Hundreds of thousands of businesses go bankrupt, US home buyers are struggling because of Covid-19

The economic downturn brought on by the Covid-19 pandemic is turning out to be much deeper and more severe than most experts initially predicted. More than 22 million Americans have filed for unemployment benefits, and economists say the US economy is facing its fastest slump since World War II.

The burden of home mortgages weighs heavily on the American people.

Businesses go bankrupt en masse

It is true that some large companies are going bankrupt, but what is happening to thousands of small and medium-sized enterprises in this country under the economic lockdown caused by the novel coronavirus pandemic. Many small and medium-sized enterprises were already struggling before the pandemic, and now the economic lockdown has dealt a fatal blow to this group of enterprises.

The restaurant industry is a prime example. Before the pandemic, there were more than 1 million restaurants in the US, and about half of them were independent chains. These independent restaurants employed about 11 million people, and now the vast majority of those workers have been laid off.

It would be great if independent restaurants could reopen when the lockdown is lifted, but a recent survey suggests that simply isn't going to happen. It found that 28% of all independent restaurants would likely fail if the lockdown were to last another month.

A survey released by the James Beard Foundation last week found that independent restaurants have laid off 91% of their hourly employees and nearly 70% of their salaried employees since April 13 – a double-digit increase for both groups of employees since March. The survey of 1,400 small, independent restaurants across the U.S. found that 38% have closed temporarily or permanently and 77% have seen sales drop by half or more.

Perhaps most worrying of all, 28% of restaurants said they don't believe they can survive if the US economy remains shut down for another month, and only 20% of restaurant owners surveyed are confident they can sustain their business until the economy reopens.

There are currently about 500,000 independent restaurants in the US, 28% means 140,000 restaurants. If the US economy does not reopen soon, it means the country could face a scenario where tens of thousands of independent restaurants are wiped out.

Of course, many restaurants that reopen will face fewer customers due to fear of coronavirus infection, which is a foreseeable reality. So even if the economic lockdown is lifted soon, the restaurant service industry will not fully recover.

This sad reality is similar to the fitness industry. In fact, 24 Hour Fitness, one of the largest gym chains in the United States, is ready to file for bankruptcy.

Speaking to CNBC, a representative of the “24 Hour Fitness” gym chain said they are working with advisors at Lazard Investment Bank and Weil, Gotshal & Manges Law Firm to consider a plan, including a possible bankruptcy in the next few months.

The gym chain is struggling with a huge debt burden, declining customer traffic and the Covid-19 pandemic that has forced it to close more than 400 clubs.

Representatives of many gym chains said they hope to return to normal operations as before the pandemic, even though a 20-30% drop in sales will make it impossible for many gyms to survive.

The entertainment, travel, and retail industries have also been hit hard by the pandemic. Neiman Marcus Group, one of the largest retailers in the United States, is reportedly poised to file for bankruptcy amid the Covid-19 pandemic after defaulting on millions of bond payments and laying off 14,000 employees last week. Neiman Marcus could become the first U.S. retailer to go bankrupt because of the economic downturn caused by the coronavirus outbreak.

The US retail industry is unlikely to return to normal, and there will be more high-profile victims in the coming days. For example, last weekend Disney, Best Buy, and CarMax all cut more than 100,000 jobs in an effort to survive the Covid-19 pandemic.

Home buyers in trouble

That’s the business, but what about the American people? According to a recent survey, 50% of Americans surveyed said they will run out of savings by the end of April. One of the biggest concerns for most current home buyers is how to make their monthly mortgage payments. Before the Covid-19 outbreak, 30% of home buyers had less than $1,000 in their emergency fund, and 22% said they could not afford a month’s mortgage payment.

Previously, due to the Covid-19 pandemic directly affecting salaried workers across the United States, to avoid the situation of houses being foreclosed by banks due to non-payment of debts, the Director of Freddie Mac Fund, the largest home mortgage fund in the United States, asked banks to temporarily reduce or postpone the debt payment schedule for home buyers within 6 months so that they can overcome the current difficult period. Interest will still be calculated and added to the loan.

Just as in the last recession, countless Americans will go from a comfortable middle-class life to a frugal one in just a few weeks. According to estimates by Feeding America, the largest relief organization in the US, about 37 million people, including 11 million children and 5.5 million seniors, are food insecure due to the impact of the Covid-19 pandemic.

Right on the streets of Miami, one of the formerly wealthy neighborhoods, long lines of cars patiently lined up to receive relief goods from Food Banks. Many streets around commercial centers, warehouses, restaurants and stadiums were used as Food Banks, these streets were always in a state of congestion with lines of cars stretching nearly ten kilometers. Similarly, an emergency Food Bank in San Antonio, Texas, said that every day, this facility served up to 10,000 families to receive relief. Meanwhile, hundreds of other households had to line up from 4 a.m. to receive food from a humanitarian facility in Atlanta.