SBA Lending Is Experiencing Big Delays

Today’s highlights: There’s a glut in warehouse space. Co-working companies are rethinking their business models. And Amazon’s third-party sellers are getting rolled up.

THE 21 HATS PODCAST

Episode 48: I Want Clean Hands: This week, Paul Downs, Jay Goltz, and Dana White give quick PPP updates—and then dive into a discussion of what a $15-an-hour federal minimum wage would mean for smaller businesses. Will it put businesses out of business? “I'm listening to you, Jay,” Dana tells us, “and I'm thinking about the coffee shop owners I know who have to close.” To which Jay responds, “They say they have to close, but did they try raising their prices 5 percent first?” We also tackle a listener-submitted question about the best way to avoid unemployment claims, which can require forceful management. “There's no way around it,” Paul tells us. “You gotta be hard at some moments, as a boss. You just have to be.”

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FINANCE

Despite a surge in demand, banks are moving very slowly on SBA lending: “In the last few months, business owners across the spectrum are reporting signs of credit tightening within these programs--even as demand is surging. ‘We're seeing some deals that used to take four to six weeks now take four to six months,’ says Evan Goldman, a partner and chair of the franchise and hospitality group at A.Y. Strauss, a law firm in Roseland, New Jersey. ‘Banks and lenders generally—whether SBA or not—are just being very cautious lending right now,’ he says.”

• “The pandemic is still dictating the pace of loans, says David Nilssen, CEO of Guidant Financial, a Bellevue, Washington-based financial advisory firm, which also reports lending delays at some of its 8,000 small business clients across the country.”

• “The U.S. continues to log more than 100,000 cases of coronavirus per day. ‘That number needs to come down dramatically for banks to have confidence that they can make these loans happen,’ says Nilssen.” READ MORE

And yet, the big banks are flush with cash: “Large U.S. lenders saw their loan books shrink in 2020 for the first time in more than a decade, according to an analysis of Federal Reserve data by Jason Goldberg, a banking analyst at Barclays. The 0.5 percent drop was just the second decline in 28 years. ... Lenders are flush with cash that they want to put to use, and executives say they are hopeful loan growth will pick up in 2021. Brisk lending typically suggests there is enough momentum in the economy to give companies and consumers the confidence to borrow. But the current weakness suggests questions remain about the vigor of the economic recovery.” READ MORE

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COMMERCIAL SPACE

The ecommerce boom is leading to a glut in warehouse space: “Warehouses and distribution centers for online retail have been the recent stars of the commercial property market. Then there’s Houston. A building surge for such facilities in the Texas city over the past three years is driving vacancies up and rents down. About 8.5 million square feet of new space for warehouses, distribution hubs and fulfillment centers was delivered in the fourth quarter of last year, about double the amount in the same quarter of 2019, according to Colliers International.”

• “In some ways, Houston is anomalous. Its business-friendly regulation puts very few restrictions on building. ‘There’s no zoning,’ said Ryan Byrd, a principal of Colliers International Houston. ‘If there’s land that doesn’t have a pipeline, wetlands or is in a flood plain, you can build a building in less than one year.’”

• “Still, it’s not the only market with supply worries. Development pipelines for warehouses are growing fast in such places as Phoenix and Pennsylvania’s Lehigh Valley, raising the prospect of oversupply.” READ MORE

Even after the pandemic, most Salesforce employees will work remotely at least part of the time: “The business-software provider, which has 54,000 global employees, is among the largest companies to spell out how it plans staff to work after Covid-19 recedes. Chief People Officer Brent Hyder said Salesforce’s changes would include revamping office layouts to increase collaboration space instead of having a ‘sea of desks.’ As employees are expected to do much of their independent work remotely, the mock-ups of the new offices feature cafe-style seating, open-air conference areas and private nooks, with an emphasis on clean desks and social distancing.”

• “‘We’re not going back to the way things were,’ Mr. Hyder said in an interview. ‘I don’t believe that we’ll keep every space in every city that we’re in, including San Francisco.’”

• “The company is the largest private employer in San Francisco and occupies the city’s tallest building, known as Salesforce Tower, and others with similar names in cities including Indianapolis, New York and Chicago.”

• “The company declined to say how much its real-estate footprint might shrink as a result of its changes.” READ MORE

Covid is forcing co-working companies to change business models: “The original strategy, popularized by WeWork and many of its peers, involved leasing as much office space in city centers as possible, and then effectively subletting it to companies for a profit. This approach led to spectacular growth and sent WeWork’s valuation soaring to $47 billion. With the majority of office employees still working from home during Covid-19, demand has plummeted. But co-working firms remain on the hook for the expensive long-term leases they signed during the boom years, and many are struggling to meet these obligations.”

• “[Daniel Ismail, a senior analyst at commercial real-estate analytics firm Green Street] expects revenue-sharing agreements to become more common.”

• “They are similar to the relationship between hotel owners and operators, where operators get fees and a share of profits but don’t have to pay rent.”

