COVID-19 Funding Challenges from a Hair Salon Owner
By Stephanie Raimbert
After closing for four months, MJ Patterson reopened his popular Refine Men’s Salon of Mountain View, after the county issued an order permitting hair salons and barbershops to open on July 13. The same day the salon opened, the county issued another order mandating closure by July 15 due to a statewide proclamation order to limit the coronavirus surge. After bringing his employees back and calling customers to reschedule appointments, Patterson closed his salon again on July 15 and laid his employees off after conducting business for just two days. Except for two stylists who did not feel comfortable returning, the salon staff were happy to be back working and seeing their clients again. Now, they worry they will have to wait weeks for unemployment coverage to resume.
This order is a huge setback in the state’s 2-month reopening efforts. According to ABC30, this order comes as California saw 8,358 new cases on July 12, 2020 and a seven-day average of 8,211 positive cases. The closure will be in effect for three weeks but may be extended if counties cannot control their cases. Newsom said the state's efforts to mitigate the spread of the virus will occur in the long-term, and that Californians must "adapt their behaviors" to slow the spread.
COVID-19 Impact on the Hair Salon Industry
According to Entrepreneur, the nationwide lockdown order meant that citizens could step out of their houses for essential activities only and non-essential businesses were immediately shut down. Salons and other beauty services which fall under non-essential services were the first ones to close their doors and as a result, the 500-billion-dollar global beauty industry with its annual rate of growth continuously pegged between 4% and 5%, is now expected to see a decline of 15%, per BCG and McKinsey. Customers may currently be apprehensive about the close physical proximity required in salon work, but once the markets open, the demand for salon services is expected to increase rapidly. The increased demand means salons must be very careful about earning customers’ confidence.
Many salons, including Patterson’s Refine Men’s Salon, quickly laid off their workers after the shutdowns, allowing them to apply for unemployment benefits. Unlike a handful of larger companies, most salons cannot afford to still pay salaries according to Allure. Amidst so much uncertainty and upheaval, stylists and salon owners have been doing their best to navigate regulations and establish best practices within social distancing restrictions. “For the most part, the regulations are the same across all states. California, and more specifically L.A. County, has stricter guidelines,” says Eric Taylor, the founder and CEO of Salon Republic. While many states — including California, Connecticut, and Colorado — require anyone inside the salon to wear a face covering, mask-wearing in states like Florida and Ohio have mandatory regulations for employees but only suggested for clients. Once salons meet the minimum state and local requirements, it is up to each business owner to decide how far they take their COVID-19 safety protocol.
Some business owners applied for and received a small business loan through the CARES Act or worked out rent deferments with landlords. Though these methods have helped for the time being, a decrease in capacity and increase in operating costs could pose long-term challenges. The relationship between stylist and client will be impacted, too. Hairstylists did much more than touch up color or trim bangs; they also provided a chance to escape their day-to-day lives, focus on self-care, and maybe even enjoy a mini-therapy session.
Salon owners and stylists have faced many challenges due to the hit of COVID-19. To get a better insight into their struggles, I conducted an interview with MJ Patterson, owner of Refine Men’s Salon to discuss the issues he has faced and currently faces amidst the coronavirus pandemic.
Interview – Men’s Salon Owner
Three Main Challenges
1. General Funding – Paycheck Protection Program
One of the main financial challenges that MJ Patterson expressed was general funding for his salon. Fortunately, there are government funding programs like the Paycheck Protection Program. Patterson applied for the Paycheck Protection Program (PPP) early in May 2020, which is helping him pay for payroll and nonpayroll costs. “I’m glad that the covered period was changed from 8-week to the new 24-week as well as the reduction from 75% to 60% of the loan to be used on payroll costs for full forgiveness,” he said. The Paycheck Protection Program reopened for applications on July 6, 2020 and will remain open through August 8, 2020, depending on the availability of funds. As of July 6, 2020, roughly $521 billion in Paycheck Protection Program Loans had been disbursed out of the $659 billion allocated. Patterson said, if he could do things differently, he would have waited longer to get a PPP loan to have a longer covered period because it has become quite difficult to meet the deadline for loan forgiveness. Every business owner’s main goal, once they received the PPP loan, is to fulfill all the requirements to have their loans forgiven.
The National Law Review announced a new update on July 8 for SBA’s newest Interim Final Rule from June 24, 2020 implementing certain major changes (detailed below) from the Flexibility Act and updating certain requirements and calculations pursuant to the Paycheck Protection Program loan forgiveness application forms.
• Borrowers can now take advantage of the new 24-week “covered period” for spending PPP loan funds. Borrowers who received PPP loans before the PPP Flexibility Act was enacted can opt to use the original eight-week period.
• The new forgiveness applications include the reduction, from 75% to 60%, of the portion of loan funds that must be spent on payroll costs. No more than 40% of loan funds may be spent on permissible nonpayroll costs (mortgage interest, rent and utilities).
