Should Alternative Lenders Make SBA Loans?

Ami Kassar says no—even though so-called fintechs did get a lot of PPP loans to small businesses.

Good morning!

Here are today’s highlights:

• The U.S. economy did even better than we realized during the third quarter.

• The price of gas is back where it was before Russia invaded Ukraine.

• A Philadelphia deli demonstrates the importance of business-interruption insurance.

• Is it legal to fire an employee for being overweight?

FINANCE

Amy Kassar says letting fintechs make SBA loans would be a mistake: “Because fintechs made a killing on PPP loans, the notion has spread that they could repeat that success under more normal circumstances. They can’t and won’t. And in the end, I believe opening the SBA door to fintechs will spell disaster for the borrowers they purport to help.  You see, regular SBA lending is nothing like PPP lending. In regular SBA lending, there are literally thousands of rules and regulations that have to be followed and considered and that ultimately protect the borrower and the taxpayers.”

• “The intent is clear: to issue more loans to underserved businesses and entrepreneurs. The problem: those pesky details.”

• “I think a better idea for that money would be to spend it on a program that provides tax and accounting help to underserved business owners, so they can build their businesses in a way that will satisfy the more stringent regulations required to get traditional SBA loans.” READ MORE

THE ECONOMY

Third-quarter GDP was even stronger than previously thought: “Third-quarter U.S. growth was stronger than previously estimated and demand for workers remained elevated in October, signs a tight labor market and resilient consumer demand are propping up an economy struggling with persistently high inflation. Gross domestic product increased at an annual rate of 2.9 percent from July to September, up from an initial estimate of 2.6 percent, the Commerce Department said Wednesday. Larger consumer spending and business investment estimates were behind the growth revision.”

• “Walter Magnuson, general manager of Winchester Mystery House, a tourist attraction in San Jose, Calif., said his company of about 150 employees has had trouble hiring enough tour guides, event-support employees and janitorial workers in recent months.”

• “The challenge in filling vacancies has meant heavier workloads for existing staff, limiting the number of tours in a day, and it has prevented the business from hosting large private events.”

• “‘We are just able to staff our base business, which are the tours and seasoned-themed events, but to layer a wedding or something on top of that would be very challenging. We’re sort of tapped out of that space,’ Mr. Magnuson said.”

• “He added that the business was thinking about raising wages in the new year and has made an effort to retain current workers by improving the employee lounge and occasionally providing free meals to the staff.” READ MORE

Mortgage rates have doubled: “The average interest rate for the most popular long-term mortgage — 30-year fixed — is more than double what it was a year ago, according to government-backed mortgage buyer Freddie Mac. The rate was 6.58 percent as of Nov. 23, up from 3.1 percent last year. Because of higher rates coupled with high home prices, the median monthly mortgage payment nationwide rose to $2,012 last month — a new high, according to the Mortgage Bankers Association.” READ MORE

Meanwhile, the cost of gas is back where it was before Russia invaded Ukraine: “The cost of gasoline is falling so fast that it is beginning to put real money back in the pockets of drivers, defying earlier projections and offering an unexpected gift for the holidays. Filling up is now as cheap as it was in February, just before Russia’s invasion of Ukraine touched off a global energy crisis. AAA reported the average nationwide price of a gallon of regular Wednesday was $3.50, and gas price tracking company GasBuddy projected it could drop below $3 by Christmas. And all of that relief probably helped drive robust shopping over Thanksgiving weekend.”

• “Prices are going down because demand for oil and gas is falling as countries brace for recession, coronavirus outbreaks in China threaten major financial disruption and drivers cut back on gas-guzzling as they try to save money to cover skyrocketing mortgage payments and stock market losses.”

• “When [John Catsimatidis] talks about gas prices, he is more focused on what they could ultimately mean for another business in his multibillion-dollar empire, the one focused on developing real estate.”

• “‘If we get the price down and it stays there, we could fix the problem of inflation and the Fed can stop raising interest rates and putting everybody out of business,’ Catsimatidis said.” READ MORE

HUMAN RESOURCES

The smallest businesses are laying off the most workers: “Some 305,000 workers lost their jobs in October at businesses with less than 10 employees, according to data released Wednesday by the Bureau of Labor Statistics. That’s up by 137,000 from the previous month. It was the biggest change in any of the firm-size categories broken out by the BLS. The job cuts at the smallest U.S. businesses were the most since May 2020 when the pandemic was forcing many of them to shut down.”

• “Now, amid signs the economy is slowing, many firms are expected to try to hold onto their workers -- since it’s been a struggle to find talent since the pandemic hit.”

• “But that’s harder for the smallest firms, which lack the financial buffers to absorb blows such as weaker consumer demand or higher borrowing costs.”

• “Before the pandemic, more than 27.5 million people worked for firms with less than 20 employees. That number is now below 25 million, the latest ADP data shows. By contrast, every other category of firm by staff size has seen employment increase.” READ MORE

It’s legal to fire employees because of their weight: “People in larger bodies are 37 times more likely to report being discriminated against in hiring, performance evaluations, and promotions. On average, plus-size women earn 18 percent less than women with a ‘healthy weight’ BMI — and this pay gap is trending upwards. Harvard researchers found that anti-fat bias has increased by 40 percent since the early 2000s.”

• “‘This is a human rights issue,’ says Virgie Tovar, body positivity activist and author of You Have the Right to Remain Fat. ‘The adverse outcomes for people in larger bodies are on par with — and at times, exceed — other stigmatized groups currently under the DEI umbrella.’”

• “Every company wants happy and healthy workers. But many aspects of employee engagement and wellness programs — like step-counting challenges, ‘biggest loser’ contests, weight-restricted physical activities, and corporate swag that doesn’t come in every size — reinforce the stigma against people in bigger bodies.”

• “Combine this with the diet talk that is already so prevalent in most workplace kitchens, it becomes indisputable that companies need to do better to create an environment that welcomes people of every size.” READ MORE

INSURANCE

In Philadelphia, a community is trying to get Lee’s Deli back in business: “The local landmark has been closed since Nov. 20, when a stolen van rammed through the front of the building at 4 a.m. No injuries were reported, but the store’s interior, including furnishings and equipment, was severely damaged. Police said an investigation of the incident is continuing. Despite the Lee family’s initial reluctance, supporters have set up a Go Fund Me campaign on behalf of Lee’s, which does not have business interruption insurance, and may need major structural renovations before it can reopen. Four employees are out of work; the deli also is a principal source of income for the Lee family.”

• “‘Everybody loves him,’ said Renee Pettis, a school crossing guard at the intersection. ‘He’s a good person. And he makes good cheesesteaks.’”

• “‘Our goal is to guide them to every opportunity possible to acquire as many dollars as are needed to rebuild,’ said Ryan Spak, project manager for the University City District’s small business services program.”

• “Lee immigrated to Philadelphia from South Korea in 1989 with his wife, Grace, and their sons, Eddy, Andrew, and Alex, and March 1, 2023, will be the 30th anniversary of the Lee’s Deli grand opening.”

• “‘There are a lot of challenges everywhere [in the reopening] process, and work can be delayed, but I want to be here and start again on March 1,’ Lee said. ‘That is my dream.’” READ MORE

PROFILE

This man is a nemesis of consumer-product companies: “A few weeks ago, Edgar Dworsky got a promising tip by email. ‘Diluted cough syrup,’ read the message, accompanied by a photo of two packages of syrup with a curious difference: The new one appeared to be half the strength of the old one. Mr. Dworsky gets emails like this frequently, alerting him to things like a bag of dog food that discreetly shrank from 50 pounds to 44 pounds. A cereal box that switched from ‘giant’ to ‘family’ size and grew about an inch taller — but a few ounces lighter. Bottles of detergent that look the same, but the newer ones come with less detergent. The cough syrup message looked intriguing. Mr. Dworsky made plans to investigate.”

• “He writes up his discoveries on his website, mouseprint.org, a reference to the fine print often found on product packaging. Print so tiny ‘only a mouse could read,’ he says.”

• “He writes about shrinkflation in everything — tuna, mayonnaise, ice cream, deodorant, dish soap — alongside other consumer advocacy work on topics like misleading advertising, class-action lawsuits and exaggerated sale claims.”

• “Lately, Mr. Dworsky has had his work cut out for him. With inflation at a 40-year high, business owners have been increasingly shrinkflating their products in an attempt to hide price increases.” READ MORE

THE 21 HATS PODCAST

This week, in episode 134, Shawn Busse, Jay Goltz, and Laura Zander talk about buying and selling businesses: Laura thinks her recent purchase of a small distribution business could change the trajectory of her whole company, helping her finesse the challenge of selling wholesale products to retail competitors. Jay, meanwhile, has been trying to help an aging business owner sell the kind of business that too often just fades away. Underlying both discussions is an intriguing question: While it’s common practice for owners trying to sell a business to keep the potential sale a secret, is that really the best approach? Or is it actually a betrayal? Plus: We answer a listener's question about finding the right balance between being a kind boss and being a pushover. And we play a quick game of Who Said It: Elon Musk or Mr. Burns?

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren