Into the Survival of Main Street
Governor Andrew Cuomo: Yeah, small business is important.
Trymaine Lee: Small businesses.
Gretchen Morgenson: Trymaine, small businesses are really what I call the backbone of the United States economy.
Lee: Being a small business owner, it means you get to be your own boss. You get to call the shots.
Morgenson: They employ almost 59 million people across the nation. And, of course, they're sort of the ideal of the American dream. You know, get off on your own, start your own business.
Lee: In your mind's eye, you can see it, right? The burger joints and barber shops where people gather in small towns and big cities. The hardware stores and corner markets that have served a neighborhood for generations. The new ventures that hold someone's dreams and their life savings. They're all integral to the fabric of our community, and they matter.
Morgenson: They're really crucial though to our economy because they employ so many people.
Lee: Politicians love to rally behind small businesses, touting their support for the little guy.
President George W. Bush: Every day ought to be small business day (APPLAUSE) in America.
President Barack Obama: They are the anchors of our Main Streets.
President Donald Trump: Main Street is the heart of our economy, the soul of our community, and the birthplace of American dreams.
Lee: But when things go south?
Morgenson: The problem is that when they get into trouble, that causes a vast ripple effect across the entire nation.
Lee: Gretchen Morgenson is a senior financial reporter with NBC News. She's covered banks and business from pretty much every angle and even won a Pulitzer for her reporting on Wall Street in 2002 with the New York Times. When it comes to booms and busts, Gretchen has seen it all, until there was a pandemic.
Archival Recording: More small businesses crushed by coronavirus.
Archival Recording: The head of the Small Business Association says every hour another small business is closing.
Archival Recording: Many owners no longer wondering if they'll close, but when.
Lee: Right now, millions of small business owners are struggling to stay afloat. It's reminding Gretchen of the country's last big economic collapse in 2008, with a key difference.
Morgenson: They're not too big to fail. So unlike the big banks that got into trouble making loans during the mortgage crisis, small businesses really aren't rescued when it comes time for problems.
Lee: And this crisis might be more than they can handle. (MUSIC)
Morgenson: My concern is that this unexpected health emergency, this thing that nobody saw coming will really be kind of the last nail in the coffin for Main Street.
Lee: I'm Trymaine Lee. This is Into America. And today, we're headed to Main Street, USA to ask a single question: Can small businesses survive coronavirus?
Andrew Gaouette: I feel like I'm on a desert island. I don't know if help is coming. There's no way to communicate to find out what's going on. And it's just I gotta wait and see.
Lee: 33-year-old Andrew Gaouette owned three pet supply stores spread across southeastern Massachusetts. He's got a couple turtles, a snake, and two dogs.
Gaouette: I have a Boston terrier, and the other one's a pit bull. The little Boston terrier's the boss of all of ''em. Fanny. Who's a good boy?
Lee: Andrew opened the first door in 2017.
Gaouette: And we've already built it up to a three-location business, one in Medfield, the other one in Plainville, and the other one in Wrentham. My interest in general ever since growin' up was with animals, and pets. And tryin' to keep that goin' and gettin' into a business doin' that was my dream from the beginning.
Lee: Gretchen had a chance to talk with Andrew last week.
Morgenson: He's sort of the prototypical small business owner in America. He runs three successful pet supply shops in southeastern Massachusetts called Mutt Waggin'. He was wearing a tie-dye Mutt Waggin' brand T-shirt, which was really cute. He generally has about five full-time employees. And he's just got an interesting story to tell.
Gaouette: So I've been in the pet industry since I had turned 18. I got a job as a vet assistant. And then I had gotten a job, full-time work, helpin' to manage a Petco for four years. Went back into the pet business workin' for another local smaller chain. And I came across a woman in Medfield who was selling her business. So I decided to get into that space and take it over.
Morgenson: Now, this business, he told me, is his only source of income for him and his family. And it could not be clearer that this is what he wants to do with his life. He's poured his heart and soul into it. What was the feeling when you got into business on your own? What were your hopes? How was it different?
Gaouette: When I first got into the business, I was happy to be able to be in it, to be able to have control over what products I wanted to sell, what direction I wanted to go into. I absolutely loved it. That was definitely my passion from the front. Buildin' up a business, I knew I wanted to be more than a regular one-location store, but I didn't want to be like a big franchise.
I don't want to have my customer service skills get watered down. I wanted to be able to focus, know who my customers are, remember what they bought last time they came in. Things like that that you're not gonna see when you go into a local Petco, PetSmart, or any big corporate company.
Lee: So if this is his only source of income, how is he funding his business?
Morgenson: Well, like a lot of small business owners, he originally went to try to get funding from a local bank. And he just did not have any success.
Gaouette: So initially, I went to my personal bank to try and get a business loan. My experiences right now is a lot of places for business loans won't even listen to you unless you've been in business for at least five years. The loan that I was able to take out personally was for about $15,000, which was enough to kinda get the space set up, to put the deposit down, to get the utilities turned on, and to start up with a little bit of inventory. I actually took money and used some of the my credit cards, my personal credit cards for it.
Lee: And is that typical, a typical experience for small business owners who are doing what they can to make as much profit and revenue to stay sustainable? Is it tough for them to actually secure these loans?
Morgenson: You know, Trymaine, it's interesting. It didn't used to be as difficult as it is now. But after the mortgage crisis of 2008, banks really have withdrawn from the small business lending market.
Lee: We're not going to rehash the whole 2008 subprime mortgage crisis here. But it's important to note that economic collapse was tied to loose banking regulations and predatory lending practices. Back then, Congress spent $700 billion to bail out the banks. The next year, the unemployment rate peaked at 10%, the highest in nearly 30 years. Our economy spent the next decade recovering. The economy implodes in 2008. How did that kinda shape and shift the groundwork that we're seeing playing out today?
Morgenson: After the mortgage crisis of 2008, banks really had a tougher time lending because they had to follow more rules. So tightened-up lending meant, you know, more work to be done on each loan. And it just made more sense for them monetarily and from a profitability standpoint to focus on bigger companies, bigger loans, bigger profits. So small business owners have really left out in the cold.
Lee: So if these small businesses aren't getting the same kind of funding as the big boys, how have they kept afloat? How are they getting sources of money to provide support for their businesses?
Morgenson: Well, a lot of them go to sources that are alternatives to banks. They also call them non-banks. So online lenders. These are companies that are maybe financial technology firms that have really moved in to fill the vacuum. These are companies that don't have bank charters. They are not regulated. And so they can find money from investors, and they can use that to loan out to the small businesses.
These fintech companies, as they're called, pride themselves on being able to turn around loans quickly because they have technology advances at work. And so that's really where the pickup has been, these online lenders. And the unfortunate outcome is that small businesses wind up paying enormous interest rates.
They can wind up really, really under the gun if they do get involved with some of these lenders. Now, obviously that's not all of the players by any means. But the fact that there is no regulation really does allow this whole arena to be something of a Wild West.
Lee: So does Andy use any of these online lenders?
Morgenson: As a matter of fact, he does.
Gaouette: Any loans that I have taken since then to help grow the business have been through our point of sale, which we use Square as our point of sale.
Morgenson: Consumers know Square when they go into their local coffee shop and pay for their latte.
Gaouette: Basically handle all the credit card processing and all that. After you have business with them for a certain amount of time and you have a certain amount of sales within a year, they allow you to take out a portion of the money.
Morgenson: The setup is something like this. Square will loan him money. And in exchange, Andy will allow Square to withdraw from his bank account automatically at set periods of time 10% of his daily sales, okay? So Square understands that it's gonna get its money back. And basically this is the best way that Andy has to be able to get access to money. So it works for both of them. And this is something that while there are fees involved, it is not an excessively high interest rate for Andy.
Lee: How was Andy doing before the outbreak of the coronavirus?
Morgenson: Well, you know, only a third of small businesses make it past 10 years. And Andy was on his way to beating the curve.
Gaouette: The business was doing great. We built up three locations in three years. A lot of our growth was from customers, word of mouth from customers.
Morgenson: And so you were growing confident. Goin' out on your own is kind of a risky thing, and you were feeling pretty good about it, it sounds like.
Gaouette: Oh, definitely.
Lee: When did Andy first realize that things were going to change for his business?
Morgenson: Well, I think like most of us, he realized things were getting bad in March.
Gaouette: Once they had announced just over a month ago that all non-essential businesses were gonna close and people were advised to stay home, we knew we were gonna take a hit.
Morgenson: Within the next few weeks in April, Andy said that his sales dropped by 60%.
Gaouette: So that's a difference of about $40,000.
Morgenson: How many employees do you have at the moment? Full-time, part-time?
Gaouette: Normally, we have five. We did have to let two full-timers go with the closure of our Wrentham location because it was inside of a mall outlet. When they made the decision last month to close all non-essential businesses, that was one of the businesses that we had to close down. So I haven't paid myself in over a month. I haven't personally taken any money from the business. I had some money saved up. I was lucky enough to get the stimulus check, which is gonna hold me over until whenever I know I'm gettin' money again.
Lee: In a way, Andy's lucky. In Massachusetts, pet supply stores that sell food are considered to provide COVID-19 essential services. So they can stay open.
Morgenson: Yes, he has two stores that are open. And he's, you know, encouraging people to come in, to call with questions, giving advice, et cetera, telling them they can pick up their deliveries.
Gaouette: People are thankful that we can just, you know, help get them treats, and chews, and toys to help keep their dogs busy while they're workin' from home and doin' everything that they have to do to continue with their life.
Morgenson: So, yes, he is still operating but at a much reduced rate.
Lee: And he still has that loan from Square. Square says in some cases they're deferring minimum payments on loans for their customers. But Andy told us he's still making payments.
Gaouette: Even now with the pandemic that's goin' on, even though I still have that one store closed down, they're still takin' out that 10%.
Morgenson: So, you know, the amount that he owes to Square stays the same. So it will simply keep the loan outstanding probably a lot longer than he had hoped.
Lee: After the break, what are the options for small business owners like Andy? And will the relief offered by the federal government be enough? Stick with us.
Lee: So when we left off with Andy, he was in financial trouble. What's he doin' to get through it?
Morgenson: Well, he is trying to get new loans and fresh money as best he can.
Gaouette: I've tried doin' TD Bank for both, for a business loan and a personal loan.
Morgenson: Unfortunately, he's been turned down by the banks.
Gaouette: The only thing that I've been able to do is get onto Fundbox, which has allowed me to borrow $700.
Morgenson: He did get a small loan from a fintech.
Gaouette: Which I have to stop payin' that back weekly.
Morgenson: He also had a tough time with the Paycheck Protection Program.
Lee: People might have heard of the PPP, and they might know that's a big, big pot of money. But can you kinda explain what the PPP is and how it actually works?
Morgenson: Sure. Well, the PPP stands for Paycheck Protection Program, put forward by the government to help small businesses get through this period, this troubled period. And so there was an original $349 billion worth of money that the government set aside that was to be set out as loans for small businesses.
The loans are actually forgivable, meaning that they would not have to pay them back, if they put 75% of the proceeds towards keeping payroll, keeping their employees on hand. If they do pay them back, the interest rate is 1% over two years. So it's very low cost. And these loans are arranged by banks that work with the Small Business Administration. So a lot of people were very eager to get these loans because the possibility for them to really be a forgivable loan was very, very high and very appealing.
Lee: You know, when we hear numbers like $340 billion, those are gargantuan numbers that it's hard for me at least to wrap my mind around. Has the government ever rolled out a program of this size or magnitude before?
