Small Businesses Need Rent Relief Too!
by Prince Osemwengie
The effects of COVID-19 on the economic stability of small businesses across Los Angeles County are undisputed. As of March 2021, less than 33% of the original 822,000 jobs lost during the peak of the pandemic have returned to Los Angeles County. For small businesses that have been able to weather the storm and avoid permanent closure, 44% of surveyed businesses nationwide report struggling to pay rent and/or their mortgage over the next six months. BIPOC owned small businesses, which have been disproportionally impacted by COVID-19, report a greater degree of hardship struggling to pay rent and/or mortgages - Asian Americans and Pacific Islanders (55%), Latino (52%), and Black (45%). In order to ensure an equitable recovery post-COVID, it’s crucial the County and City take a holistic approach to address small businesses’ commercial rent debt.
Small businesses in marginalized communities, especially the smallest of small businesses (e.g. 10 or fewer full-time employees with a revenue of less than $1,000,000), BIPOC and/or women-owned businesses, face many of the same systemic disadvantages as marginalized individuals - historic lack of access to financial institutions/capital and neglect from private/public agencies. These small businesses are currently experiencing and face the growing threat of permanent closure and high levels of inescapable debt accumulation in the tens of thousands. Yet despite facing many of the same structural obstacles, These small businesses have not been granted even the minimal levels of protections that residential tenants and consumers have.
This pandemic has exposed numerous cases of small businesses being overlooked in general public discourse and by public agencies. The smallest small businesses have been left to shoulder an almost insurmountable burden in order to survive, and failure to address these burdens exposes the most grassroots of entrepreneurs (and their families and communities) to potentially crushing personal liability.
Case in point: Small Businesses being Overlooked or Underserved
Statewide, small businesses have been excluded from direct rent relief assistance and tenant protections offered to residential tenants via the state’s SB 91.
The federal Paycheck Protection Program’s (PPP) inequities--especially during the crucial early rounds of the program have been widely reported. The well-banked, well-lawyered, and large businesses benefited the most from PPP allocation and award size. In Los Angeles County, where communities of color were the hardest hit by the pandemic - Black neighborhoods such as Inglewood, saw less than 32% of businesses got PPP loans. In neighboring white communities such as Playa del Rey, 61% of businesses reported receiving PPP assistance.
Even small businesses that have been able to access aid have received limited benefits because of program rules. PPP’s mandate that 60% of funding go towards employee pay, which deterred many smaller businesses from even applying (because rent and other costs made up a larger share of their budgets)
Grant award caps meant that the smallest of small businesses inside expensive real estate markets like Los Angeles--squeezed by high rent costs relative to their revenues--most likely did not receive enough to provide meaningful relief. Awards based on a business’s annual revenue, such as the California COVID-19 Small Business Relief Grant, allocate the least amount of aid to the smallest of small businesses (i.e. $5000). In Los Angeles, $5000 is not even sufficient enough for many small businesses to cover two months of commercial rent - let alone a year’s worth of rent.
BIPOC owned businesses are highly vulnerable to being displaced by rising rents and failures to renew leases and/or landlord harassment and commercial speculation. These systematic forces, as well as the lack of targeted government programs to address them, are allowing COVID to not only wipe out individual small businesses but also to expose the vulnerability of historic commercial corridor properties in BIPOC communities and ethnic enclaves.
What Small Businesses Need Now
Small businesses need commercial rent debt relief, assistance, and protection. Small businesses (e.g sidewalk vendors, hair/nail salons, local gyms, childcare, restaurants/bakeries, bars, mechanics) play a vital role in communities and regional economies by providing employment opportunities and essential services. Over 93% of the County’s business ecosystem is made up of small businesses with less than 20 employees. Without substantial government action, we will be allowing COVID-19 to not only wipe out small businesses, but to disproportionately bring personal devastation to the entrepreneurs, families, and communities that are least able to bear it. Unlike in San Francisco and other peer jurisdictions, we lack publicly available estimates of outstanding small business debt in Los Angeles County. On average we estimate 6 months of rent relief to just the smallest tenants can range from $11,700 - $15,000+ per tenant.
1. Provide Direct Debt Relief for Small Businesses
Instead of letting the smallest small businesses, and their individual owners, be crushed by insurmountable debts (and harassed by aggressive landlords and creditors), the County should work to release a targeted qualifying subset of the most vulnerable small businesses from commercial debt obligations. At the same time, the County should prioritize compensation to smaller, “mom and pop” landlords.
2. Increase Small Business Protections
Strengthening tenant protections for commercial tenants can prevent unjust evictions, landlord harassment, and other unfair practices. By reducing the power imbalance, such measures promote productive cooperation between tenant and landlord.
Extend protections and payback period for commercial rent.
Allow commercial tenants to terminate leases early, without penalty.
Restrict and discourage aggressive eviction, negotiation, and collection practices.
3. Minimize the Collateral Consequences of Commercial Debt
After decades of being excluded by the financial system, and with little wealth, many small business owners have had to make a personal guaranty on their business debts or otherwise have the business in their personal name. Unlike the limited liability that corporations and other more sophisticated businesses enjoy, these personal guarantees expose the entrepreneur (and their family) to the direct financial consequences of a global pandemic. These guarantees also make it much harder for these small businesses to utilize many essential legal remedies (like bankruptcy). These financial penalties can have generational consequences for small business owners and their families, making it almost impossible to access capital, loans, commercial property, and everything else they need to make a fresh start again. By suspending the enforceability of personal guarantees and individual liability for COVID-19-related commercial debt, the County can help reduce the personal devastation that will otherwise fall upon our most entrepreneurial community members and their families through no fault of their own
4. Provide Technical Assistance and Legal Protections
Even with a strong foundation of protective public policies and relief programs in place, many small businesses will need one-on-one guidance navigating their specific situation. By helping small businesses understand and exercise their rights, technical and legal assistance programs can level the playing field and help tenants and landlords come to a fair outcome.
The County should invest in technical assistance/access and outreach. Utilize community-based organizations to help overcome language barriers and the digital divide, as well as expand ongoing in-house technical assistance programs at the County.
The County should invest in providing meaningful, direct, one-on-one legal assistance to commercial tenants.
Conclusion
As a CDFI, our organization has seen firsthand what entrepreneurs went through during the pandemic; too many are struggling to keep the keys to their brick-and-mortar establishments. More and more, we are seeing entrepreneurs apply for loans not to invest in their business but to pay back-rent so they can maintain the faint opportunity of re-opening at full capacity. Commercial rent relief, along with other relief efforts to support tenants and families, is a critical tool to wield to ensure our communities avoid displacement as a result of the pandemic.
More organizations are speaking out about the debt and experiences of small businesses, including a new coalition called the Small Business Alliance for Equitable Communities which seeks to advocate for entrepreneurs and small businesses (10 or fewer employees), owned by people of color in low-income neighborhoods. The policy actions in this blog post reflect SBAEC’s ongoing advocacy around commercial rent relief, developed with the help of Public Counsel.
Ideas as bold as commercial rent relief need a cross-section of support, especially from elected officials and budget authorities. Our economy cannot rebound if the small businesses that makeup such a major segment of our economy are beleaguered with debt. COVID-19 has been undoubtedly hard for everyone and at no fault of their own. Yet without further action, some of the most entrepreneurial members of our community will see their businesses destroyed and their personal finances devastated. Small businesses, who have borne the brunt of the economic shutdown, deserve a fresh start as we start to recover and reopen.