• Borrowers may receive partial, proportional loan forgiveness based on the requirement that 60% of the forgiveness amount must be attributable to payroll costs. This flexibility is important in allowing borrowers to distribute PPP funds across allowable uses as needed and still maximize loan forgiveness. This approach is explained in an interim rule.
• A new rule also makes it clear that payroll and nonpayroll costs are eligible for forgiveness if they are either incurred or paid within the covered period.
2. Nonpayroll Costs - Rent Backpay
The most pressing financial challenge for Patterson is rent backpay. His salon’s rent in Mountain View, CA is around $11,000 per month and is owed for April, May, June and July. Patterson’s landlord is offering a 12-month payment program, but Patterson’s salon will never make back the foregone revenue for the months closed and, even in the best of times, does not make the kind of profit that will enable this debt to be repaid. He wrote letters of support to his representatives for Senate Bill 939 for Commercial Tenants to pass. The bill intends to help tenants who are struggling financially in the wake of the pandemic by allowing them to back out of their leases without penalty, if an attempt to negotiate with their landlords in good faith proved unsuccessful. However, the emergency state bill died in committee in June. Senate Bill 939 would have allowed businesses who have lost more than 40% of their revenue or are forced to operate at 25% of their capacity because of social distancing regulations to renegotiate their commercial leases. The protections were meant to be temporary, ending on Dec. 31, 2021 or two months after the declared state of emergency ends – whichever is later.
“The Senate missed a major opportunity to throw a lifeline to small businesses and nonprofits by helping them survive the COVID-19 economic collapse. California faces the very real prospect of a mass extinction event for small businesses and nonprofits — a result that will undermine our economic recovery and inflict countless boarded up storefronts on our neighborhoods,” Sen. Scott Wiener, D-San Francisco, said in a statement. Wiener authored the bill with Sen. Lena Gonzalez, D-Los Angeles. Landlords fought hard against the measure.
Luckily, on June 30, 2020, Gov. Gavin Newsom recently extended an authorization allowing local governments to delay evictions through the end of September for renters impacted by the COVID-19 pandemic. However, nearly every county and city in the Bay Area have their own ordinances. Click here for a city-by-city look at these eviction moratoriums. Mountain View's moratorium will last until August 31. Renters must give their landlords notice within 7 days after rent is due and must provide documentation verifying hardship within 14 days. Renters will have 180 days after the moratorium ends to pay their back rent.
3. Near Future Costs - Coronavirus Surcharges
Some businesses will most likely be adding surcharges to customer bills for services and raising the prices of certain products. However, Patterson’s salon was only open for two days and did not implement a surcharge. His staff had concerns that a surcharge would not be received well by clients especially since many of the perks they offer like free beverages and a hot towel finish are suspended due to COVID-19 restrictions. The salon owner has spent over $750 so far on additional cleaning and sanitation supplied as well as single use cutting capes. They plan to revisit the idea of a surcharge when they are allowed to open again.
Why is this happening? According to CNET, operating costs might be higher for businesses now that more shops are opening, many with limited hours or capacity. For example, business owners may need to cover the cost of employees’ face masks or provide customers with their own face masks as a condition of entering, either by state law or their own codes. The cost of regularly sanitizing surfaces that are often touched might also increase, and businesses could pass this cost along to their customers in the services and products they offer. The extra charge might also conceivably be used as a form of hazard pay to entice employees who are worried about prolonged exposure at their jobs, or as a way for business owners to recoup some of the costs of closure for months on end, as they deal with reduced capacity in the name of safety or local laws.
Therefore, it might not be a surprise that some salons plan to or have already added extra charges to customers’ bills to help pay for sanitary precautions. Many salons have added a sanitation station so that customers can wash their hands before being seated. So, customers shouldn’t be too alarmed to see a new line item for a COVID tax.
Final Thoughts on the Future of the Hair Salon Industry
“There is just a lot of uncertainty right now,” says Patterson. He declares that hair salons are “working under many restrictions from not only the county and state, but also need to comply with regulations from the Board of Barbering & Cosmetology on what additional precautions must be implemented in order to serve clients during COVID-19”. There also won’t be as many services they can provide since no touching of the face is permitted now with social distancing. Patterson argues that “the labor force in the salon industry is very tight right now, especially in the Silicon Valley with staff not coming back to work or leaving the workforce to take care of family members since kids can’t go to camps”. This makes it harder for salon owners to maintain their businesses. Ultimately, “if another pandemic crisis occurs, I will most likely close my salon business”.
While this pandemic has taken a massive toll, we can only hope that the future will be brighter as a result of all that we’ve learned. As many other salon business owners continue to struggle financially either because of lack of funding, rent backpay, or future costs that make it harder to make profits, we can only move forward as salons will be cleaner, safer, and more personalized. Ultimately, the key theme for the short and mid-term goals for the salon industry will be prioritizing safety and client trust as new changes to regulations come into effect.
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