As businesses fight to stay afloat amid the coronavirus pandemic, the NPA reports that 70% of natural product businesses applied for a PPP loan, while a whopping 27% weren’t even able to submit their application.
This follow-up survey included 74 natural products businesses that responded. It found that there was a 3% drop in applications when compared to the first survey that was conducted last month. The initial survey revealed that 95% of natural products businesses who applied for PPP loans were rejected. PPP loans administered by the Small Business Administration help business to keep their employees on the payroll and can be forgiven in part or in full if the employer maintains staffing at pre-pandemic levels.
NPA noted that the most recent survey found that 24% of the natural products businesses that have reapplied did receive a PPP loan, while 46% of businesses that applied for a PPP loan have not received one.
The Department of Homeland Security recently declared health food stores and supplement manufacturers essential during the coronavirus pandemic — a move that may have been a saving grace for the dietary supplement industry, according to NPA’s president and CEO, Daniel Fabricant, PhD.
“Parts of the industry have been hit harder than others, but the fact that our businesses have stayed open as essential in most states has helped to mitigate some of the impact.”
Reaction a mixed bag as industry retrenches
Philip Bromley, CEO of Virun Nutra-BioSciences, told NutraIngredients-USA, “I can't speak for others in this industry, but we manufacture over 300 products worldwide. Of the 300 products we manufacture consistently, we have only been manufacturing 8: Liposomal and micellular vitamins A, B, C, D, E and K2, CoQ10 and omega 3. All these products are associated with Immune.”
Bromley added that certain parts of the business took a big hit, particularly around those outside of immunity, such as keto diet, weight loss, focus and energy. “No one wants an energy shot while sitting at home streaming Netflix,” he said. “The PPP loan allowed us to maintain and re-train our employees to accommodate the 180 degree change our business had to endeavor. The PPP funding is enough, but many will say it is never enough. The PPP loan assists us with payroll to help sustain an unexpected business transition that literally came out of nowhere. VIRUN was largely a raw material, bulk manufacturer. Within 4 to 6 weeks, we are not that anymore, we are a finished product manufacturer with a lot of co-packing capability during and post COVID 19.”
One brand, who wishes to remain anonymous, told us, “I would agree that early on the dietary supplement industry, like many others offering direct to consumer retail products, was able to weather the storm better than some other industries. That being said, we are still very much on the front end of a global health crisis – one that is literally being managed on a day-to-day basis. There is no way to accurately predict potential industry disruptions moving forward.”
“I just think the confusion paralyzed a lot of companies in our space, the natural products industry,” said Tim Avila, president of Systems Bioscience, who also does venture development in the natural product industry.
In addition to the confusion, banks are accused of prioritizing PPP applications that sought higher loan amounts, despite the SBA requiring a first-come, first-serve distribution of funds.
“So one of the things that companies I advise have against them, is that they didn’t have solid banking relationships. There’s a large swath of companies in the start-up and early stage area that just don’t have those types of banking relationships yet. They’re being run by founder money or credit cards, or outside investor money, venture capital, private equity...So I think it was difficult for them to understand whether they qualify, and if they did get into an application scenario, they didn’t fare as well,” explained Avila.
Background
PPP launched in early April with an initial $350 billion in funding that quickly dried amid overwhelming demand. Congress restarted the program in mid-April with a $310 billion replenishment.
The NPA survey found that $1,862,500 in loans has been received by natural products businesses, which is 22% of the total amount of requested in the initial survey.
Overall, demand for the second time around hasn’t been as vigorous, with many business owners concerned they won’t meet the conditions required to have the loans forgiven.
PPP was limited to companies that had 500 employees or less. An exception was given to companies in the hotel and restaurant industry. A number of large companies have taken advantage of the exception, receiving millions in PPP loans — when small businesses couldn't. So far, at least 47 of the 387 publicly traded firms had returned more than $350 million in PPP loans.
“I do think there were likely loopholes which make the process susceptible, however, how do you release hundreds of billions of dollars to businesses in less than a week in order to assist small businesses and their employees?” asked Bromley.
On the dietary supplement side, several publicly traded companies received PPP loans. According to US Securities and Exchange Commission filings, New Age Beverages (tea, CBD, liquid supplements) received $6.8M; CV Sciences (CBD) was given $2.9M; and Ricebran Technologies (ingredients) was provided $1.8M in PPP loans. NutraIngredients-USA reached out to these companies and several others for comment but did not receive a response.
Looking ahead
PPP still has about $100 billion available, according to SBA data. This is largely because most loans in the second round have been much smaller than in the first. On top of that, many larger companies have returned their loans after receiving backlash.
“During the infancy stages of the pandemic, and most especially with the cancellation of Natural Products Expo West, there was a level of uncertainty…both from an industry standpoint, and more importantly from a global health perspective. Because of this, we felt we had a fiduciary responsibility to our 200+ employees, global customers and community at large to research, and ultimately act on programs for which we qualified,” explained an anonymous company. “We were satisfied with the outcome, felt the amount was sufficient and we did utilize a financial institution of which we had an existing relationship. As we sit here...still surrounded by many uncertainties, the decisions and actions we took early on have proven to be appropriate.”
The businesses who did receive a PPP loan have eight weeks to use the funds appropriately to meet the criteria for loan forgiveness.
