New Data Points to Growing Debt Crisis for SF’s Small Businesses

Fiachra O’Shaughnessy, the manager of McTeague’s Saloon on Polk Street, shook his head in disbelief when recounting the failure of the government to make his business whole from its prolonged closure during the Covid emergency.

The bar was one of the more than 60% of applicants for the $28.6 billion Restaurant Revitalization Fund (RRF), a federal restaurant relief pool established in March 2021, that got nothing from the program. O’Shaughnessy did receive money from the earlier Paycheck Protection Program, but mandated closures for bars—combined with a caveat that a certain amount must be spent on wages—meant that more than a quarter of the $220,000 McTeague’s got in federal PPP money wasn’t t forgiven. The bill came due in June as the bar continues to limp at around 40% of pre-pandemic levels, said O’Shaughnessy.

As hopes for more federal aid dwindle, so is the cash from the $750,000 Economic Injury Disaster Loan the bar took out to get it through the pandemic. McTeague’s story is emblematic of a simmering debt crisis that is threatening to boil over and wipe out a host of small businesses across San Francisco.

“There are so many people in the same boat as us,” O’Shaughnessy said. “Then there were people who made an even bigger mistake, folks who got a second loan on their house. They’re going to have an even tougher time with this.”

SF New Deal, a nonprofit created during the pandemic to support small businesses in the city, published new research into how a growing debt burden, the result of more than two years of pandemic-related hurdles, is hampering recovery.

Among other efforts, the nonprofit ran a $1 million grant program to provide 400 businesses with $2,500 grants, targeted at underrepresented operators and those with five or fewer workers. A follow-up survey of those recipients found that nearly a quarter carried at least $150,000 in debt, with twelve percent owing more than $300,000 to creditors. Thirty-seven percent of small businesses surveyed listed accumulating debt as their single biggest challenge.

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Rising interest rates are making a bad situation worse, with small businesses contending with higher debt loads combined with inflation-based price increases on goods. In response, the report advocates for increased funding for relief measures like grants and tax credits along with more accounting, legal and other support.

Laurie Thomas, the executive director of the Golden Gate Restaurant Association, said that without additional relief, a wave of personal bankruptcies and even home foreclosures—for those who used personal loans to get by—is almost inevitable.

“Restaurants and similar businesses are very much like marriages,” said Thomas. “They can look great from the outside, but you have no idea what’s happening beneath the surface.”

Kevin Truong can be reached at [email protected].

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