One third of service firms and factories will run out of money in less than a year if their sales don’t increase and additional coronavirus relief doesn’t come from government, according to polls released Tuesday.
The Federal Reserve Bank of New York found 34% of retailers and service firms in New York State, northern New Jersey and Fairfield County, Connecticut expect to shut down in six to 10 months “if current revenue levels were to persist without any further support from government programs.”
In a separate survey of manufacturers in New York State, 32% said they won’t survive without a cash infusion from increased sales or government loans.
In both surveys, about half of those indicating that they would become insolvent "said they could last at least another six months... and the average expected time frame for this was about 10 months,” the New York Fed said.
The bank surveyed about 125 factories and about 200 retailers and service firms from Aug. 3-10, with Long Islanders participating in both polls.
Despite the economy’s reopening, factory executives said revenue last month was down 25%, on average, compared with July 2019. Retail and service firm officials said revenue was off 30%, on average.
"Collecting payables from customers and maintaining adequate cash flow" were top concerns for boh groups.
Many businesses – 71% of service and retail firms and 82% of manufacturers – secured Paycheck Protection Program loans from banks, credit unions and other private lenders. The federally guaranteed loans are for up to $10 million per applicant with a 1% interest rate and five-year term.
PPP loans may be forgiven completely if the borrower uses at least 60% of the money for payroll expenses. Lenders stopped making PPP loans on Aug. 8.
Fewer survey respondents received Economic Injury Disaster Loans from the U.S. Small Business Administration: 20% of service firms and 17% of manufacturers. EIDL loans are for up to $150,000 per applicant with a 3.75% interest rate and 30-year term.
Only 2% of service firms and manufacturers have benefited from the newest relief initiative: the Federal Reserve’s Main Street Lending Program. Banks and other private lenders make the loans, which then are purchased by the Fed.
The economy has slowed for both groups.
Among service firms, the business activity index fell to -17.1 points this month compared with -1.8 in July. The index “stabilized last month for the first time since the pandemic,” the New York Fed said.
Among factories, the general business conditions index remained positive this month despite falling to 3.7 points from July’s 17.2. “After increasing significantly in July for the first time since the pandemic began, manufacturing activity in New York State grew only slightly in August,” the bank said.