Ziggi’s Coffee Owner Brandon Knudsen removes shades while working to update the Main Street store in Longmont on May 5, 2020. The store, currently closed due to the COVID-19 pandemic, is undergoing an update and will soon be re-opened when stay-at-home orders expire.
(Matthew Jonas/Staff Photographer)
Ziggi’s Coffee Owner Brandon Knudsen removes shades while working to update the Main Street store in Longmont on May 5, 2020. The store, currently closed due to the COVID-19 pandemic, is undergoing an update and will soon be re-opened when stay-at-home orders expire. (Matthew Jonas/Staff Photographer)

For Longmont-based coffee-house chain Ziggi’s, applying for a federal loan to make it through the COVID-19 pandemic was a no-brainer.

“Initially there were so many unknowns, and we don’t even know what the next three weeks will look like,” said company owner Brandon Knudsen. “But I have to pay my employees, my vendors and my landlords. I’m not a fan of, ‘Hey, guys, you’re not going to get paid because we’re struggling.’”

That’s not to say applying for the money wasn’t a struggle in itself.

Small businesses such as Ziggi’s — which includes seven corporate-owned stores and 50 franchise agreements, including one announced last week that was completed virtually — face enough obstacles in applying for the government’s assistance programs. Those woes are multiplied for startups that were launched on a shoestring. The loans administered through the U.S. Small Business Administration’s Payroll Protection Program could provide a needed shot in the arm in the face of collapsing sales and bleak prospects for raising capital, but some investors aren’t even sure startups funded by venture capital should apply.

“Congress made the law quite broad, and the SBA was left to interpret a bunch of specifics around the law,” said Seth Levine, who heads the Boulder-based Foundry Group, a 12-year-old venture firm that manages about $2.5 billion in assets. “If you had an investor that owned more than 20% of your business but was a passive investor, would you have to lump your employee count in with all the other companies they owned 20% of or more?

“The language in the law was relatively nebulous around what companies qualified. Some venture investors felt like no venture-backed companies should apply, while others thought everyone should apply — and lots of people were in the middle.”

When the U.S. Treasury on March 27 announced plans to grant small businesses $349 billion in forgivable loans, the program was swamped with applications and ran out of money within 13 days. The SBA on April 27 began distributing a second round of PPP loans — fueled by an infusion of an additional $310 billion — complete with several changes in the rules.

Barista Kim Blough hands a drink to a customer in the drive-thru at Ziggi’s Coffee in Berthoud on May 6, 2020.(Matthew Jonas/Staff Photographer)

The first round triggered howls of protest fueled by reports that the AutoNation car dealerships got a $77 million PPP loan, the group that owns the high-end Ruth’s Chris Steak House chain got $20 million and the Los Angeles Lakers, the National Basketball Association’s most profitable team, received a roughly $4.6 million loan. The companies have said they will return the money.

When the second round was launched, Treasury Secretary Steven Mnuchin “said there shouldn’t be loans above $2 million,” Levine said. “I don’t understand where that comes from; there’s nothing in the law that says that, in fact. But either the court of public opinion or an SBA audit will roll up a few of these companies.”

Applicants applied for the loans through banks, but “there have been some logistical challenges in terms of accessing the funds; those are specific to whatever bank they’re applying through and that bank’s ability to process loans and intake loans,” Levine said. “A number of banks struggled with that, getting their systems up and running. Others were able to stand up their systems very quickly and were faster.”

Denver-based Vectra Bank, which has several locations around Northern Colorado, processed 20,000 applicants in the first 24 hours, Levine said. Meanwhile, at Longmont-based High Plains Bank, president John Creighton said employees “probably put in more hours in April than any month in our history. We probably will end up close to 430 loans.”

The SBA’s web-based portal “did not work well,” Creighton said. “We had employees work from 10 p.m. to 1 in the morning because that’s when the website worked the best.”

Levine said some of the glitches are understandable. “The SBA in any given year might help facilitate $35 billion to $40 billion in loans,” he said. “They were asked in 2½ weeks to do 10 times that amount.”

Ziggi’s Knudsen, who applied for his loan through High Plains, can vouch for the bank’s wee hours work.

“I got a text from my banker at midnight,” Knudsen said. “I’ll stay up all night. I don’t mind that. But they turned a very stressful situation into a very positive one.”

Ziggi’s payroll usually amounts to $10,000 a month per store, so when the COVID-19 shutdown hit, Knudsen needed help to keep workers employed. He initially spent 5½ hours applying for an  Economic Injury Disaster Loan, he said, “but then the government said ‘Just kidding. Just fill out this simple form now. It’s just two pages.’”

Knudsen credited both High Plains and ADP payroll services for smoothing the process. 

“We were working for two to three weeks on getting things together to apply, working day and night to make it happen, and applied as soon as the PPP opened up,” he said. “We had the money in five days.”

Knudsen stressed that PPP loans aren’t free money from the government. 

