Those SBA Disaster Loans Are Coming Due
It’s cheap money, but the payments are arriving at an awkward time for many business owners, some of whom didn't realize that interest was accruing even while payments were deferred.
Good morning!
Here are today’s highlights:
Assessing your digital-advertising channels? Remember customers are likely to have multiple touchpoints.
Mark Zandi says the latest inflation news lessens the likelihood of a recession.
You can take a VR trip to Costa Rica for just $12.
FINANCE
The bill for pandemic disaster loans is coming due at an unfortunate time: “WrightIMC, based in Allen, Texas, borrowed $150,000 from the Small Business Administration’s Covid-disaster loan program two years ago. The 20-person digital marketing agency made its first $1,600 loan payment this month, just as ad sales are softening. The disaster loan ‘has certainly helped us to survive and avoid layoffs,’ said owner Tony Wright, who has frozen hiring and is cutting expenses as customers tighten their belts. ‘Ironically the payback is coming at a time when we are seeing a steeper decline in business than during the pandemic,’ he said. ‘Maybe this isn’t the best time to have everyone start paying back.’”
“The SBA issued roughly $390 billion in Covid disaster loans to nearly four million small businesses and nonprofits. Unlike forgivable loans issued through the federal Paycheck Protection Program, the disaster loans were designed to be repaid.”
“The loans, which carry a 30-year term and a fixed interest rate of 3.75 percent for small businesses and 2.75 percent for nonprofits, were welcomed by entrepreneurs who often struggle to obtain low-cost financing even when the economy is booming.”
“One-third of borrowers with Covid disaster loans made payments during the deferral period, the SBA said. Some borrowers say they welcomed the additional time to recover but were surprised to discover that interest accrued—and their loan balance grew—during the deferral period.”
“‘They did say it was a low-interest loan,’ said Kristin Malara, a provider of at-home child-care services in Lenexa, Kan., who took out a $14,000 Covid disaster loan. ‘They didn’t say that it would start immediately accruing interest.’” READ MORE
MARKETING
Here’s how Sahra Nguyen built a multimillion-dollar coffee business: “When people see the speed at which I've grown my direct-to-consumer coffee company over the past five years, they're often surprised to learn we didn't do any paid advertising for about the first one and a half years. Like many small businesses, we simply didn't have the money to spend. So we relied on growing our audience more organically for as long as we could. Even though we eventually layered in ad spend, I think this diversified marketing mix has really benefited us by allowing us to meet different types of customers where they are and creating multiple touchpoints to ultimately inspire a prospective customer to buy.”
Public relations: “In the beginning, we'd measure the success of our PR by how many of our pitches were turning into published stories, which helped us evaluate the efficacy of our pitch, hook, storytelling, and macro-cultural relevance. Now that we've got the ball rolling, we cross-analyze press pieces, site traffic, and Google Analytics to estimate impressions and site traffic coming from a particular article.”
Paid advertising: “When it comes to measuring the success of our paid advertising, we've found it most helpful to think about how these channels work together. Consumers often interact with multiple touchpoints before they make a purchase. For instance, they may see an ad on Facebook and then read an article about us later and then Google us to click through and purchase.”
“While Google Ads may get the attribution in that case, multiple platforms played a role. That's why instead of paying attention only to the return on advertising spend of any given advertising channel, we also look at the blended return on advertising spend (also called the marketing-efficiency ratio) across all channels.” READ MORE
SOCIAL MEDIA
For some business owners, Instagram is replacing business cards: “One use case for Instagram in particular has picked up steam, according to creator industry insiders: Finding people, following them, and connecting over a DM. Sounds like LinkedIn, no? But when you meet someone new, where do you often go to add them? For many, especially those in the broader creator ecosystem, that answer is Instagram. ‘Instagram has replaced business cards,’ influencer Austen Tosone recently told Insider. ‘It's that first impression, that community hub, that place where someone can go and in one second get a glimpse of Who is this person?’”
“‘It's like a Rolodex,’ said Christen Nino De Guzman, a creator, startup founder, and former employee at both TikTok and Instagram. ‘It's a directory of everyone I know in different categories of my life from family to personal relationships to former coworkers to people that are just in my same industry.’” READ MORE
THE ECONOMY
Mark Zandi says yesterday’s encouraging inflation report makes it more likely we will avoid a recession:
Consumers are moving to house brands: “Supermarkets are doubling down on their in-house product lines, seeking to capitalize on the disposable-income squeeze that is hitting consumers. Sales of private-label products, which are typically cheaper than brand-name equivalents, have surged in recent months as shoppers look for ways to economize amid soaring inflation. In response, big supermarket operators such as Kroger in the U.S. and Carrefour in Europe say they are investing in expanding their in-house offerings across more price points and product categories.”
“Private-label sales at Kroger increased more than 10 percent compared with last year in the third quarter, during which it introduced 147 new store-brand products.”
“A recent survey of food retailers by FMI, a food-industry trade group, revealed that more than 80 percent of respondents plan to moderately or significantly increase their investments in private brands over the next two years.”
“One big question is whether supermarkets’ own-brand products can retain customers when pressure on incomes starts to ease. With an edge on price, the answer, Mr. Skelly said, will likely come down to quality. What the makers of the big consumer brands fear most, he said, is that people will make the switch to cheaper store brands ‘and then realize there’s very little difference.’” READ MORE
HUMAN RESOURCES
The wave of tech layoffs is sending workers to other countries: “Big tech companies like Amazon, Meta, and Twitter have sponsored close to 45,000 H-1B visa holders in the last three years, according to a report from Bloomberg. It's unclear how recent tech layoffs have impacted many visa-holders, but The Information reported that Meta and Amazon's recent layoffs alone likely affected hundreds. Agarwal, and the many other visa-holders in this limbo after losing their tech jobs, are in for a real challenge if they want to stay in the US, lawyers and other experts told Insider. There are still tech jobs available even in a market downturn. Finding one willing to go through the time and expense of sponsoring an H-1B visa, however, is more difficult.”
“Companies like Amazon, Meta, Google, Twitter, and Microsoft have long relied on H-1B visas to bring in the talent they need to fill positions in specialized, competitive fields like engineering and computer science.”
“Leaders like Mark Zuckerberg, the CEO of Meta, have long advocated for reforming the H-1B system to allow more of that talent to work in the U.S.”
“If the current situation continues as the combination of job losses, scarce availability of H-1B visas, and strict rules for visa-holders, this specialized workforce could bring their talents to places with more permissive policies like Canada or the nations of the European Union.”
“If that happens, experts and insiders warn, that could undermine America's vaunted competitiveness in the tech sector.” READ MORE
TRAVEL
Virtual reality is offering an increasingly popular alternative to travel: “Ligia Morera, 32, lives in San Ramón de Alajuela in the Central Valley of Costa Rica with her husband, Rodrigo Santamaria, 35. She studied tourism at university before working in hotels and travel agencies. Six years ago, she and her husband founded their own travel-planning business. When Covid-19 put international travel on pause — and thus dried up their main source of income — they cast around for other employment, including browsing the freelance marketplace Upwork. That's where they stumbled on the chance to become pioneers in the travel space: virtual-reality tour guides.”
“Since November of last year, the couple have been operating as virtual guides via the platform provided by Dokodemo Door Trip, a subsidiary of the Japanese company Metareal Corporation. Santamaria serves as videographer and editor, while Morera focuses on guiding.”
“Their first tour, all shot on Santamaria's GoPro Max 360, features a rare natural phenomenon: turtle nesting on Ostional beach in the Nicoya Peninsula. Hundreds, often thousands, of turtles come up by moonlight from the ocean along a 1-mile stretch of beach and then proceed to dig into the black sand and carefully lay a haul of eggs.”
“‘We pre-recorded the turtle nesting together. The biggest one is in October, so we did that in 2021,’ Morera told Insider. ‘I play the video, with all the natural sounds as we walk along the beach, and I started telling them about how the turtles lay their eggs.’ Her guests pay $12 each for a 30-minute tour through this immersive video.” READ MORE
THE 21 HATS PODCAST
Jay Goltz’s 12-Step Business Check-Up: This week, in episode 136, Shawn Busse, Jay Goltz, and Sarah Segal talk about what they hope to accomplish in 2023. Sarah’s moving into new offices, aiming for 20-percent growth, and hoping to land a chocolate company as a client. Shawn’s looking for new space, too, and attempting to reposition his business to shake the corrosive effects of the pandemic. And Jay’s employing a methodical 12-step process to assess how his business is performing: Hiring? Check. Pricing? Needs work. Inventory levels? Way out of line. And then there are his ongoing efforts to mentor his two sons in the business and prepare for the inevitable. These days, Jay tells us, he’s especially careful when getting in front of buses.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren