Operations that arose from the pandemic had advantages: no business practices to change or legacy costs such as office leases to incur. Many businesses have been built around remote operating environments and sanitary precautions. But they were no more prepared than existing businesses to deal with soaring inflation and rising interest rates. And, unlike established businesses, they did not have access to most of the assistance programs offered by the federal government.
Irina Sirotkina sold her stake in a construction company at the start of the pandemic, when contracts for new hotels and office buildings dried up. She used that money to open a bakery in October in Battle Ground, Washington. Although orders for her cakes and pies are pouring in, customers have resisted even the smallest price increases. The costs of her main ingredients – eggs, butter, milk and flour – have soared 13 to 49% since she first turned on the ovens. Profits have been elusive so far, potential customers are cutting car trips to town, and there’s no new paycheck protection program in sight.
Understanding inflation and its impact on you
“We used all our resources to do so, because we did not qualify the first, second or third round” of this programme, Ms Sirotkina said. “But how far are we going to have to go before we get help?”
New businesses and those run by people of color have particular difficulty obtaining bank loans, so they are often driven to online lenders who charge high interest rates for short-term financing. Last year, in hopes of easing access to credit, Congress allocated $10 billion to be channeled through lenders for the express purpose of reaching underserved entrepreneurs; the money is still flowing.
Nevertheless, signs of weakness are appearing. Gusto, a payroll and benefits provider that serves 200,000 small businesses, has seen an increase in layoffs among its users. That’s important, said business economist Luke Pardue, because smaller employers are generally loath to let people go.
“For a small business, 10% of its workforce might be its human resources department,” Dr. Pardue said. “Each employee really has a special importance that might not be present in a large company, so every swing you might see is more meaningful.”