Inuvo gets $1.1 million forgivable loan through SBA’s Paycheck Protection Program
May 18-24, 2020
By Wesley Brown
Little Rock based Inuvo Inc., which has sought to raise capital through recent public offerings of its thinly traded stock in the past year, revealed in a recent securities filings that it was awarded a $1.1 million forgivable loan through the federal program launched in early April to help small businesses impacted by COVID-19.
In a May 2 filing with the federal Securities and Exchange Commission, Inuvo said it obtained an unsecured loan $1.1 million loan through Relyance Bank of Little Rock under the Paycheck Protection Program (PPP) that was part of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act signed by President Donald Trump on March 27.
Since the PPP initiative was launched on April 3, many critics have complained that banks made it difficult for many small businesses to access the program designed by Congress to provide forgivable loans to struggling Main Street firms to cover payroll, rent and other overhead costs during the pandemic. However, dozens of publicly traded companies, which have better access to capital, received millions in loans because SBA-approved lenders pushed their applications to the front of the line ahead of smaller businesses with sales of less than $2 million.
In late April, Treasury Secretary warned publicly traded companies with other access to capital markets would have face “criminal liability” if they did not return the PPP loans by May 14. Under the 880-page CARES Act, PPP loans were supposed to prioritize loans to small businesses in underserved and rural markets without collateral requirements, personal guarantees, SBA fees, or credit elsewhere tests.
Those eligible for the program included small businesses, certain non-profits, veterans’ organizations, self-employed individuals, independent contractors, and other small firms with fewer than 500 employees.
In response to a query from the Daily Record, Inuvo CFO Wallace Ruiz said the Little Rock artificial intelligence data analytics firm only has market capitalization of roughly $15 million. In the company’s recent fourth quarter earnings report for 2019 released on May 12, Inuvo reported a fourth quarter loss of $859,000, compared to a net loss of $2.2 million. For the full year, The Little Rock data market reported a net loss of $4.5 million.
“The investment community does not consider Inuvo a “small-cap” company, but rather looks at it as a “micro-cap” company,” said Ruiz. “It may be interesting to [Daily Record] readers that the average market capitalization of US public companies exceeds $6 billion dollars and as a result there is no meaningful way to compare Inuvo to the average public company, neither in terms of its ability to need and/or raise money as a result of being public.”
Because of its size and thinly traded stock, Ruiz said Inuvo struggled to raise money prior to COVID-19. He said the company has been fortunate to raise through other means, but only because its board members and three of its largest investors agreed to invest $1.5 million to fund a pre-COVID-19 business plan.
“This funding is not sufficient to meet the company’s payroll and other expense obligations in a post-COVID-19 economy where revenues are substantially down and where Inuvo’s ability to raise additional money sufficient to meet its obligations has been materially impacted by this unprecedented human and economic tragedy,” he said.
Along with other struggling small businesses across the U.S., Ruiz said Inuvo met the criteria for the PPP program when it applied through Relyance Bank in the first week of April. “This money will be used to support our payroll expenses as is required under the terms of the loan,” he said. “Without this loan, INUVO would have been forced to let go and/or furlough employees.”
Because of COVID-19, Ruiz said Inuvo has closed its office in San Jose, Calif., one of the first states to implement a shelter at home in March. The Little Rock tech firm has also closed its local office in the downtown area and issued a work from home policy to protect employees and their families from the spread of the virus.
In addition to sending all the company’s 65 workers home, Inuvo has also seen a decrease in revenue beginning in late March as result of COVID-19. Ruiz said he believed the PPP program was inherently designed for companies like Inuvo. “We will not be taking advantage of … (Munchin’s) repayment plan,” he said.
Since Ruiz’s response to the Daily Record, the Little Rock firm revealed in its recent earnings report that the company has raised nearly $1.5 million from the sale of its stock, and has refinanced its previous credit facility for a new line of available cash of up to $5 million with Hitachi Capital America Corp. The thinly traded Arkansas tech firm, whose biggest shareholders include company Chairman and CEO Richard Howe and former Acxiom Chairman and CEO Charles Morgan, closed Wednesday at 36 cents, down three pennies.
In the frenzied PPP launch that began on April 3, the SBA and the U.S. Treasury but abruptly ended the program two weeks later after U.S. banks approved nearly 1.7 million in loans totaling $342.3 billion. A May 8 report by the SBA Inspector General Hannibal “Mike” Ware said by not abiding by the CARES Act’s first-come, first-serve rules to process and disbursement of PPP loans, many applications from veteran-run firms, some proprietors, independent contractors and “socially and economy disadvantage individuals and women in businesses fewer than two years” were tabled.
“Because SBA did not provide guidance to lenders about prioritizing borrowers in underserved and rural markets, these borrowers, including rural, minority and women-owned business may not have received the loans as intended,” wrote SBA Inspector General Hannibal “Mike’ Ware. “In addition, because SBA did not provide demographic data to Identify PPP borrowers in underserved markets, it is unlikely that SBA will be able to determine to the intended prioritized market.”
A second round of PPP funding totaling $310 billion was launched on April 27 and had approved 2,441,369 loans totaling more than $183.5 million as of May 6. In Arkansas, more than 100 Arkansas banks and lenders have processed 21,754 loans totaling more than $2.72 billion in the first PPP found, according to the SBA’s District Office in Little Rock.