“I think that this situation absolutely requires a really futile and stupid gesture be done on somebody’s part.” – Tim Matheson, playing the role of Eric “Otter” Stratton in the 1978 film, National Lampoon’s Animal House
Our bank rolled out its Payroll Protection Program (referred to herein as #PPP as a nod to the Twittersphere and its highly entertaining material) application at 10pm last Saturday night. Great timing, right? However, when a free funding source emerges, a lower middle market pro must drop what they are doing. To complete the application, we needed input from our Accounting Director. As Murphy’s Law would have it, he was not answering his phone at 10:30pm on a Saturday. At that point in time, #PPP was widely being referred to as a ‘first-come-first-serve’ program (which may or may not be accurate based on who you ask). So, what do we do? We call our Production Manager to see if she is willing to drive to our Accounting Director’s house (she lives nearby) and knock on the door to get his attention. It worked – though unbeknownst to us, Manatee County, FL had, the day prior, gone under an 11pm – 5am curfew order. The best part of the story came the following day, when our production manager called and said, “You owe me a raise for making me defy the County’s curfew, and I’m really glad [he] didn’t shoot me for ringing his doorbell late at night!” To which our Accounting Director (who is an avid hunter and outdoor sportsman) replied, “of course I wouldn’t do that, but I am glad my neighbors weren’t out on their porch, because they might have shot you.”
In the end, because #PPP applications need to be filled out by each entity/EIN, we worked until 3am on Sunday morning to set up the applications, and finishing on Sunday afternoon. While our experience has been comical in many ways, the common experience across the small business landscape is showing signs of extreme frustration.
As you undoubtedly know by now, the Payroll Protection Program is an emergency lending program for SMBs created under the CARES Act. It is a well-intentioned and unprecedented funding apparatus that promises to extend a lifeline to thousands of private U.S. businesses – to the tune of at least $349 billion at <$10 million per clip. We present three of our favorite twitter responses to Treasury Secretary Mnuchin’s tweet last Friday evening announcing that PPP day one was in the books:
- Expert #1 – @scham00: “Keep telling yourself this is a success. I can easily name 13 lenders in Missouri and Kansas that can’t help [their] small business customer due to being locked out of the SBA system. We are one of them. SBA approved lender for 10+ years and now can’t help.”
- Expert #2 – @WTroyB: “Big banks at the head of the line. Game being played.”
- Expert #3 – @ultronrenal: “It was a complete cluster today. Even local regional banks refused to take applications. Holding us hostage. Shameful.”
Based on the above small sample of opinions, #PPP is chaos and everyone is to blame. While the Twittersphere is entertaining to indulge, the endless comments really do capture the spectrum of emotions that we felt this week. We spent more time talking about #PPP than we did actually working on our #PPP application (which is saying something because we had to fill out 5). From the front line perspective, the real issue with #PPP is that the Treasury and SBA are working to finalize the details, while everyone and their mother are pounding the streets proclaiming that they have the details. For example, we received white papers, emails, webinar invites, articles and general advice last week from: our accounting firm, several accounting firms we’ve never worked with, our partner law firms, several law firms we’ve never worked with, trade associations, our landlords, specialty SBA lenders (who we’ve never worked with), our friends, our families, our friends’ friends, etc.
Our best suggestion – DON’T SHOOT!
Quick background on IAP:
We’ve built our sign company through four acquisitions with capital from 10 private investors. Our investment focus resides firmly on what we call the lower middle market – companies with <$3mm in EBITDA. It is worth noting that most of these companies and their brokers don’t know what EBITDA is – the lower middle market is a strange place that the institutional investment community pays little attention to. However, for investors willing to roll up their sleeves, these companies can present enormous value. Additionally, the COVID-19 outbreak and related government efforts have shined a bright spotlight on businesses with less than 500 employees. Amid the turmoil, we are scratching and clawing to find opportunities.