Morgenson: The government has not rolled out a program like this specifically for small businesses. And the problems were that it was sort of changing the rules as it went. It announced the program on April 3rd and then sort of began also changing it periodically. Banks were trying to set up their systems so that they could facilitate these loans. So there were a lot of moving parts, Trymaine. And honestly, it didn't go smoothly.
Gaouette: And on the first day of them taking applications in, previous to that I had contacted my personal bank, which is a smaller credit union in the area, to see if they were part of the program. And they told me that they weren't and that I would have to go through the bank that I have my business account with.
Morgenson: Andy, of course, tried to get a piece of it, unsuccessfully.
Gaouette: So I contacted my bank that I have my business account with, and they told me that they weren't a part of the program. So I had heard from somebody else that they had gone through TD Bank. So I had put in an application through TD Bank, and they told me that because I didn't have a business account with them that they wouldn't be able to process it for me.
Morgenson: And so that's when he started to, you know, seek help from some of the other fintech companies that are out there.
Gaouette: Since then, I have applied for Kabbage.com, which took my application. And then also PayPal also took my application.
Lee: Online lenders lobbied the government to become part of the emergency lending program. And while they typically aren't regulated, if they want to participate in the PPP, they have to follow the government's 1% interest rate.
Morgenson: Small Business Administration requires that any lender that works with it be an approved lender. So online lenders for the most part are not. Now, some of them have become approved lenders as a result of this program. That would include PayPal was an early on. Kabbage is another. But for the most part, they are not approved lenders under SBA. And so what they would do would be to forward your loan application to a bank that is an approved lender.
Gaouette: I filled out five applications for the PPP loan program, and I have not heard from any of those companies whether or not it's pending, whether or not it went through, whether or not I got denied. I don't know if it's coming, if it's not, if it's stuck, if I need to do anything. There's no communication whatsoever.
Morgenson: But basically this $349 billion ran out in less than two weeks, Trymaine. That's how much interest there was in this.
Lee: Two weeks, and it was done.
Morgenson: Two weeks, and it was done.
Lee: Seeing all that money gone so quickly was hard for small business owners who didn't get a piece of it. But there was something else, too. The government made PPP loans available to companies with up to 500 employees. And that meant some organizations that might be considered pretty big and powerful got a slice of the pie.
More than a dozen companies, like the Lakers and Potbelly Sandwiches, returned the money after public outcry. But others have said, "Nah, we're keepin' it." So I would imagine some of that frustration is being a small business owner like Andy and seeing the big corporations, the big companies with hundred of employees gobbling up all of this money. But did he talk about that at all, that feeling of frustration as a small fish in this big pond?
Morgenson: He did. And, Trymaine, that's an excellent point you brought up. The fact is a lot of companies that are very big and that have access to wealthy investors in the stock market, a lot of those companies applied and got PPP money. And this is becoming more and more of an issue and a criticism of the program.
So, you know, we had report on NBC News where there were, for instance, companies with market values of over $100 million that were getting loans under the PPP program. We have situations where companies that have ties to the Trump administration were getting loans under the PPP program.
We had situations where companies with connections to banks that made them a loan are getting part of that money. So unfortunately there is a lot of room for mischief. And so when you see stories like that and when Andy sees stories like that, you can be sure that it doesn't make him feel any better about not having gotten any of this money.
Gaouette: It's very frustrating when you have stores like me, and I know I'm not the only one. There's thousands of other smaller stores out there that are just looking for $10,000, $15,000 just to get through. And just to hear that there are companies taking $20 million out, it's very frustrating.
Lee: Last week, Congress approved more money for the PPP loans. Is there any chance that any of that money could make its way to Andy?
Morgenson: You know, Andy is hopeful. Banks are again of course expecting this big pool of money to go very quickly. It's gonna be drained pretty fast. His applications, he told us, are still pending. And he's waiting to see. Now, one thing that may be better about this round of help is that there is a slug of it that is dedicated to small, tiny banks in areas that are very, very impoverished. And so we might see this time around a few more small business lenders in those kinds of areas getting money out of this program.
Lee: So without this money, this influx of money and this loan, what does Andy make of his chances just to survive?