“After eight weeks, you have to go back to the bank and reconcile that loan,” he said. “You have to show receipts and records to prove that you spent 75% of the loan on payroll and up to 25% on things like utilities and rent. The balance you can pay back, or it converts to a two-year, 1% note.”

Knudsen stressed that the PPP basically is “a conduit to get money to employees” and “doesn’t 

help the business owners much. I still have vendors I need to pay, landlords. I still have to buy masks and gloves. Small business needs more than the PPP loan to recover.”

Levine agreed.

Seth Levine, cofounder of the Boulder-based Foundry Group, poses for a portrait at his home in Longmont on May 5, 2020.(Matthew Jonas/Staff Photographer)

“I applaud the government trying to get money into people’s hands to deal with the crisis, but the program was rushed — because it needed to be rushed,” he said. “But because of that, it didn’t necessarily address the needs of a wide swath of businesses.”

Restaurants are a good example, Levine said.

“There’s no benefit for a restaurant at this point to take money under the PPP program, given how unlikely it is that they’re going to be up and running at any meaningful capacity in the timeframe specified for forgiveness of those loans. Frankly, it’s probably better for their employees to take unemployment insurance.

“Really, what the federal government did under this program was to federalize the unemployment program for two months.”

Many types of startups and other small businesses aren’t receiving PPP funds, Levine said, “either because they lack the relationships with SBA-approved lenders or because they employ many contract workers that aren’t included in the payroll calculation, or because they’re a business that’s not going to be able to come back in the time period Congress specified, and they’re not in a position to take on that debt load that won’t get forgiven because the economy may not be open in time for them to come back.

“So we’re definitely not getting aid to all the places in the economy that it needs to go to, and that is exacerbating some of the challenges people are having interpreting these rules, because there is a widespread belief that there are many smaller businesses that aren’t able to access funds,” Levine said.

Especially affected were firms owned by women or minorities.

“It’s not that they don’t qualify, but primarily because of a lack of banking relationships. Banks initially were prioritizing larger loan sizes, and those businesses tend to be smaller,” Levine said. “ Also, minority-owned businesses are more likely to use contract workers, and therefore the total loan value they qualify for is lower.”

That’s why Levine hailed another change in the second round of PPP funding, the inclusion of Community Development Financial Institutions, a network of largely nonprofits that tend to work with smaller companies.

“Including CDFIs in the second tranche was very important because they tend to bank more women and minorities,” he said. “That’s a program that was set up by (President Bill) Clinton in the ’90s, which I believe is why it was left out of the first funding because it was considered Democratic.”

If the economy takes longer to bounce back than eight weeks, “which we’re now thinking it will, the PPP doesn’t provide much protection,” Levine said. Still, however, he believes it’s worthwhile for many small concerns.

“If their business has been put into real danger by the COVID crisis, and they’re going to use this money to retain employees — which is why it’s called payroll protection — and they don’t have alternative sources of financing, it’s absolutely something they should consider,” he said. “But this is not the only thing they should be doing. This is one of the things.”

That’s why Foundry set up the Finance Assistance Network, which offers free advice to small businesses by pairing them with financial professionals.

“Given the amount of time and energy we’re spending at Foundry helping our portfolio companies understand the various programs that are available, it occurred to me that that advice wasn’t necessarily available to smaller companies,” he said. “And so we wanted to set up an organization that would try to help smaller companies navigate through this, because it’s really a labyrinth.”

Levine came up with the idea for the Finance Assistance Network along with Lew Visscher, who runs Lew’s List, a recruiting and information-sharing platform that includes nearly 11,000 chief financial officers, controllers and other senior finance professionals. With the addition of High Plains Advisors, the network has nearly 75 experts who so far have offered pro bono advice to nearly 100 companies.

Help with the Payroll Protection Program loans is “kind of the first line of work we’re doing,” Levine said, “but really these are people who can also help with cash flow planning and sort of basic business understanding and ideas for how to mitigate the impacts of the financial crisis. How to furlough employees if you need to, but also how to ramp the business back up.”

At Ziggi’s, Knudsen agreed that education is the key to survival for startups and small businesses.

“Inform yourself,” he said. “I’ve heard people say ‘I reached out to the bank and haven’t heard anything,’ but I tell them, ‘What did you do to find out? This is your tax money you’ve paid into this, so learn what you need to do to get it. Call hourly if you have to; the squeaky wheel gets the grease.

“Don’t survive in this situation; try to thrive.”

Help for startups

SBA’s Paycheck Protection Program website

COVID-19 Finance Assistance Network, a collaboration between the Foundry Group, Lew’s List and High Plains Advisors, offers pro bono help to business owners navigating the government’s relief programs, as well as advice on planning for a post-pandemic world.

Colorado COVID-19 Startup Talent Network, which aims to help match qualified tech employees with startups looking for talent. Candidates looking for part-time, full-time or contract jobs can submit their information, and employers can view a sortable list of candidates.