After several months of off-the-record stories from small business owners, it is more than evident there is virtually no one looking out for family businesses and sole proprietors in the oil and gas industry.
Many industry leaders showed support with their words, but when the chips were down and the BEEP hit the fan, actions from the elected officials and quasi-political industry groups told a different story.
The CARES Act, which is also referred to as the ”Coronavirus Aid, Relief, and Economic Security Act” was designed to create legislation to provide financial support to individuals and businesses. The reality is it did, just allowed banks to pick winners and losers.
The reality is that they changed the priority of loan disbursement and stuck many family businesses in need with a bill. Instead of a helping hand from their government, they got a multi-generational debt so over-leveraged risk takers can have their AirBnB properties, private jets and third cars financed now.
One thing I would like to clarify, the term “family business” for this piece is a sole proprietor or business with primarily family members. Not Phillips 66, Sun Pharmaceuticals or Facebook, which are all classified as “family-owned” businesses. The government also classified small businesses as companies under 500 employees for the CARES Act.
Honestly, if the government is comparing Potbelly Sandwiches and Ruth Chris to the local diner, then small businesses need to wake up now. A company of 499 employees is not anywhere close to the same company as one with less than five.
This editorial is for the long haul trucker who owns his own truck, the accountant who works from a home office to be available for two kids, the small restaurant with the family as staff. The people who have tried to create an environment so they can be available for their family 24/7. Even if that means only seeing them five hours a week during dinner.
But for most, being a family business owner does create opportunities to make the choice whether to work or go to their kid’s ball games. A lifestyle that allows time to watch their kids when school is called off and the flexibility to change pricing when operators ask for another price cut.
Family businesses traditionally carry low to moderate debt risk for the safety and welfare of the family. But they still have monthly bills even if they actually own their house or truck or commercial property. Taxes, insurances, fees and other fixed government costs to exist add up quick.
The oil and gas industry needed small business to be nimble, innovative and flexible because they couldn’t. Big corporations and oil companies have shareholders and meetings after meetings. They are slow moving by design just as small family businesses are designed to be quick and nimble.
Perhaps years of funding public-private partnerships, university research centers and economic development offices will now satisfy those underappreciated demands of industry for the operators. Or at least be the ones to pick the winners and losers in that realm.
Let’s just do a quick timeline to understand the family businesses perspective. On March 25, 2020 the CARES Act passed the Senate. The House agreed with it on March 27, signed by President Donald Trump the same day.
At that time, small businesses in need were asked to sign up online through the SBA website. Then on April 2, The Payroll Protection Plan was introduced and the “first come first serve” model changed too.
This created much confusion because the Small Business Administration didn’t alert those who were already approved until April 13.
Some of the family businesses that were approved in March were for small loans of around $10K. By the time the “first come first serve” in need approved small businesses were told about the change in the program, the money was gone. They never had a chance.
This editorial goes deeper than the Payroll Protection Program, which has families and businesses steamed. Check out Vic from New York. Warning, this video is not for virgin ears…..lots of passion in his monologue.
The PPP created so many loopholes that snakes and sharks were able to bull rush through and take the lion’s share of the money. Under the government’s plan, businesses can apply for up to 250% of their monthly payroll. If your payroll is $100,000 per month, you can apply for a $250,000 loan. The loans are forgiven if 75% of the money is used to pay employees. Banks profit from this by collecting fees ranging from 1% for loans over $2 million to 5% for loans under $350,000. This means they made billions from the PPP.
There isn’t much tracking thus far either. According to the website COVID Loan Tracker, fewer than 6% of applicants have received their PPP loans, which has compiled data from 15,000 small businesses. Due to this, the CARES Act has created immediate issues for family businesses and possibly opened up a whole swath of new ones.
Let’s just start with a couple basic ones in oil and gas.
To think of all the sacrifices the family business owners have made over the past five years is remarkable. From lowering their prices multiple times to accommodate the volatile industry to being on the first wave of the economic shutdown. People forget China shut down first and that economically impacted the oil and gas industry before any other.
Whiting Petroleum cut a third of their staff last July. Halliburton had layoffs too. As did Chesapeake. The oil and gas industry had issues before the COVID-19 shutdown. The oil and gas industry had issues before Russia and Saudi Arabia created issues at OPEC level. The family businesses in oil and gas felt all these issues too. Before anyone at Ruth Chris or Shake Shack.
No offense to the hospitality industry, but to be fair, the oil and gas industry got hit by the global COVID-19 shutdowns and environmental legislation.
In fact, many oil and gas companies couldn’t get secured loans against their receivables in the final quarter of 2019 because it was the oil and gas industry.
Furthermore, the family business owner with children are now being a wide variety of teachers, a SRO officer, lunch room chef, counselor and hall monitor. I apologize if I left out anyone in school administration or service staff. Family businesses understand it takes a village to raise a child.
These are just a couple universal themes from family business owners we have spoken to at The Crude Life. The more specific issues become, the more issues you can see the CARES Act created.
Here are some specific bullet point created by the COVID-19 Shutdown and Banker Preferred Government Assistance Program
– Credit Scores Getting Hit
– Single Parent Custody Issues
– Late Fees
– Asset Seizure
– Competing with Unemployment Wages
Come and take a walk in someone else’s shoes for a second. We spoke to a very passionate family business owner who pays monthly rent to a landlord, who has a family of four.
The landlord “owns” a four-stall garage home, a second home, a commercial property, AirBnB investment property, a home sauna, three cars for two drivers, couple private club memberships, a small airplane, takes monthly trips and posts the fun on social media.
I say “owns” because all those assets are really owned by the bank and are financed with certain risks and strategies. The landlord is able to finance these assets by drawing three salaries from splicing his “main” company into three small businesses on paper.
The landlord was considered priority by the banks and received a 100% forgivable loan or “free money” for those three salaries.
In the meantime, the family business owner who needs assistance to pay rent, support their family, buy food, and was approved for assistance before the landlord for a paltry $10K loan, got nothing.
Incidentally 82% of the CARES Act funds went to only 43,000 people…. and they got an average of $1.6M. Furthermore, it was totally legal and priority assistance was given by the government and banks. How the banks chose their criteria for those business impacted and in need has yet to be disclosed.
In the end, the family business owner got to help support their landlord’s debt risks and expensive tastes. The landlord never even thanked the family business owner for their money and support. Rather, the landlord started applying late fees to the business owner’s rent last week. A new bill from the government and a new bill from their landlord. That’s the assistance many family business owners got last week.
When the next round of financing comes to help these family businesses, remember, if it is like last time, the reality is that they will get another government bill and the banks will decide if their need is worthy enough for monetary assistance.
As someone who has hit rock bottom in business and life before, I would ask that you do not forget that everyone has value. Not just risk takers with really cool debt.
