COVID-19: What Are The Current and Potential Economic Costs?

The ramifications of the coronavirus will be felt long after the virus has been stopped—months and even years later. Here are some of the most probable economic costs of the current pandemic.

March 24, 2020

Each day that the coronavirus pandemic continues we receive more news of its devastating economic impacts not just in the U.S. but around the globe. Stock markets plunge, businesses close, and ordinary people are losing their jobs temporarily or permanently. The ramifications of the coronavirus will be felt long after the virus has been stopped—months and even years later. Here are some of the most probable economic costs of the current pandemic.

Revenue Loss
As governments around the U.S. and the globe mandate shops of all kinds to close and restrict the number of customers in their physical locations, cashflow is becoming a trickle or stopping completely. State mandates and consumer fear will drive some businesses to financial ruin even as others thrive. In the next six months to a year, we could find many previously strong businesses unable to pay their debts or even pay the daily operating costs required to maintain their business.

Worker Absenteeism
As more workers get sick or self-quarantine, some businesses won’t have enough people to operate normally even if they have enough orders to stay afloat. This is a real risk in the grocery retail industry as the public strips shelves bare due to panic food stockpiling. Grocers can’t restock the shelves fast enough because they don’t have enough workers available. Some grocery stores have reduced their open hours to give workers more time to restock shelves.

Supply Line Disruption
Even for those businesses that have a healthy flow of customer purchases, panic buying and worker absenteeism due to illness and quarantine could threaten the efficiency of supply lines. Instead of getting supplies in a few days it may take weeks to get an order filled by suppliers. If this happens, some customers may seek out other businesses to fulfill their needs.

Business Closure
The consequence of this pandemic is that some businesses will need to close their doors. But for those who can hold on just long enough to survive, they may benefit from restructuring their debts in bankruptcy and giving their business another chance at thriving.

Government Stimulus
The U.S. government has finally begun taking action to protect businesses. The Small Business Administration (SBA) is offering loans to businesses impacted by COVID-19. “These loans may be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the impact of COVID-19. The interest rate is 3.75% for small businesses without credit available elsewhere and 2.75% for nonprofits. Businesses with credit available elsewhere are not eligible for this program,” the news release states. And some states are providing small grants to retail establishments who have been directly impacted by the pandemic. New forms of consumer and business relief are being proposed on a nearly daily basis during this evolving crisis.

What Can You Expect?
If you have a business that is closed and cannot operate remotely, we have no doubt that this is extraordinarily stressful and that it is very much uncertain whether you can emerge from this with an intact business.

We are happy to get on the phone with you and discuss options. Having your questions answered—or if they cannot be answered, having the opportunity to kick things around—may be helpful to you. What we are generally telling businesses worried about survival is that the best course is likely to no action at this time–just wait, while trying your best to not go into a deeper hole. Conserve cash. Reduce expenses, including laying off employees or even temporarily closing up as necessary. It is really unlikely that we are going to recommend “Bankruptcy Now.”

Everybody is on this sinking ship—debtors and creditors alike. For creditors who want their money, there are no good options. Suing is pretty much pointless right now. Landlords and banks have few options. Kicking a tenant out means an empty building. The Washington State Supreme Court yesterday directed that all non-emergency civil matters in state courts be postponed to at least April 24.

It may be that when we emerge on the other side of this, creditors are in a mood to negotiate and not litigate. Debts may get compromised and/or paid out over time without any need to resort to the bankruptcy courts. Or not. We do not know and because this is uncharted territory, we can’t predict.

For now, let us know if you want to set up a call to talk about how to handle angry creditors, how to decide what to pay or not pay, etc.

West Coast Franchise Law

If you have any questions about franchising, please contact the experienced franchise and business law attorneys at West Coast Franchise Law today at (206) 903-0401 to discuss your situation. Nate Riordan is a 2023 Franchise and Bankruptcy Super Lawyer with over 20 years expertise helping clients achieve their business goals.