$350 Billion Won’t Save America’s Small Businesses

(Bloomberg Opinion) -- Mike Guerriero opened his first dessert store in 2014. Two years later, on his 25th birthday, he opened a second in Montclair, New Jersey. He sells cakes, of course, but he’s proudest of the handmade Italian ice cream he’s spent years perfecting. Naturally, he named his stores Gelati by Mike.

Broad-faced, bearded and full of energy, Mike seems at first glance more like a steakhouse guy than a gelati guy. But he came to his calling the hard way, bouncing around households and schools in Paterson, New Jersey, before an apprenticeship in a local gelateria opened his eyes: Great gelati filled people with joy. “No matter what side you pick, at best you can only make about half the country happy,” he notes. “Ice cream is one of the very few things that’s still bipartisan, something we can all agree on.”

Like so many artists, Mike wanted to make his passion his life. Unlike most artists, he also discovered that he was a gifted entrepreneur.

“I was pretty much raised on the streets of Paterson. I missed out on a lot, but at the same time it made me into a sort of shark. I’m street-smart and savvy. When you come from nothing you’re not afraid of losing it all,” he says. “Coming where I come from and being used to working seven days a week was all I needed. I was able to pay myself a good salary and hire people that we cared about. I don’t even see it as work.”

I live in Montclair but I’m not a gelati connoisseur. People in town who are (including my wife) say Mike’s gelati is chef’s-kiss perfect. It’s so good, in fact, that it’s won awards in the U.S. and Europe. Mike was in Rimini, Italy, in mid-January collecting his latest award when he noticed something odd — Chinese acquaintances he met there were suddenly fleeing back home. By the time he and his wife boarded a plane to the U.S. on Jan. 31, Italy had publicly confirmed its first coronavirus cases. A few weeks later, the country began lockdowns, and eventually decided to cut itself off from the rest of the world to spare itself the worst ravages of what became a pandemic.

When Mike got home he warned people.

“Because we did business with both Italy and China, we could see how bad it was and how bad it would become,” he says. “We knew right away and kept trying to pull the alarm. We kept posting on Facebook and on our personal pages that there was a crisis coming. But the story kept getting pushed back at us by customers, local police, officials and even celebrities that the flu is worse and Ebola is worse. It was anarchy with employees and customers arguing about who or what to believe and whether we were just snowflakes buying into a hoax.”

Customers were irked that Mike wouldn’t let them eat in his store and that he wanted to maintain physical distances between everyone who worked in or entered the shop. Then February became March, the horrors of the virus became progressively clearer, people began dying around the country, and millions of small business owners like Mike confronted the possibility that their enterprises — along with their hopes, dreams and financial independence — would be shuttered.

My town, like many towns, gets a lot of its character from small stores, boutique enterprises and restaurants. Small businesses of all stripes and sizes are also a foundation of the American economy. About 30 million small businesses around the U.S. employ about 59 million people, or almost half of the adult workforce. At last count, those little companies and the people who work for them accounted for about 44% of gross domestic product. As goes small business, so goes the economy. As goes the economy, so goes the country’s stability and well-being.

The financial tsunami cascading across small businesses behind the coronavirus is why the federal government set aside $350 billion in aid for them as part of a broader $2 trillion barrier wall it’s attempting to erect between the pandemic and the economy. That money was meant to be available to people like Mike today. Treasury Secretary Steven Mnuchin tweeted the good news on Tuesday: “I encourage small business to apply for Paycheck Protection Program so you can keep your employees paid! Program will be available Friday.”

Mnuchin’s program offers low-interest, short-term loans that entrepreneurs can use to cover about two months of average payroll costs and other operating expenses. It’s a bridge built with the expectation that this crisis will have a relatively short span and that small businesses — which are routinely starved for cash and can be perilous to run even in the best of times — need only tap that lifeline to survive. The reality is that this is an epic crisis likely to have very long legs, and the small business community is on the precipice.

It’s not clear that more money will be available for small businesses, since they’ve also been out-muscled and out-maneuvered by large corporations in the Washington cage match lobbyists have waged to snare a piece of the federal stimulus pie. Banks, which are conduits for federal aid, are also likely to perform financial triage when they assess which businesses get the dough. Real estate, retail, manufacturing and mining are the biggest sectors of the small business landscape, and banks may focus on them and overlook modest outfits like Gelati by Mike.

There are already worrisome signs that the federal program isn’t well-managed. Banks are reportedly troubled that Mnuchin’s program won’t be able to launch today because the Trump administration has provided no clear parameters about how to disburse the funding and has engineered “unworkable requirements for the loans.”

Mike sees other warning signs. He said it’s unclear how easy it will be to apply for a loan and how quickly the money might arrive. His accountant advised him that only businesses that have “relationships” with their bankers will get the first appointments to discuss a loan. “In plain English, the more of a hook-up you have, which would be bigger companies with power,” the more likely you are to get a loan, Mike says. A note he shared with me from his local banker advised him to email her a raft of forms to apply for a loan, while warning him that the federal government hadn’t given banks “any guidance yet as to how to process these loans.”

In the meantime, one million cases of the coronavirus have been reported worldwide, about 10 million Americans have recently filed jobless claims, and Mike is trying to soldier ahead. His revenues have plunged about 60%, he says, and to help keep his stores afloat he hasn’t been paying his mortgage or car payments. Before the pandemic, he had 54 employees, but now has 13 he considers full-time even though they are working reduced hours. Those folks had been making an average of $12-13 an hour, and Mike says he’s paying them an extra $2 an hour in hazard pay while also providing them with meals. He and his wife have stopped taking salaries.

To save money, Mike also considered cutting orders from dairy, orange juice and toilet paper suppliers because his needs have slackened. But after reading about local seniors and others who couldn’t afford to buy those things, he decided to keep paying and now delivers the goods free of charge to the needy.

Mike doesn’t allow anyone into his stores, offering curbside pick-up or home delivery instead. And he misses the daily contact with customers. “We’re making the deliveries ourselves so our customers can see that we’re still in business ourselves and that we care,” he says. “I’m the type of person who always has to be out and about, so this is hard for me.”

He also thinks his world has permanently changed.

“I think the days of people crowding our stores to order ice cream are over. People aren’t going to want to crowd in public places like my shop or restaurants any longer,” he predicts. “Unfortunately, it’s natural selection. The virus is picking and choosing business owners among us strong enough to survive. Whatever the future is none of us will keep doing business the same way ever again.”

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Timothy L. O'Brien is a senior columnist for Bloomberg Opinion.

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