Morgenson: Well, he of course is struggling to pay his bills and his rent. You know, most small businesses work on a shoestring. They pour everything into the business, and they don't have a big cushion. He's typical in that regard.
Gaouette: I'm still gettin' three phone calls a day from my credit card company, Citi, Chase, Discover. We're still gettin' our gas bills in. Our rent still has to get paid, even though, again, our sales are in the crapper. As the agreement is right now, I have to pay at least half of our rent for the next couple months and then have the rest of the rent paid up and up to date by December. Another thing that we gotta worry about is even if they turn around and open up the economy tomorrow, you're gonna still have a large group of the population that's not gonna wanna go out, that's not gonna risk gettin' sick.
Morgenson: He's hoping that it turns out to be sort of back to the way it was. But that's a question, certainly, in his mind right now.
Gaouette: I think it's gonna be a struggle to try and get it to at least the same level. I think moving forward, working on the online store, doin' delivery, doin' what we can, kinda have to go that way anyways 'cause I know there's a lotta people that still are gonna have that stigma about going outside, bein' around other people, and such. No matter what, business is not gonna be the way it was. And it's not gonna be for a lot of small local businesses, unfortunately.
Lee: So we had the pre-2008 landscape before there was that one kind of financial disaster. And here we have another disaster, which we haven't even, you know, sussed through the damage just yet. What happens to the small businesses that are women- and minority-owned businesses that had traditionally already been marginalized and were having to do more with less from the beginning? What happens to them in this new environment?
Morgenson: They are of course even further behind the eight-ball. And some of the people that I've talked to about this problem have pointedly said that minority-owned businesses have been hurt worse and have been preyed upon more aggressively than companies that are not minority-owned. So that's a huge issue, Trymaine. (MUSIC) And we hope it doesn't work out that way.
Lee: What do you think this crisis could mean for the future of Main Street?
Morgenson: Well, unfortunately I think Main Street is gonna be struggling for quite a while. I just think this came at a really tough time. A lot of companies have a lot of debt that they've already taken on. Now, their revenues are either vastly declined or nonexistent. They can't pay that debt. They can't pay their bills. So it's gonna take a long time for them to come back from that.
I'm hoping that it's not a sort of game over for Main Street. One thing that I think we could all benefit from, that we increase the regulations over these small business loans. My hope is that we bring the same level of protection that we've brought to the consumer lending arena to the business lending arena. We really need to protect these folks. They are central to the future of the American economy. They're central to the employment levels. They're central in so many ways. We really need to protect them.
Lee: Gretchen, thank you so very much for joining me today. I really appreciate it.
Morgenson: I really enjoyed it, Trymaine.
Lee: That was Gretchen Morgenson, senior financial reporter for NBC News. Andy Gaouette is just one of millions of small business owners who are hurting right now. The Small Business Administration opened up the second round of those Paycheck Protection Program Loans on Monday, but the site crashed because of the high demand. Andy still hasn't heard if he's been approved. Even though these are tough times, Andy is trying to stay positive. For now, Mutt Waggin' is still open, and he's reminding himself of the reasons he loves his job in the first place.
Gaouette: (UNINTEL). Yeah, a lot of customers are very supportive and very thankful for what we're doin'. We do what we can if a customer mentions something about money issues. We've had a couple customers come in that-- that have lost their jobs and just buyin' what they can for their dogs. I mean, we have a loyalty program. We'll throw a couple extra points. We'll throw a couple extra dollars that way. We'll give them an extra coupon. We'll do what we can just to make them happy, 'cause we know if they're happy they're gonna come back to us. (MUSIC)
Lee: Into America is produced by Isabel Angel, Allison Bailey, Aaron Dalton, Max Jacobs, Barbara Raab, Claire Tighe, Aisha Turner, and Preeti Varathan, original music by Hannis Brown. Our executive producer is Ellen Frankman. Steve Lickteig is executive producer of audio. I'm Trymaine Lee. We'll be back next week.