Colin McIntosh, the millennial founder and CEO of startup bed company Sheets & Giggles, promised last month to keep all of its staff, even if layoffs from the corona virus are raining in nearly every industry.
The loan supported by the Small Business Administration that he applied for could help him keep that promise, but McIntosh doesn’t know when – or if – he’ll finance it. The initiative is part of the $ 2.2 trillion CARES bill passed by Congress to help Americans weather the economic downturn.
McIntosh fears that the smallest US companies will be at the forefront of the cash industry behind larger companies with full-time chief financial officers and existing banks for credit relationships. He has six full-time employees and had sales of $ 2.5 million last year. His company’s sales have dropped about 30% since consumers started reducing their spending.
“We don’t have a department to track all changes coming from the federal government,” McIntosh told CBS MoneyWatch after the program started earlier this month. “Small businesses currently have neither the ability nor the scope – financially, mentally or temporally – to keep track of every piece of information that comes from the administration and from this CARES law.”
“Larger companies have teams that have the time and experience to manage it,” McIntosh added. “It’s frustrating that we’re competing with extremely well-funded startups with $ 50 or $ 60 million in the bank and have full-time CFOs. Real small businesses are at a disadvantage.”
McIntosh said initial confusion as to whether Sheets & Giggles is a venture-backed company Eligibility for a paycheck loan and delays in accepting applications from some banks prevented him from applying for funding under the program launched on April 3. Three days later, he finally applied for a loan from JPMorgan Chase.
“You already had your finances set for 2019, and a lot of us just focused on stopping the bleeding in March. We weren’t prepared for it in time,” he said.
McIntosh considered raising more risk finance, but said his investors were also concerned. He also said: “There is no telling what the schedule would look like, what the conditions would be, or whether investors would even want to allocate their limited capital to a young company facing a sales crisis and supply chain closure rather than other, safer ports . ” “”
Other small business owners say confusion about how to apply for the loans and the requirements of some banks for companies to have credit relationships with them have delayed applying for a paycheck protection loan.
Chelsea Walsh, whose family owns Wings Plus, a Chicken Wings restaurant in Fort Lauderdale, Florida, said the company’s lender, Wells Fargo, told her that it had reached its credit limit when it turned to it for one Get PPP credit. She looked elsewhere, but was rejected by a handful of other banks because the company had never taken out a loan with them. (The Federal Reserveit has placed Wells Fargo’s assets on hold and allowed him to expand his small business loans.)
“We don’t do a lot of banking. I have a checking account [at Wells Fargo ] When I deposit cash, we write checks and the pay slip is deducted. Otherwise, I don’t do banking and we have no relationships with bankers, “Walsh told CBS MoneyWatch.
A friend finally referred her to New River lender Cross River Bank, where she applied for a loan on Tuesday. “They wanted to help small businesses that didn’t have banking relationships, and I happened to be friends with some people who knew other people who were trying to help,” said Walsh.
Jordan Moncharmont and Lisa Curtis, co-founders of Kuli Kuli, a Moringa food company, also struggled to find a lender immediately after the Paycheck program started.
“Chase, the bank we currently use, only collected biographical information about our company, and did not accept loan applications,” said Moncharmont.
He compared companies looking for funds to the increasing demand for masks, hand sanitizers, toilet paper and other goods at the beginning of the coronavirus outbreak. “There is a scarce resource and everyone competes for it,” he said.
Kuli Kuli completed his loan application through small business lender Newtek on Wednesday. The company applied for a loan of $ 238,000, which is 2.5 times the company’s average monthly wages. But Moncharmont said he hadn’t received a last word from Newtek.
As a “small business without an existing banking partner, with the exception of Chase, which is gigantic, we have no one to speak to, and that’s scary.”
“We’re keeping our fingers crossed,” Curtis added.
“I’m hung up to dry”
Even small businesses with hundreds of employees fear that the $ 349 billion allocated for the program will be used up before they see a cent. Joseph Shamie, president of Delta Children, a 50-year-old family-run children’s furniture company, said Wells Fargo rejected his application because he had already reached his credit limit.
“You said we’re sorry we can’t give these loans, you have to go somewhere else,” Shamie told CBS MoneyWatch. He turned to a dozen other banks, but everyone told him that they were focused on lending to their existing customers.
“I’m hung up to dry,” he said.
Shamie has kept his approximately 200 employees on the payroll and hopes to avoid layoffs. Since then, he has applied for a loan through Wells Fargo again after the Fed raised its credit limit and is now waiting for the bank to approve his application.
“We live to the end of business. We have our employees,” said Shamie. “I have about 50 people who have been working with me for over 25 years. We won’t give them up, but it’s time for the federal government to keep their promise.”