• “Revenue-sharing deals are considered less risky because they leave operators with lower fixed costs.” READ MORE

ECOMMERCE

Online returns are being turned into mystery boxes of unwanted goods for liquidation: “Since the pandemic started, these liquidation websites—also called reverse logistics companies – have been processing more and more returns as consumers switched to buying online. B-Stock says that it had its best year on record in 2020, selling a massive 120 million items, a figure that was up by 55 per cent. Estimates suggest that 30-percent of items bought online are returned, compared to 8.9 per cent for items bought in brick and mortar stores.”

• “It’s supposedly cheaper for Amazon to shift already opened, potentially broken items to somebody else than to inspect, repackage and re-list the items itself.”

• “On liquidation inventory websites like B-Stock, registered buyers can peruse a manifest of all the returned items inside various different pallets, along with their recommended retail prices.”

• “B-Stock also allows buyers to bid on truckloads of returned goods, which they can then sell on.” READ MORE

M&A

There’s a big move to roll up Amazon’s third-party sellers: “The Amazon Marketplace roll-up play is well and truly underway. In the latest development, Thrasio — one of the biggest and earliest movers in the market to consolidate third-party sellers on the platform, with the promise to provide better economies of scale to manage and grow those businesses — announced that it has raised another $750 million at a valuation that could be between $3 billion and $4 billion, or higher.”

• “Thrasio to date has acquired nearly 100 Fullfillment by Amazon businesses and says that it reached that number by way of evaluating 6,000 possible companies and 14,000 ‘category-leading products.’”

• “Six thousand may sound like a big number, but one estimate puts the number of third-party sellers on Amazon at around 5 million, a number that appears to be growing exponentially at the moment, with more than 1 million sellers joining the platform last year.”

• “Brands that it owns include Vybe Percussion deep tissue massage gun, Circadian Optics bright light therapy lamps, and skincare products from Sdara Skincare, Thrasio said.” READ MORE

MARKETING

Amazon’s pay-per-click advertising is surging: “PPC advertising has quickly become the most popular method used by Fulfillment by Amazon sellers to market their products, with three-in-four Amazon sellers now using at least one form of Amazon PPC. Jungle Scout’s own surveys show that many sellers opt for multiple forms of Amazon PPC. Those gains are pushing Amazon as it edges closer to ad industry ad leaders Google and Facebook.”

• “A whopping 75 percent of third-party Amazon sellers are now using Amazon Pay-Per-Click advertising to promote their products ...”

• “Forty-four percent of Amazon’s PPC sellers say they’re generating more than $10,000 in monthly sales, versus just 20 percent of non-PPC sellers.” READ MORE

Aunt Jemima is now the Pearl Milling Company: “The new name comes from the milling company in St. Joseph, Mo., that pioneered the self-rising pancake mix that became known as Aunt Jemima, according to PepsiCo, which said the rebranded products would arrive in stores in June.”

• “On the Aunt Jemima website, photos of the pancake mix and syrup’s new packaging were unveiled on Tuesday. They feature a rendering of a mill with a water wheel and still use the same red, white and yellow color scheme.”

• “Both the pancake-mix box and the syrup bottle included a label that says, ‘New Name Same Great Taste. Aunt Jemima.’” READ MORE

TECHNOLOGY

A battery boom is ready to disrupt industries: “In the energy sector, affordable batteries are making it possible for companies to store electricity and harvest renewable power. In the auto industry, they are set to challenge the gas-powered engine’s century-long domination. Costs have come down so far and so fast that most car makers expect that electric vehicles, which are currently more expensive than their gas-powered counterparts, will cost the same amount to build within the next five years.”

• “Companies are working on new configurations—such as solid-state batteries, which don’t transfer ions through liquid—that could significantly enhance the power and further lower battery prices. The value of such a breakthrough could be measured in the billions of dollars, if not trillions.”

• “Amsterdam’s Johan Cruijff Arena has a three-megawatt ‘super battery’ made from 148 Nissan Leaf battery packs, many of them recycled, storing electricity generated by rooftop solar panels and helping balance the stadium’s energy usage.” READ MORE

OBITUARY

Joe Allen, a restaurateur in Manhattan’s Theater District: “In a city that devours restaurants the way diners down hamburgers, Mr. Allen founded and ran not just one successful New York restaurant but two: Joe Allen and Orso, next to each other on West 46th Street, between Eighth and Ninth Avenues. The street would later develop a certain cachet and even got its own name: Restaurant Row. But when Mr. Allen opened Joe Allen in 1965, the neighborhood, close to a then-squalid Times Square, was hardly a prime location.”

• “He could often be found seated at the bar, an unassuming slim man, sometimes in a basic T-shirt, looking like anything but the man who owned the place.”

• “Once, when asked to explain his success, he cited his diffidence: ‘Maybe it’s because I don’t inflict myself on the customers,’ he said.” READ MORE