Small businesses are the lifeblood of Durham’s economy, culture, and social capital. They employ thousands of workers, generate millions in tax revenue, attract visitors near and far, and have branded the Bull City as a vibrant, enterprising, and welcoming nexus of the New South. But they are in jeopardy and must be stabilized amid the COVID-19 crisis so that when it has subsided, our local economy, community, and renaissance can roar back.
State and federal emergency loan programs are critical to this effort, but it’s abundantly clear they won’t be nearly enough and often miss those most in need. With 50 percent of businesses having less than 30 days of available cash in the bank, it is urgent that Durham follows the lead of cities like Raleigh, Charlotte, and Detroit and launch a local small business recovery fund to provide critical capital and technical assistance to stabilize our small businesses, especially our most vulnerable ones.
Now that a second month of post-COVID bills are coming due, it is time to act quickly. Otherwise, we risk permanent closures across our small business economy and the hollowing out of our now-vibrant commercial corridors that will, in turn, have a significant long-term negative impact on employment and our way of life.
It’s estimated, for example, that our small business sector creates more than half of Durham’s jobs. Sales and property taxes help pay for critical services in our community and are generated in large part by our local business ecosystem. Due to the local multiplier effect, for every $100 spent at one of our small businesses, $45 is reinvested in our community, while only $14 stays here if that money is spent at a national chain.
As COVID-19 has exposed the stark inequities in our society and among businesses, the call for a strong, local, and inclusive economy is greater than ever. As highlighted in the Built2Last Plan commissioned by the city of Durham’s Office of Economic and Workforce Development, Durham’s recent economic prosperity has not been equally distributed. A critical strategy to address this inequity is fostering an inclusive entrepreneurial/business ecosystem. So many of our small business leaders and their team members exemplify these ideals and are a fundamental part of our city’s future story.
Yet as the crisis continues, these businesses are in ever-greater jeopardy. They run on slim margins and small cash reserves. Some have taken on recent debt to fund growth. Others are working to get their models right with little room for error. And many have never taken out a loan and operate on credit cards or have cash businesses. Prior to the crisis, most of them were already grappling with skyrocketing costs for rent, parking, and other basic operating expenses.
The financial complexities our small businesses navigated in the past have been compounded tenfold now. Many can’t take on more debt or won’t be approved for the amount they need to stay afloat. That’s why the grant and forgivable loan features of the Paycheck Protection Program and the Economic Injury Disaster Loan program are so critical for local relief funds. The attractive terms packaged with these loans can be helpful, but they are not the most essential tool in the financial toolbox at this stage, and they come with burdens our small businesses cannot bear.
Additionally, many of our local businesses cannot easily access EIDL or PPP loans. These are businesses that haven’t taken out a loan before, don’t have a banking relationship with a PPP lender, don’t have all the documents or technology necessary to apply for loans, and don’t have the right advisers to steer them through the complicated process or guide them away from misinformation about these products.
By its nature, the underwriting involved in the loan process makes it onerous, slow, and favors those who are connected and have financial know-how. In an emergency as unprecedented and far-reaching as the one we are in, the need for speed and access is essential. That’s why a grant solution pioneered by other cities is our best bet to solve Durham’s small businesses’ short-term liquidity problems, so they can remain solvent for the long term.
The Raleigh City Council recently voted to immediately put such a grant program in place, using public funding. Other cities around the nation are doing likewise. Durham needs to follow suit as quickly as possible.
Our program must dedicate a minimum of 25 percent of its funds to local businesses owned by a person of color and 10 percent to businesses with fewer than five employees. These businesses must be first in line to receive this funding.
Further, this fund should solely be directed to locally owned, non-franchised businesses with fewer than 50 employees. It is essential that we reach the spectrum of our small and smaller businesses with this aid. Many of our more mature small businesses, especially restaurants, generate significant tax revenue and jobs for Durham, including for our immigrant community, which doesn’t have access to unemployment benefits now.
These businesses—along with our most vulnerable ones—need our help, and all of them are critical to stabilizing our local economy and getting us on the path to recovery.
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Christopher Gergen is the CEO of Forward Cities and a founding partner of HQ Raleigh. Ryan Hurley is co-owner of Vert & Vogue and a host of Small City Innovators. Peter Lange is an emeritus professor and emeritus provost at Duke University.