High cost of doing business
Add rent to the list of rising expenses bedeviling — if not killing — small enterprises
NEW YORK — The rent has come due for America’s small businesses, and at a very inopportune time.
Landlords were lenient about rent payments during the first two years of the pandemic. Now many are asking for back rent, and some are raising the current rent as well.
Meanwhile, most of the government aid programs that helped small businesses get through the pandemic have ended while inflation has sharply pushed up the cost of supplies, shipping and labor.
Martin Garcia, owner of gift and decor store Gramercy Gift Gallery in San Antonio, survived the first part of the pandemic in part by paying his landlord whatever rent he could each month. Then in August 2021, after the federal moratorium on evictions ended, his landlord asked for the full amount of back rent that he owed.
“I needed $10,000 in 15 days,” Garcia said. He took whatever loans he could find — often at high interest rates — and barely met the deadline.
A strong holiday season helped him pay back his loans, but so far this year sales have slipped, and he used credit card financing to pay his June rent. Garcia thinks some of his customers are cutting back on non-essentials to afford to pay the higher prices for gasoline and other must-have items.
Thirty-three percent of all U.S. small businesses could not pay their May rent in full and on time, up from 28% in April, according to a survey from Alignable, a small business referral network.
And 52% said rent has increased over the past six months.
“Many small businesses are still frankly recovering from whatever the last phase of COVID was,” said Chuck Casto, head of corporate communications at Alignable. “Plus, they’re dealing with a year’s worth of increasing inflation on top of that.”
Ris Lacoste owns a namesake restaurant, Ris, in Washington, D.C., and is staying afloat using aid she got from the Restaurant Relief Fund to pay her rent. But the money must be spent by March 2023.
“What I have to do to stay alive after that, every single penny that I can save has to go into reserve,” Lacoste said.
To cut corners she’s refinishing tables to cut down on linen costs, not printing color copies of menus, and working with 22 staffers instead of the 50 she once had.
Before the pandemic, the 7,000-squarefoot restaurant was often full, but it isn’t “back to full occupancy at all,” Ris said. At the same time, inflation is compounding the cost of doing business.
“Payroll is up, labor is up, the cost of goods is up, utilities are going up,” Lacoste said.
But rent isn’t something she can control, and that adds to the stress.
“You’re working for the landlord, how long do you want to do that, how long will you survive?” she said. “It’s not sustainable.”
Data from the commercial real estate financing and advisory firm Marcus & Millichap shows rent rose 4.6% in the first quarter of 2022 compared with the yearago quarter as the vacancy rate dropped to 6.5%, the lowest since before 2015.
But Daniel Taub, national director of retail sales at Marcus & Millichap, said inflation will make it harder for landlords to impose rent increases as the consumer begins to feel squeezed.