By Haddon Libby
I have been trying to help small businesses, sole proprietorships and 1099 workers in navigating the labyrinth known as Federal relief related to the CARES Act, existing SBA lending programs and unemployment options. After weeks trying to help businesses and people of all socio-economic backgrounds, I can say with confidence that as of this writing, most small businesses and 1099 workers need to come up with their own relief plans as the federal assistance programs are overwhelmed. The harsh truth is that you need to be prepared that relief may not arrive until the summer. You still need to apply for government assistance as some should eventually get to the Coachella Valley but be prepared for a long wait.
To help you understand my concern, consider the Paycheck Protection Program (PPP). PPP was meant for small businesses with less than 500 employees and gig economy or 1099 workers. $350 billion in Federal assistance was availed via the $2 Trillion CARES Act. As the demand for this relief would outstrip the staffing of an already overwhelmed Small Business Administration, the Federal government rightly chose to outsource this work to the banks and credit unions to help the SBA through this once in two lifetimes event.
When the time came for most small businesses to apply, a sadly funny thing happened. Banks like Wells Fargo were full up on PPP loan requests before the majority of their small business clients had a chance to apply. Wells Fargo was not alone as many other banks would only help their clients with outstanding loans. Others would not help their clients at all. Generally, clients without loans were sent to the back of the line. This created a problem as the initial rollout of PPP was designed to go through your primary bank as they have the records needed to prove your need and can act far more quickly than any other option.
While another $250 billion is being directed to PPP, with the addition of 1099 workers along with all of the businesses excluded in the first round of relief, the current addition to funding will remain too little to satisfy demand.
If the money isn’t getting to most small businesses in the Coachella Valley, where is it going?
Simply put, the government enlisted the banks to essentially choose the winners and losers for the first round of PPP money. As funds availed via in PPP were insufficient to meet demand, banks appear to have chosen to help the clients who put the bank’s existence at risk first – their borrowers. By securing enough of these funds for their most important clients that qualified for the program, it insured that the banks would have a little more breathing room to deal with the economic fallout from COVID-19.
This approach to divvying up economic relief is similar to an ICU unit overwhelmed by COVID-19 cases. At some point, medical professionals have to make life and death decisions as to who gets respirators and who is relegated almost certain death. This same mindset seems to be what the banks and many parts of the federal government are doing – making life and death decisions on which companies will get the cash needed to survive the shutdown.
While this seems like a form of Darwinism, a major fault rests in giving people unreasonable hopes that relief is a few days or weeks away. The harsh reality for most small businesses in the Coachella Valley is that they are not of strategic importance to the banks that they do business nor are they or critical importance to the national economy.
As these various relief programs have been rolled out in record time, it should be expected that the programs will have issues. Patience is the key to getting the relief as it could take months for monies to get to many small businesses. While funding will run out, the President, Congress and Senate leaders have all stated that they would add more funding in a future bill and that those who need assistance should ultimately get assistance. The challenge for many is to survive long enough for the initial clusterfuck of a roll-out to get smoothed out with additional funds added.
If you are in need of federal relief like PPP and your bank is not helping, email your elected leaders, Congressmen or Senators and tell them of your situation. While they may not have an answer today, these are the times when you need to let your voice be heard.
Haddon Libby is the Founder and Managing Partner of Winslow Drake Investment Management. To contact Haddon, please email Hlibby@WinslowDrake.com or call 760.449.6349.