Some small businesses fall behind on rent amid Delta variant surge

In March, when Gina Baski shut down her Los Angeles gym after California issued COVID-19 lockdown orders, she assumed the closures, although painful, would be temporary.

That wasn’t the case. Baski’s gym, TriFit Club and Studios in Santa Monica, was shuttered for an entire year due to the pandemic lockdown. The resulting turmoil has left Baski in the same boat as a vast number of small businesses and working class residential tenants: Struggling to catch up as they confront the possibility of eviction.

“I was one of those people begging our legislators to listen, crying, breaking down,” Baski told Yahoo Finance in an interview.

Her struggle is just one example of small business owners trying to navigate the aftermath of lockdowns, and reopening plans being upended by the Delta variant surge. Gymnasiums have been particularly hard hit by COVID-related restrictions, and while the federal government and handful of cities have offered some relief to commercial businesses, the help has been less than sufficient.

“It's been really rough,” Baski explained.

Nationwide, Main Street businesses — especially live music venues, fitness centers, restaurants, bars and others reliant on big crowds and forced to close by the coronavirus — are behind on rent. They're trying to figure out how, or whether, they can even survive.

The crisis in paying rent has threatened thousands of small businesses, some of which operate on such small margins. Among America’s small businesses who rent or own their business space, 78% say they are struggling with their rent, according to the Small Business Majority survey.

Meanwhile, about 46% of businesses with under $100,000 in revenue with commercial space are one or more months behind in rent, compared to 36% of larger firms, the study found.

“It shows a lot of different problems that we saw as a result of this pandemic,” said Brian Pifer, Small Business Majority’s VP for programs and research, in an interview.

A man carrying a spray bottle and rag cleans fitness equipment.
A Planet Fitness Inc. employee cleans gym equipment before the location's reopening after being closed due to Covid-19 on March 15, 2021 in Inglewood, California. (Photo by PATRICK T. FALLON/AFP via Getty Images)

'A steady decline' for gyms

Nearly 200,000 businesses were boarded up between March 2020 and February 2021, according to an estimate from the U.S. Federal Reserve, about 25% to 33% above the norm. Of that number, small enterprises fared the worst.

But the final tally of businesses closing shop for good may end up higher, as the federal Paycheck Protection Program (PPP) initiative ended in May, and owners continue to grapple with overdue credit bills, deferred rent and other expenses.

A recent survey by Alignable, a social network for small-business owners, found that about 35 % of those polled could not pay for July’s rent. And for those in the fitness and beauty industries, the number jumps to almost 40%.

And widening fears surrounding the Delta variant sent small-business confidence reeling in August, putting a damper on sales expectations for the coming months.

And for the fitness ecosystem “It’s been a steady decline,” Baski told Yahoo Finance. “People are not returning to work, people are not feeling safe, people are getting a Peloton, people are having trainers in their home. So it really has changed” the nature of the gym business, she added.

...In what world does the government completely close you down and take no responsibility for the collateral damage?Gina Baski

Gyms and fitness centers have found themselves being crushed by the long closures, capacity limits and added costs to operate safely, even as the country slowly adjusts to a new pandemic-era normal.

Although Baski did get two rounds of PPP loans for her gym, most of it went toward payroll,as the loan rules required. While Baski’s fitness club has fully reopened, gym membership levels are less than half of what they were in March 2020, she estimated.

“We have 30% of our paying members,” Baski said. “Our membership base is about where it was when we started in 2004.”

With little-to-no revenue coming in the door for the past year and a half, it’s pushed many small businesses into the red. To stay open, Baski was able to strike a deal with her landlord.

“We're fortunate that our landlord is working with us on our rent,” Baski added. “[They] take 25% of your revenue until 2022 and then it's back to full rent.”

Some businesses did get city, state and federal help last year. But most of those federal relief programs like the Paycheck Protection Program were largely focused on covering payroll, Pifer, of Small Business Majority, said.

“For smaller businesses that don't have a lot of employees will look more at their overhead costs for things like rent, their commercial rent lease, mortgage and things like that, as opposed to their payroll,” he told Yahoo! Finance

“They have more obligations to fulfill which the government programs kind of overlooked,” he added.

No clear path forward for small businesses owing rent

Even with mass vaccinations leading to a jobs boom and a brisk economic recovery, the future for small businesses is still murky. In San Francisco, city data estimated recently that from April to December of 2020, unpaid commercial rent will be between $172.1 million and $404.5 million.

And 89% to 98% of unpaid rent may come from the retail sector — including restaurants and bars, despite the sector making up a quarter of total rented commercial property space, The San Francisco Chronicle reported recently.

While a slew of businesses have asked their landlords for a break, businesses are still on the hook for paying rent eventually.

“Beginning next year, we will go back to regular rent,” Baski said, estimating that with utilities, rent and other expenses, she shells out over $100,000 per month.

Some cities, like Los Angeles and New York, have offered commercial eviction protections to businesses. However, the needs are growing more acute with no clear path forward.

And while the Delta variant is sparking fears once again among small businesses, gym owners of the National Health & Fitness Alliance (NHFA) continue to push for the GYMS Act in Congress.

The bill would create a $30 billion fund for privately owned fitness centers. Operators say they didn’t receive special funding like the ones Congress allocated to restaurants, movie theaters and live entertainment venues, which also faced similar challenges.

“I'm not about blaming and looking back but we do need them to step up now. I mean, in what world does the government completely close you down and take no responsibility for the collateral damage - in what world is that?” Baski said.

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv

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