at Columbia Business School.

A severe recession that drove the unemployment rate to 30 percent would send nearly one-third of mortgages into default and lead to 1½ times as many foreclosures as occurred after the housing bubble collapsed.

"In a few months, the recovery will not be there," Piskorski said. "And these households will be saddled with very high debts, and they won't have jobs, and they will start to default."

Own A Small Business During COVID-19? This Social Venture Can Help - Forbes

Posted: 04 Apr 2020 05:02 PM PDT

GIFTforward is a social tech venture helping restaurants and other small businesses through the coronavirus-induced shutdown. GIFTforward began with a group of Toronto-based entrepreneurs looking to support independent businesses and assist struggling owners. Rahim Noormohamed, who is currently pursuing an MBA at Harvard Business School, is one of the founders. 

Aswin Pranam: What was the mission and purpose behind GIFTforward

Rahim Noormohamed: We started GIFTforward to help independent businesses survive the economic impact from the COVID-19 shutdown. Many small businesses and restaurants, in particular, are hit extremely hard right now. Due to the shutdown, many have zero revenue but still have bills to pay and people to employ. Our mission is to help these businesses make it through this crisis by selling gift cards. 

Today In: AI

Pranam: Describe the team composition. What brought you all together for this cause? 

Noormohamed: This started with a dinner that two friends had in Toronto before the shutdown. They noticed the restaurant was emptier than usual and that it was going to be like that for some time. They started brainstorming solutions and came up with the idea of gift cards. It evolved quickly from there, and I got pulled in a couple of days after that initial conversation. Our core team includes a handful of entrepreneurs from Toronto with a background in restaurant management, business, law, and more. Most of us didn't know each other before this project and have never met in person. Several additional team members are leading our upcoming launches in new cities like Sydney, Los Angeles, Boston, and more. What's common about all of us is that this is no one's full-time job, but we're all passionate about doing whatever we can to help. GIFTforward is a massive team effort, and everyone's help so far has been invaluable.

Pranam: What types of businesses are you targeting with the solution? 

Noormohamed: We started with restaurants because they're already feeling the pain – in good times, margins are thin (5-10%); in a shutdown, they're catastrophic. We are focusing on smaller, independent restaurants because they often don't have the resources or the know-how to sell gift cards online themselves. They are also less likely to have access to a large rainy-day fund and need help urgently. We know there are many other types of small businesses that can't sell online (e.g., fitness studios, barbershops, nail salons) and are working on how to support them best. 

Pranam: Why are gift cards the best method to help struggling businesses? 

Noormohamed: The problem facing restaurants and other small businesses is a CASH problem. They need cash today to help pay bills since they're not selling any food. Buying a gift card puts money in the hands of a small business immediately. Our gift cards are redeemable after the shutdown, meaning the restaurants are essentially receiving a loan – repayable in food. Paying back loans in food is a much better option for a restaurant than trying to pay back loans in cash, given how tight their standard margins are. To learn more on why gift cards are the best method to help businesses, read our post.

MediumWhy are gift cards the solution?

Pranam: What geographic areas are you currently serving?  

Noormohamed: We are currently operating in Toronto (with more than 40 restaurants/businesses signed up). We have restaurants excited about joining our platform in Sydney, Los Angeles, and Boston, and we expect to launch in these locations soon. We have folks interested in helping out in other geographies as well – and this is a global problem. If anyone is interested in helping us launch in a new city, please reach out!

Pranam: What businesses have you helped so far with GIFTforward

Noormohamed: We have more than 40+ restaurants and small businesses on our platform already and have sold greater than $10,000+ in gift cards since we launched just over a week ago. Restaurants on our platform include Rasa, Fresh, The Good Son, Montecito, Sara, Il Covo, and many more. 

Pranam: What is the business model? Is there a profit incentive?

Noormohamed: We are a social-good venture – we don't make money. Right now, we don't charge any fees at all – every dollar spent on a gift card goes directly to a restaurant or small business thanks to a partnership with Stripe, who has waived credit card processing fees. Eventually, we may have to pass the transaction cost to the restaurant. There's no profit involved in this venture; we're just trying to help some of the hardest-hit businesses at a difficult time. 

Pranam: Do you have plans to continue operating after COVID-19 resolves? If so, what will be the primary focus? 

Noormohamed: We don't have any plans beyond making sure that our customers have the support they need from us to redeem their gift cards. GIFTforward is an initiative to help out in a time of need, so we don't see a future past this crisis.

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