Many small businesses opting to permanently close rather than wait out pandemic shutdown

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While west end Torontonians mourned Vesuvio Pizzeria & Spaghetti House last week as the neighbourhood stalwart faced closing after 63 years, its owners got a shock from Ottawa.

On Thursday, just days after deciding to shut down because of the COVID-19 pandemic, the Pugliese family found out the federal government had increased the maximum eligible annual payroll under the Canada Emergency Business Account (CEBA) loan program to $1.5-million from $1-million. Suddenly, Vesuvio qualified for up to $40,000 in interest-free loans.

“It’s too late,” owner Ettore Pugliese said. Restricted to takeout and delivery orders, the restaurant was struggling as staff departed out of fear of the spreading virus, and costs were adding up quickly. “It became impossible,” Mr. Pugliese said. The family followed through with their difficult decision to close the doors on Sunday.

Vesuvio is hardly alone. Many small businesses are closing for good rather than wait out shutdowns imposed amid the coronavirus crisis. It’s a sign of the long-term economic damage that will be left in the wake of measures to stem the spread of the virus.

Many entrepreneurs in this first wave of closings were already in precarious positions, only to find hard decisions accelerated by the pandemic. The shutdowns are also a consequence of Ottawa’s piecemeal approach to COVID-19 relief – adding and adjusting programs nearly every day.

More than a month has passed since federal, provincial and municipal governments forced widespread shutdowns of whole sectors of the economy. While some small businesses have had the financial strength to wait out the storm, others haven’t been so lucky. Of nearly 11,000 entrepreneurs recently surveyed by the Canadian Federation of Independent Business, 6 per cent said they won’t survive until the end of May.

Prime Minister Justin Trudeau and his cabinet have repeatedly said they are listening to Canadians and are willing to adjust the terms of relief packages. But even with the expansion of the CEBA program, more than half of 3,000 entrepreneurs surveyed by the Save Small Business support group said they still didn’t qualify, meaning their bills continue to add up without revenue to pay them.

Ottawa also announced last Thursday that it would work with the provinces to aid commercial tenants with rent, likely through loans to landlords, but held back on details. Regardless, that came too late for entrepreneurs staring down rent bills next week – the second month since many had revenues drastically reduced by restrictions and shutdowns.

The owners of the Hideout bar and concert venue on a now-deserted strip of clubs on College Street in Toronto are among the entrepreneurs calling it a day. They’d already made their decision before Mr. Trudeau announced rent relief.

“If we had been told sooner – a number of weeks sooner – we would have happily sit tight, if we weren’t digging a big financial hole for ourselves,” said Dan Good, who’s run the Hideout for 13 years with his brother Jimmy and cousin Phil.

“It could be six months to a year for recovery. I don’t know anyone who can sustain that," Mr. Good said in a phone interview just after taking down the Hideout’s sign. While he understands governments are dealing with a crisis, he feels terrible for the staff he has let go.

The Storm Crow Tavern, a “sports bar, but for geeks” in East Vancouver, also announced last week that its pandemic closing would be permanent. Its lease was coming to an end soon, and owner Jason Kapalka felt the venue was not well equipped to reopen in the “socially distanced bar scene” he feels will precede full reopening of the economy.

The Storm Crow has two other locations, which are better equipped for takeout during the pandemic and spaced-out gatherings later. But Mr. Kapalka can’t guarantee they’ll reopen, either — they just have a better chance than the Tavern. By shutting it down, he said, “We might be ahead of the curve.”

Chains with bigger cash piles are more likely to survive, Mr. Kapalka said, but he worries the postvirus economy might look like the one in the 1993 Sylvester Stallone sci-fi thriller Demolition Man, in which a “franchise war” has turned every restaurant in the 2030s into a Taco Bell. “It’s not an appealing future,” he said.

Toronto insolvency trustee Richard Goldhar said he’s received an increase in inquiries from entrepreneurs, but encourages them not to file for insolvency. “Any trustee worth their salt is going to tell clients to wait it out,” he said.

If debt is piling up, he said, a licensed trustee can help manage it. “The sooner you start, the better the outcome," Mr. Goldhar said.

Brendan Megannety, owner of Explorer’s Press in Vancouver, said COVID-19 was “the nail in the coffin” for the maker of pins, patches and other trinkets. Most of his retail partners shut down their physical stores and revenue has plummeted.

Mr. Megannety had already been flirting with shutting down. The virus made his decision easier. “My bills are coming, whether or not I can pay them,” he said.

Vesuvio in Toronto faced a similar decision. After 63 years, the Pugliese family didn’t want to suddenly take on fresh debt. “The projections didn’t look good,” Piera Pugliese said. Her husband felt that government relief left them with few options. “We are on our own,” Ettore Pugliese said.

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