The owners of Travel 4 Real wanted a lifeline, a $35,000 federally backed loan that would help pay for new employees and expansion.
They got their loan through JPMorgan Chase, part of a stimulus package approved by Congress and the president earlier this year. But an unexpected delay in receiving the money will make adding jobs unlikely and could end up costing some.
“It’s just put us in a bad situation,” said Rem Malloy, who runs the Everett-based travel company with his mother, Deborah De Maio. “If they’d told us this would happen, we could have planned.”
They applied for an America’s Recovery Capital loan through Chase months ago, knowing it was a long shot. When their application was approved, they made plans to pay off debt and hire a marketing manager in time for the busy winter season of their tour business.
On the day the final papers were to be signed, their Chase loan agent delivered news that changed everything. The bulk of the money wouldn’t be distributed until March.
That meant little debt would be paid off before then. There would be no marketing manager and no freelancers to work on the Web site.
And with the company’s credit tied up in the loan, there was no option for a plan B.
De Maio finds it unfathomable that her business is without options. She and her son expected the loan to help expand the company, not paralyze its credit. The Travel 4 Real owners said they believe their experience contradicts messages from Washington, D.C., where small business is a favorite topic related to job creation and economic recovery.
“Small business is the lifeblood of the country — how many times have I heard that?” said Malloy. De Maio added, “And we’re all bleeding to death.”
On Tuesday, President Barack Obama told regional bankers what he had told executives at big banks last week: they need to make “an extraordinary commitment to rebuild the economy.”
Travel 4 Real is in a converted warehouse near downtown Everett, where a small staff makes arrangements via computer with vendors in Italy, France and Brazil.
In the 10 years since De Maio and Malloy started the business, the last year was a tough one. “We’ve seen a drop in business, probably 40 percent,” Malloy said.
With debt mounting, they consulted Jennifer Shelton, a business adviser for the Snohomish County Small Business Development Center. She helped draft the loan application and a report showing how the money would be used: mainly for winter-time hiring.
The application and report were accepted by Chase, then came the news of the disbursement schedule imposed by the bank: Travel 4 Real would receive $374 for five months until March, when the bulk of the money would be dispersed. That’s the end of the planning season for the company, a detail noted in their loan proposal.
“What that did to us was give us no usable funds from the ARC loan for six months,” Malloy said.
Chase spokeswoman Darcy Donahoe-Wilmot said that schedule would likely apply to most loans acquired by Travel 4 Real. A confidentiality agreement prevented her from discussing the loan’s specifics.
“We didn’t do anything differently than a standard loan,” she said.
De Maio said a Chase official said SBA regulations prohibit an up-front disbursement schedule. She noted that she had forwarded the Chase official an e-mail from an SBA loan specialist who recommended reversing the schedule: one large disbursement followed by five small ones.
Shelton, who has worked with four clients on ARC loan applications, said the way Chase administered the loan is contrary to SBA guidelines, which state that a borrower’s economic condition should be considered and disbursements should be made on a schedule that’s in the best interest of the business.
“I’m concerned Chase didn’t take care or time to work with them,” Shelton said. ”For me, the whole thing is sort of strange, because when you make a loan, people need the money right away.”
When the ARC program was established, some lawmakers touted it as a magic bullet that would help save small businesses as the recession deepened.
But the bullet misfired. The loan program, administered through private lenders and overseen by the Small Business Administration, got off to a slow start. News of the program was slow to spread, and there wasn’t much incentive for lenders to promote the interest-free, deferred-payment loans
Obama has been trying to change that, and Chase announced it would increase small business lending by $4 billion in 2010, increasing its small-business banking staff by about 325 employees. Bank of America followed suit last week, announcing a $5 billion increase in loans to small businesses.
SBA officials maintain the ARC program is serving its purpose — chiefly clearing up debt so businesses can hire or grow. In October, some 51 ARC loans had been offered in Washington state.
Rep. Rick Larsen, a Democrat from the 2nd Congressional District, said small loans are integral parts of getting small businesses hiring again. But some loan programs in place need modification.
“These are the kinds of things that we can do to increase access to credit for small businesses,” said Larsen. “Meanwhile, we need to fix some of those programs that aren’t working.”
The Travel 4 Real owners say they’re in an uncomfortable spot for now. They’re not hiring as planned — and they may have to lay off a few employees.
“We saw this not only as a Band-Aid to our company, we saw it as a way to hire people,” Malloy said.
Malloy appealed to Chase to change the disbursement schedule, and so did Shelton and a lender-relations specialist with the SBA.
But once a loan is final, there aren’t often changes made to disbursement schedules, said Chase spokeswoman Donahoe-Wilmot. De Maio said she isn’t sure what the business will do with the money in March since it’s too late to implement the original plan.
“It’s like if you told me you wanted to go to Italy and France, and then at the last minute right before you get on the plane, I said, ‘You know what? I’m sending you to Amsterdam,”’ she said.
Read Amy Rolph’s small-business blog at www.heraldnet.com/TheStorefront. Contact her at 425-339-3029 or arolph@heraldnet.com.
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