"In this case, the source tag 'local knowledge' means that I have extrapolated information from several sources, including that of the business owner, so I can confirm that the place exists in reality even if I haven't been there physically."

The issue is that this is not what "local knowledge" means. I encourage you to consult the OpenStreetMap wiki page addressing common values of the source tag, including "local knowledge": https://wiki.openstreetmap.org/wiki/Key:source#General_sources_commonly_used_by_human_mappers. In short, unless you have seen the feature you're mapping in person, it's not appropriate to use "local knowledge" as your source. A combination of indirect sources of information can indeed create reasonable certainty that the feature exists and that the information you're adding about it is accurate, but it's important to accurately document where exactly you got the information nonetheless.