Disasters Compound: “Everything Is Harder For Small Businesses”

“When disaster strikes, it can take three to four years for small businesses to stabilize–and then all this will hit the fan.”

Janice Jucker, co-owner and president of Three Brothers Bakery Houston. She is also vice-chair for the Goldman Sachs 10,000 Small Businesses Voices National Leadership Council. The council engages policymakers in issues facing small businesses. She was a contributor to the recent Bipartisan Policy Centre report on credit access. 

Jucker is like many small-business owners and entrepreneurs that I have met. Jucker is exceptionally proud of her company, and she’s excited to share the news with others. She is relentlessly determined to fight hard for her company. She is also dedicated to her team: “Paying our employees is the most important thing we do.”

Jucker is unique in at most one aspect. Jucker is very tuned in to the public policy landscape and how it affects Jucker’s business. She gets involved in policymaking. Due to her experience in the industry and her work with 10,000 Small businesses ‘ voices, Jucker is currently focused on SBA Disaster loans.

EIDL not in use

SBA has a long-running program of disaster assistance, including EIDLs (economic injuries disaster loans). These programs received a lot of attention during the COVID-19 Pandemic. However, many small businesses have also been able to benefit from them in prior years. Jucker and her bakery were both victims of floods and hurricanes. After Hurricane Ike (2008), she received an SBA Disaster Loan and paid it off over five years.

Harvey in 2017 was “another animal.” The bakery was closed for 17 days, resulting in a complete loss of revenue. In most cases, flood insurance doesn’t cover business interruption. Therefore, no insurance payout was available. SBA disaster loans helped to fill in the gap but still have some limitations. EIDL funds are only available for “working capital” and “normal expenses,” which generally does not include employees’ payments. Jucker said that is “one thing they should change.”

Before COVID, the average number of EIDLs issued annually by the SBA was approximately 1,500 per year. In 2020, thousands of small businesses were carrying these disaster loans. Three Brothers Bakery experienced a drastic drop in revenues due to the Pandemic.

Congress passed the CARES Act in March 2020. This Act allowed for a deferment period to pre-COVID disaster loans. Jucker’s, a small business, could pause repayment. However, like most policies, this was a double-edged weapon.

Although deferment is beneficial in some ways, it can make things worse because interest continues to accrue. Small businesses can also seek credit through a bank loan. However, the priority liens of the SBA on EIDLs are not transferable to other lenders. To subordinate pre-COVID EIDLs, the loan must have been paid down to 50%.

Jucker sees this as precisely the opposite of what the government should be doing for small businesses. “Why is it making it harder for people who are struggling and want to grow?”

A bipartisan bill is being considered to address the immediate issue identified by Jucker. It is the Loan Indebtedness Forgiveness for Taxpayers under a Pandemic Act (the LIFT UP Act). It was first introduced in 2020. It was included in the House’s revised HEROES act, but it failed to move further. Congress reintroduced it during the 117th Congress. It would provide the same amount of debt relief to preCOVID SBA disaster loan borrowers as was available to SBA 504 & 7(a) loans during Pandemic. This would make disaster loans more comparable and prevent small businesses from being further affected by past disasters.

Jucker wants everyone in the world to see the bigger picture. It’s not about incompetence or even ill will at SBA. This is less about incompetence or ill will. It’s more about capacity and the mountainous loans that the agency must deal with.

The statistic you see above shows that approximately 1,500 EIDLs were paid each year in the years before COVID. How many EIDLs were disbursed during COVID? 3.35 million. This means that the SBA paid EIDLs at a volume that would have required over 2000 years to reach its pre-pandemic pace.

The COVID EIDLs don’t suffer from Jucker’s defect, the 50% payment-down requirement for subordination. A one-page form is available for small businesses. It’s a good thing. However, it takes around 30-60 days to process these forms, and the agency is overwhelmed with them.

Jucker said that one SBA representative told Jucker that they had processed three times as many EIDL Subordination Requests this year as usual. Small businesses are now seeking private credit. This will “expand exponentially” and continue to tax agency resources for years.

This will impact small businesses. While a 60-day processing window may not seem like too much, it will mean that small companies “lose out” on additional capital. This means that they are not hiring or paying employees.

EIDLing over the Years

Personal emergencies can happen to anyone, large or small. After the problem ends, there is a cleanup. There are, however, unintended side effects that can be attributed to those actions.

The remarkable speed with which Congress established the Paycheck Protection Program (PPP) and put more money in EIDLs is admirable. Those were the chaotic emergency actions. The cleanup is accomplished by loan forgiveness and one-page subordination processes. Jucker and others say that we already have some of the unintended consequences.

This is part of any policymaking: tradeoffs are necessary, not tightly-tied solutions. Like many small-business owners who are trying to recover from disasters, Jucker may find that such tradeoffs can create unintended obstacles for growth.

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Samatha Vale
Samatha a senior writer for HC's entertainment team. She is an entreprenuer, mother and an excellent writer. She's also an avid reader, music enthusiast and all around inquisitive person - which is just a nice way of saying she's nosy.

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