What's Next in Line for the City of Chicago's Businesses?

What's Next in Line for the City of Chicago's Businesses?

Chicago, and Illinois, have been suffering from economic decline for a number of years. There has been a decline in population for 7 years consecutively, causing a brain drain and stagnating productivity, along with a suffering real estate market.

There’s been a 20% decline in property prices in the past decade in Chicago – a strange phenomenon given that almost all of the US has experienced rising prices. Besides the obvious population issues, this can also be put down to a high sales tax, toll fees, and a struggling private sector due to having a high proportion of retirees.

This is the context of Chicago prior to the pandemic, and of course, the issues have only been exacerbated. We have seen over 361 businesses being lost during the pandemic in Chicago, despite the relief package and grants, though this was the same across all of the US.

As we can see from this study which surveyed 5,800 small businesses around the US, 41.3% of businesses claimed they were temporarily closed at the time of being asked, whilst 1.8% permanently closed. This indicates that the relief programs such as the Paycheck Protect Program were useful in preventing folding.

Of these companies, around a quarter had only one month’s worth of expenses (or less) in cash on hand, and around half of the firms had between 1 to 2 months worth of expenses in cash. One big reason behind the resilience of firms staying open was that over half believed that the pandemic-induced crisis would end before July 1 2020 (the survey was in April), whilst almost all of respondents thought the crisis would be over by October 2020. 

Of course, they were wrong, but perhaps this optimism fueled a strength to carry on going. What they didn’t know is that over a year on from being surveyed (May 2021), 34% of small businesses in the US would still be closed due to COVID-19.

In fact, the story gets worse for Chicago businesses, as they have more closed businesses than the average US city. Compared to the 34% national figure, Chicago has 38% of small businesses closed compared to January 2020. This is one of the highest figures in the North East area, with only Boston, NYC, and Washington suffering more small business closures.

What’s next for Chicago?

Chicago is currently in Phase 5, meaning most mandatory COVID-19 regulations have been lifted. Masks aren’t mandatory for the most part, besides on public transport, in congregate facilities like homeless shelters, and in health care settings.

Most importantly, restaurants, bars, and other high street stores can operate as normal with no curfews. Whilst not all events can resume, many can, and most small businesses are now operating without restrictions – despite a hangover of the lockdown mentality.

The biggest lifting of restrictions came in early June, which ended a year-long restriction on crowd size and indoor gatherings. This was a time of celebration for Chicago businesses – and the public – as they really felt the change.

Whilst many businesses in Chicago are still struggling to recoup their losses and get back on their feet, the reality is that if they survived up to this point, they stand a good chance of long-term survival as economic demand is quickly rising.

The biggest threat businesses now face is a return to lockdown. Whilst this doesn’t look likely, it could be a possibility in the event of a more deadly and elusive COVID-19 variant. Over half of Chicago is currently fully vaccinated, and as this number continues to grow, so does the confidence of businesses and consumers.

Businesses still require financing

The Payment Protection Program was initially applauded for its big budget (an initial $659 billion in April 2020) that was aimed at small businesses. The program would issue SBA-backed loans to SMEs without a ruthless repayment scheme.

The loans were of an amount around 2.5 times the applicants’ monthly average payroll costs. Of course, we saw that three-quarters of businesses only had up to 2 months or less worth of expenses in cash, so this would appear to help significantly – though it’s still a temporary fix.

Loans wouldn’t need to be fully repaid if businesses could keep employee wages stable and not make redundancies. However, it seems that this deal was more favorable to larger firms that could more aptly retain employee numbers.

Illinois was a great example of how the PPP failed. We can see this because the PPP program was intended for small firms, but over one-third of PPP beneficiaries within Illinois were large companies. These larger firms get larger loans, of course, totaling $1m or more.

Illinois’s share of the PPP funding was $23 billion, though one-third of this amount went to under 2% of participants. Around 4,000 businesses received $1m+ loans in Illinois ($8.67 billion), despite 221,000 loans being approved of loans.

So, whilst the PPP program saved some jobs, it mostly benefited larger companies in Chicago. This meant there was still a need for small companies to take out loans, which put them in a difficult situation when banks didn’t want to know.

Private lending

Small Business Loans in Chicago have somewhat filled the void of Governmental failure. Of course, SMEs needed grants and government-backed loans with friendly repayment terms, but the next best thing was to turn to online lenders.

This flood of demand came at an interesting time because online lenders had been growing in popularity just prior to the pandemic. They were favored over banks for their super fast approvals – taking just a day or two to fund companies after applying – along with more lenient criteria. 

Because of the automaticity behind the application process, only an average-to-good credit rating is required, and a lot of the other analysis is performed by scanning bank statements and other financial data. With over 90% approvals and fast funding, this became a reliable go-to for SMEs in Chicago, and all around the US.

The likelihood of approval for online loans were a lot tougher than pre-pandemic, however, showing that credit has been interrupted everywhere. Whilst they became a reliable plan B for some, and still are, many view the higher interest rates and rising difficulty for approval as a serious obstacle. 

Silver linings

From here, it seems that small businesses in Chicago will have used up most of the possible, available government support and are now fighting for survival. Fortunately, the consensus is that lockdown restrictions will remain lax for the foreseeable future. However, this doesn’t un-do the financial stagnation of over year-long closures and paying wages. 

We shouldn’t only focus on the suffering, though. Over 190,000 Illinois startups were created during lockdown – a staggering number that seems to defy the economic situation. On top of this, many completely revolutionized their own businesses – adapting operations to create alternative revenue streams that could thrive in a lockdown environment. Whilst the pandemic has been tough on businesses, it has shone a light on the optimism and strength of the Chicago public. 

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  • Very good summary. The fallout will take years to examine.

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