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    California Small Businesses – An Overview on How CA Businesses Fared the Pandemic

    The COVID-19 pandemic and the ensuing lockdowns rocked businesses’ all over the world from Tokyo to Toronto via Tallinn. In terms of both public health and economic performance, some countries fared better and some worse than others. But how exactly did the global powerhouse the USA do? From coast to coast the repercussions were acutely felt but did some states find it harder than others? In this post we’re going to take a look at Californian business navigating the COVID storm with a particular focus on the PPP loans and financing issues that firms faced. We’ll also run through the small business loans in California that were, and are, on offer from both the central government, local government and the private sector.

    Business in California – An Overview

    You may well already know this but the economy of California is by far the largest in the United States. In 2019, it commanded a GDP of nearly $3.2 trillion which is even bigger than that of some large, developed nations. The sunshine state contributes more to the US Treasury than many other states added together and waives a huge economic, cultural and political influence over the whole nation.

    Whilst the best known industries in California are its well known exports such as Hollywood and Silicon Valley, the reality is that the single biggest sectors in California’s economy are ‘Finance, Insurance and Real Estate’ followed by ‘Professional Business Services’ which dwarf both entertainment and tech (however, the tentacles of Silicon Valley do increasingly of course reach into both Finance and Business Services.) 

    However, despite its apparent abundance, California is also amongst the most unequal of the United States and 13.3% of the population reportedly live below the absolute poverty line and nearly 20% (that’s 1in 5 Californians) are in “relative poverty”. A short walk down Sunset Boulevard will confirm the reality of this dynamic as you see Hollywood stars toss loose change to the homeless and destitute.

    It has also been alleged by some critics that California is amongst the least “business friendly” states in the Union on account of its high minimum wage – although of course the sheer buoyancy of the State economy and amount of start-ups that are formed in Silicon Valley each day strongly suggest otherwise.

    So how did Cali do during the Pandemic? Let’s take a look.

    When COVID-19 first hit the world in March 2020 California responded by enforcing some pretty fierce lockdowns which closed business, blocked tourism and even saw Hollywood films pause shoots. In fact the stringency of the lockdown caused one notable Silicon Valley resident called Elon Musk to shift his Tesla and SpaceX business operations to Texas which took a far more laissez-faire approach to dealing with the global public health crisis.

    The result was that California’s GBP was down by -3.5% to a mere $2.987 trillion which was exactly in line with how the nation overall performed.

    The reality is that a lot of the state’s bigger businesses were in a position to quickly adapt to lockdown life and resume operations relatively quickly. For example, Silicon Valley employees have been able to work from home for years anyway. Furthermore, Silicon Valley and the tech sector in general was without any doubt the winner from the pandemic as we all became more reliant than ever on the internet. Google, Amazon, Uber and a raft of other household names saw their profit margins hit truly stratospheric levels and then Hollywood was up and running again by summer 2020.

    Whilst I’m sure you’re all relieved to hear that the Hollywood moguls and Billionaire tech demi-gods survived, the reality was not quite so rosy for California’s 4million + smaller business’.

    Many of California’s smaller businesses operate in the tourism and hospitality sector which were both the hardest hit by the pandemic and also the last to re-open. Business support and COVID relief programmes also got off to a slow start owing to both inertia and ideological opposition from the federal state at the time.

    However by spring 2020 the Paycheck Protection Programme (PPP), a $953 billion dollar initiative, was launched which allowed businesses to claim in order to keep on paying their employees wages and salaries. Whilst PPP was warmly received by many, it is worth bearing in mind that a lot of California’s tourism and hospitality sector employees rely on tips to make their monthly earnings and PPP was unable to address these – however, the good news that these employees can now take advantage of new “rehire rights” and get their jobs back.

    PPP was eventually closed in May 2021 on the grounds that the economy is now “back to normal”.

    A lot of businesses are now sadly finding themselves eligible and struggling to repay the PPP loans. Furthermore, whilst PPP took care of salaries, it did nothing to address other running costs which a business continued to accrue throughout the pandemic such as rent, finance payments and maintenance costs. Therefore as Fall 2021 rolls around, many Californian small enterprises are finding themselves saddled with debt to both creditors and the fed, whilst wrestling with the reality that “normality” has still not yet fully returned.

    The good news for small business is that some PPP loans may be written off (or “forgiven”) by the government and also, whilst PPP is not coming back, there is additional governmental support available. 

    Economic Injury Disaster Loans (EIDL)

    Any business that lost money as a consequence of the pandemic or lockdown measures (and can demonstrate that it was a result of the pandemic or lockdown), may qualify for a Economic Injury Disaster Loan. These are being issued by the California SBA (Small Business Administration) until 31/12/2021, or until funds run out (whichever is sooner).

    The maximum loan amount has now increased from $500,000 to $2 million and repayments can be deferred for up to 24 months.

    However note that unlike with the PPP, the EIDLs are being funded by the SBA directly so they cannot be written off.

    Furthermore, note that businesses in a ‘low-income community’ (check for criteria) may be eligible for an EIDL grant of up to $15,000 that does not have to be repaid.

    State And City Loans

    Also remember that programs are available at both state and city level across the nation – it all depends on your local governments budget and ideological bent. 

    Focusing on Cali, the California Rebuilding Fund has so far provided loans to more than 750 small businesses. In September 2021 they announced an additional $56.5 million of extra funding. The program is offering low-interest loans to impacted businesses across California. The CRF loans are being awarded via a network of locally based lenders – however you can begin your enquiries on the SBA website.

    This is something, but 750 loans is small fry compared to the 4 million small businesses in the state. Considering that California has the 5th largest GDP on earth, some business experts have suggested that the state could be doing a whole lot more.

    Bank Loans

    Of course, businesses also have the option of applying for additional credit in the usual way via the banks. However, they may well find that the banks lending appetites are not what they were 18 months ago and lenders continue to take a cautious approach.

    In summary, as the holiday season approaches and California cools down, it does appear that the worst is behind us. However, the path to recovery is nevertheless going to be a long one.

    The post California Small Businesses – An Overview on How CA Businesses Fared the Pandemic appeared first on California News Times.

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