The Indicator from Planet Money - The Road To Bankruptcy

When the pandemic hit, the government pumped large amounts of money into the economy. The support kept many families afloat, but for many small businesses, it wasn't enough. | Donate to your NPR member station here.

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Content Keywords: Daniela spalla Danielle
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This is the indicator from Planet Money. I'm Stacey Vanek Smith, and I'm doing today by our wonderful producer Brittany Cronin. Hey, Brittany. Hi Stacy and bring you are joining us today because you have been following up with someone. We spoke with earlier this year the owner of a small business. Yeah. It's and yellow Stromberg. She's the owner of to my Urban Spa in Brooklyn New York. She's had the place for years when she opened back in 2004 Daniela wanted to create a little Oasis where you could come in take back and you know treat yourself exactly. So she offered massage facials acupuncture and over the years. She developed a little Community. Most of our customers are regulars and many of her workers had been with her for more than a decade when we talk to Daniela back in June her Spa was temporarily closed under New York shut down orders and Daniella suspected it would be my

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Since before she could open again and she was starting to worry about whether or not her spot would survive. I kept waiting for a government to make a plan. I kept listening to the news thinking. Oh my God, they're not going to make a plan. What am I going to do? What am I going to do?

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That is the question that business owners around the country have been asking themselves for almost a year now and it is not just business owners landlords Banks. They've been suffering too and all of this is threatening the entire economy.

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Today on the show small businesses rent in the road to bankruptcy. We find out what happened to Danielle as day spa and what the small business rent crisis could mean for an economic recovery.

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Support for NPR in the following message come from fundrise fundrise makes it easy for anyone to invest in high-quality real estate by building you a portfolio with there more than 1 billion dollars in assets get started at fundrise.com indicator to have your first 90 days of advisory fees waived support for this podcast and the following message come from checkout.com the online payment solution for e-commerce businesses of all sizes. There's no one-size-fits-all approach when it comes to constructing the perfect payment funnel for your business check out. Comes into and payment platform simplifies the payment process and give you insights. So you can optimize your customer experience and get more out of every transaction download their free whitepaper report and learn how you can generate more growth at checkout.com indicator after closing went looking for help anywhere. She could find it.

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She applied for one of the PPP loans from the government and she was approved but those ones helped businesses cover payroll and Daniela didn't just have payroll to worry about she also had to pay rent around $28,000 a month. I'm a day spa. I'm utterly vulnerable. So how would I then pay the full rent Danielle returns to the one person who could really help her solve her rent problem for landlord. She says she needed two things from him. I need an exit strategy. I wanted to be able to give him 3 months notice. Should this not be working.

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I needed reduced rent based on my ability to do business. So the reduced rent was tied into my reduced revenues the negotiation with her landlord was not easy. Daniela says they went back and forth for months then in July Daniela caught a break Governor Andrew Cuomo announced that New York City would enter phase 3 of reopening which meant that personal care services like nail salons tattoo parlors and Spas could reopen our phones were ringing from the day. The city said it was amazing and yellow was thrilled. She was finally able to bring back some of her staff and she got to work on new safety protocols temperature checks goggles masks and face shield. She invested in a new air filtration system and UV sanitizing lights to my was open for business. We were the neighborhood Spa

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We have been there for 18 years. We have real relationships with our clients.

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And most of my team had been with me more than 15 years. So, you know people were happy we were open again tonight was completely booked to try to accommodate as many customers as possible Danielle and her staff started coming early staying late, but the numbers just weren't adding up Daniela could only open to of her seven treatment rooms because of social distancing and she could only offer her low-dollar services like massages. So a 1-hour massage cost around a hundred fifty bucks not bad for Daniela, but also that wasn't anywhere close to as profitable as official official might bring in $350 for that same. Our only problem was facials were still prohibited by the state. So even after reopening Daniella's revenues were down 70% from the previous year and then in September Danielle received a final offer from her landlord. It was two months.

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Half-off rents and if she wanted an additional month at 50% off she would have to sign five more years on to her lease. Daniela was stunned. She was dealing with so much uncertainty should no idea where things would be in 2 months. She felt like there was no way she could sign this lease. What does 2 months mean? What what's the relevance of that? What did he think was happening in two months? Like that's just magic thinking like it meant nothing this was it Daniella was at the end of her rope. She told her landlord she would be out by the end of the month and then she called each of her 34 employees. I said I am this is really hard.

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I'm very sorry.

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I still.

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Like I thought it was going to win.

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I didn't want to let anybody down.

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But I lost my fight with the landlord.

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And we're Engine Services on the 15th.

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Daniela spalla is one of more than a hundred thousand small businesses estimated to have closed this year when a business closes. It's still on the hook for the money of those some business owners like Danielle up file for bankruptcy as a way to deal with their outstanding debts. Kate waldock is an economist who specializes in corporate bankruptcy. She says when a business closes, it sets off a chain of reactions that ripples through the economy first the business owner stops paying their landlord the landlord isn't making any money and chances are you know, since we're still in the middle of the pain that I could sleep bad right now, they probably can't Lisa space to a new tenant does probably sitting empty and all the sudden the landlord can't make mortgage payments to the bank and then the bank is in trouble says Kate because it was counting on money coming in from the small business and from the landlord and when businesses and landlords fault, that means that's money that the bank was expecting to meet that it's not make it goes down.

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Hoping to take you in and then relent to another business or another landlord or another homeowner. It can't relent that money. Kate says the result is that there's less credit to help businesses grow in the future. She worries all of these recent bankruptcies will result in a serious recession the likes of which we haven't yet begun to see when the virus is finally under control and businesses can start by opening again. He says it will take a lot of cash to jump-start the economy and she's worried that the banks just will not have that cash to lend or even if they do that. They'll be skittish about lending it. Of course the government May step in here and flood the economy of stimulus kid says that could help right now Congress is debating just how much support to give to small businesses in its next relief plan, but for Daniela Stromberg, it's just too late. All I needed was right release.

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That's it.

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So, I mean this never had to happen.

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That's it. It's never had to happen.

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This episode of the indicator was produced by Nick Batman. It was fact-checked by Sean. Saldania or editor is Patty Hirsch in the indicator is a production of NPR.
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