America’s small businesses are facing a difficult time financially.
During the pandemic, landlords were very accommodating about paying rent. Many are now asking for rent back and others are increasing the rent. While most government assistance programs that were meant to help small businesses through the pandemic ended, inflation has driven up the costs of supplies, shipping and labor.
Martin Garcia, the owner of Gramercy Gift Gallery, a gift and decor shop in San Antonio, Texas, survived part of the pandemic by paying his landlord as much rent each month. His landlord then asked for the entire amount of rent he owed in August 2021 after the federal moratorium had ended on evictions.
Garcia stated that he needed $10,000 within 15 days. Garcia borrowed whatever loans were available, often at very high interest rates. He barely made it to the deadline.
His loans were paid off after a strong holiday season. However, sales this year have been down and Garcia used credit card financing to pay his rent for June. Garcia believes that some customers are cutting back on essentials in order to afford higher gasoline prices and other necessities.
According to Alignable, an online small business referral network, 33% of U.S. small businesses couldn’t pay their May rent on time or in full. This is up from 28% in April. 52% of respondents said that rents have increased in the last six months.
Chuck Casto, Alignable’s head of corporate communications, stated that many small businesses are still recovering from the COVID last phase. They also have to deal with years of inflation. It has made it hard for small businesses to make it big.
Ris Lacoste, who owns Ris, a Washington, D.C. restaurant, is able to keep her rent paid by the Restaurant Relief Fund. The money must be used by March 2023.
Lacoste stated, “What I need to do to keep alive after that is to save every penny that I can,” She’s now refinishing tables in order to reduce linen costs and not printing color menus. Lacoste also works with 22 employees instead of the 50.
Ris stated that the restaurant, which measures 7,000 square feet, was full before the pandemic. However, it isn’t back to full occupancy. Inflation is increasing the cost of doing business.
Lacoste stated that “payroll is up, labor costs are up, goods cost is rising, utilities are increasing.” “I now wear 20 hats rather than 10, and work six days a week, twelve hours a night.”
Rent is not something she can control and this adds to the stress.
“You are working for the landlord. How long do you want that to continue? How long will it take you to survive?” She said. It’s not sustainable.”
Marcus & Millichap, a commercial real estate advisory and financing firm, has data showing that rent rose 4.6% in 2022 compared to the previous year. The vacancy rate fell to 6.5% in the first quarter of 2022, which is the lowest level since 2015. However, Daniel Taub, Marcus & Millichap’s national director of retail sales, stated that landlords will find it more difficult to impose rent increases if the consumer feels squeezed.
He said that consumers can only spend so much if the dollar doesn’t go as far and retailers can only afford so much to store space and enough inventory to pay their employees. “It’s a difficult retail market, and something has to give.”
Charleen Ferguson is the owner of the building where she and her husband own Just Call the I.T. Guy, Wylie, Texas. She has 13 tenants and sees the problem from both the landlord’s and small business perspective.
Ferguson reached an agreement with her tenants during the pandemic. They ranged from a massage therapist, to a church to place a moratorium rent. After things started to reopen, Ferguson worked with tenants to reduce the rent. All of them were able to pay their back rent within three months, except for the church, which she forgives.
To keep up with the costs of maintaining the building, she has had to increase her rent by 5%. Utilities and cleaning supplies have increased in price, as have property taxes. She has not lost tenants so far.
She stated that she did not do more than was necessary to cover the increase. “We aren’t making much, but we keep people in business.”
A higher rent is not an option for some small businesses. You can find a solution by moving remote.
Alec Pow is the CEO of ThePricer.org. The credit management company has 8 employees in New York. He stated that his landlord had planned to increase rent by 30% when they renewed their contract. Pow was expecting a smaller increase. According to the landlord, they have a tenant who will take over the lease at the full asking price.
Pow decided to close the office and allow his New York staffers to work remotely for two years while they look for cheaper spaces. There is also a San Francisco office and two European offices.
He said, “We were in process of increasing wages of our employees to combat the rise in inflation.” “We couldn’t afford both of these expenses so we had to choose one.”
