By Joe Garofoli San Francisco Chronicle
WWR Article Summary (tl;dr) A group of Silicon Valley philanthropists, community lenders and even some students are joining forces to help small mom-and-pop businesses. Many of these businesses, which are owned by women and people of color, will receive loans and guidance to survive the shutdown.
Deanna Sison employed 30 people at her two San Francisco restaurants and a bar before the coronavirus pandemic struck. Now she employs four, only one establishment remains open, and she's frustrated by the byzantine application process to obtain federal relief that was supposed to help small businesses like hers survive.
Sison received a federal loan for her bar but can't spend most of it because it is earmarked for payroll -- for a staff that is unneeded until customers return.
"Right now, access to capital is most important," she said. "We need cash now to figure out how to pivot so we can carry on through this thing."
Sison has been in touch with a new group of top Bay Area attorneys, Silicon Valley philanthropists, community lenders and UC Berkeley law students who are trying a new way to help small-business owners frustrated by the federal government's struggles in distributing coronavirus relief efficiently.
Members of the California Small Enterprise Task Force are volunteering their time to help small businesses navigate the bureaucracy and to create a $1 billion investment fund that would direct money to mom-and-pop businesses more equitably than the federal government's Paycheck Protection Program, perhaps as soon as mid-May.
The group is looking beyond the next few months, which is what the federal relief program is designed to address. Instead, it aims to keep small businesses afloat for at least a year, as customers slowly emerge from sheltering indoors. And the money could be used for anything -- not just payroll.
"We are in the first inning of how it's going to affect the economy," said Susan Mac Cormac, a partner at the Morrison and Foerster law firm in San Francisco who co-founded the task force. "We could have 30 to 40% unemployment. We are going to have bread lines."
The needs of the 4 million small businesses in California are far beyond what the federal program can deliver, said Luz Urrutia, CEO of the Opportunity Fund, a 26-year-old organization that lends to enterprises that don't have large workforces.
In California, Urrutia says, 70% of restaurants might not reopen. As many as half of personal service businesses like nail salons and barbershops may remain shuttered. A poll conducted this month by the Small Business Majority advocacy group found that 44% of small-business owners, most of whom employed fewer than 25 people, either have closed their operations or expect to in the next two months.
The carnage is more than what the federal Small Business Administration can handle. The agency, which typically processes $30 billion worth of loans annually, is now being charged with churning out 20 times that amount in just a few weeks through the federal Cares Act legislation. The results have been underwhelming.
The rules governing the first round of $349 billion in federal loans intended for small businesses defined "small" as having fewer than 500 employees. The loans were gobbled up in days -- including by nearly 300 privately traded companies and by other not-so-small businesses like the Los Angeles Lakers. The NBA team, which is valued at $4.4 billion, has since said it would return the $4.6 million loan it received.
A second round of $310 billion in federal loans has been plagued by computer glitches since application approvals began this week. Urrutia said that even though Treasury Secretary Steven Mnuchin said federal regulators will start auditing loans of more than $2 million, many businesses with only a few employees are likely to be left behind again.
Many, she said, are owned by women and people of color.
"The cash shortfall will be tremendous over the next 90 days" and continue to varying degrees for several months longer, Urrutia said. That is why the task force is creating an investment fund that would provide low-interest loans over the next year to businesses of fewer than 30 employees.
The money would come from investors, corporations and philanthropic sources. The plan is to distribute it through community development financial institutions like the Opportunity Fund instead of banks.
"This is about both relief and rebuilding," said Elliott Donnelley of San Francisco, another co-founder of the group and a venture capitalist who focuses on tech and social impact investments. "Most people in times of crisis, they throw a bunch of money at the problem and they run away. We are looking for something long term."
But acting fast is a challenge when it comes to starting a major investment fund.
Typically, getting a $1 billion fund up and running would take "six to 12 months," said Mac Cormac, who has helped to pull together billion-dollar deals involving Uber and other Bay Area firms. But the need is so urgent, she said, "that we're trying to build the plane in midair."
In the interim, Mac Cormac has gotten one phase of the task force off the ground. She has worked with the UC Berkeley Law School to pair law students with lawyers at several top Bay Area firms to provide free legal help to entrepreneurs baffled by the federal relief programs. More than 300 businesses have signed up for assistance.
The task force created a resource guide to help small businesses locate help and understand the process. But the federal maze can be daunting even for the experts.
"Even as law students, the density (of the federal loan guidelines) can be quite challenging to navigate," said Ping Liu, a third-year Berkeley law student who is helping to connect the law students, attorneys and business owners. The students have helped to counsel business owners in more than 20 languages, Liu said, "making it even more challenging."
Shalini Khanna knows that challenge. She has applied for a federal loan to save the Una Mas Mexican Grill outlet she has owned for 14 years, "but so far I haven't got a dime. Being on the (federal loan) websites is like a full-time job."
Khanna, who has seven employees, was doing solid business serving the tech community in downtown San Jose until she had to abruptly close last month. She lost $6,000 worth of food and still has to pay $1,700 in utilities a month, in part to power the walk-in refrigerator where she stores tortillas and cheese.
"I hope I get to use them," Khanna said. She worries that many of her customers will continue to work from home for months. "My problem is that I don't have the resources to keep this afloat for 18 months."
___ Distributed by Tribune Content Agency, LLC.