One of the strangest facts about COVID-19 has been the lack of business bankruptcies. After a significant number right after the pandemic hit, business openings have outpaced bankruptcies in every month since May 2020 until this past August. The reason is no great mystery. Businesses that survived the initial shutdown have stayed afloat due to federal wage, rent and debt supports.
As a co-founder of Save Small Business, where we rallied 38,000 businesses in support of rent relief and other supports, I’m proud of the small part we played in this public policy success.
For many small businesses, and the families they support, though, this success is merely a mirage. Yes, the lights are still on, but over the last 20 months, they’ve piled up massive debts and often owe their landlords months and months of back rent. Insurance and other costs are up.
If you’ve been to a packed restaurant lately, this might seem like hyperbole. But consider the dry cleaner. With so many working from home, so few traveling for business meetings and so many events cancelled or shifted online, will that industry ever return to “normal?” There are over 2,000 dry cleaners in Ontario, most of them micro businesses supporting families.
Spend five minutes thinking about it and you’ll come up with a dozen other industries like this.
From the outside, the answer seems obvious: walk away. If the business is so bad, with no hope of paying its debts, go bankrupt and move on.
But the reality of business closure is often misunderstood. For many small businesses, in order to get loans or to entice a landlord to agree to a lease, the business owner needs to provide a personal guarantee. That means to escape their debts not only do businesses need to go bankrupt, but the owner needs to go personally bankrupt. That could mean losing a house, and it almost certainly makes qualifying for new loans or new leases impossible for at least six years.
It’s an expensive, confusing and daunting process.
So, for the dry cleaner who’s done nothing else for 20 years, there’s no choice but to try to scrape by, hoping for a return to normalcy. This situation does not serve Ontario well.
There is a solution. Ontario could develop a program to help COVID-affected small businesses go bankrupt in a fair and non-punitive way. It could work with credit rating agencies and banks to reduce the long-term implications for owners. They could set up a special court to support owners who qualify through the process.
Ontario’s small business owners have tried to make it through this pandemic. They’ve pivoted, they’ve adapted, they’ve closed when asked to protect their communities. For many, though, there’s no path back. It’s time to give them a way out.
Photo courtesy of UnSplash
