• Christina Stembel founded her floral company, Farmgirl Flowers, in her dining room in 2010, using her personal savings and a cash-back credit card to cover business expenses.
  • The company has since blossomed into a thriving startup that employed almost 200 staff members prior to the coronavirus.
  • However, as the pandemic causes economic fallout worldwide, Stembel told Business Insider that the future of her company is uncertain.
  • She said the process of applying for the first round of the Paycheck Protection Program, a government fund meant to help small businesses through the coronavirus pandemic, was frustrating and fruitless.
  • “I know that the intention of this program is to help small businesses, so let’s change it to make sure this money does fall into the hands of small businesses,” she said.
  • Visit Business Insider’s homepage for more stories.

Makeshift distribution centers, furloughed employees, and countless frustrations: This is the unfortunate reality for Christina Stembel, the founder and chief executive officer of San Francisco-based startup Farmgirl Flowers.

Farmgirl Flowers was founded in 2010. At the time, Stembel used her own savings account and a cash-back credit card to cover business expenses and get her business off the ground.

“I had this idea about how I could disrupt this very large floral industry and create something that I would want to receive myself as a consumer,” Stembel told Business Insider. “We were the first company in that space to embrace the idea that less is more.”

The business has since expanded into one that’s challenging traditional floral companies – Stembel’s model of US-grown, in-season floral bouquets wrapped in rustic burlap have won Farmgirl Flowers a tribe of ardent supporters who buy from the company again and again.

"We're truly a bootstrap company, even now. We've never had any outside capital, not for lack of trying," Stembel said. "We kicked it old school - we spent less than we made and reinvested it back into the company, which doesn't happen very often anymore. As of recently, we've had 80% growth year over year. Before COVID-19, we were on track to make $50 million in revenue this year."

Like numerous small business owners across the country, Stembel saw everything change when the coronavirus hit, and she fought for ways to keep her business on track, including applying for the Paycheck Protection Program, a government fund meant to help small businesses through the coronavirus pandemic.

She recently released a video on the company's YouTube channel, titled "Christina talks about how the PPP failed us," addressed to customers and supporters of Farmgirl Flowers. In the video, she discusses her process of applying for a PPP loan, as well as the numerous hiccups and frustrations she experienced along the way.

Speaking about the business loans, Stembel says in the video, "I want to explain what it is and how it was set up, how it was implemented and executed, and maybe be a face for how this has impacted businesses like ours." She continued, saying, "It hasn't been good. ... It's not what you think it is. It's not what I thought it was."

The video has already been viewed more than 15,000 times, and Stembel says she's received hundreds of personal emails thanking her for delving into the fallout of the Paycheck Protection Program. Other small business owners have also shared their stories of how the PPP failed them too, she said.

Business Insider spoke to Stembel about her experience of the first round of applying for a PPP loan, and what the future may hold for Farmgirl Flowers and other small businesses.

What is the Paycheck Protection Program and how has it failed small businesses?

According to the Small Business Administration, the Paycheck Protection Program, or PPP, is a government-funded loan intended to help small businesses keep their workforce employed during the coronavirus pandemic.

However, there was an uproar when, after the first round of PPP loans were given out, huge corporations such as Shake Shack and Ruth's Chris were awarded millions of dollars of what Christina Stembel calls "free money." Using a loophole, large companies were able to claim their many locations as individual businesses with fewer than 500 employees.

Food chain giants Shake Shack, Potbelly, and Ruth's Chris Steak House have since returned the money they received, $10 million, $10 million, and $20 million respectively, but the government is relying on "good faith" alone for other larger companies to do so.

Other CEOs that Christina Stembel has formed close relationships with and consulted during and after the money was released reportedly said that they were considering putting the government funds they received towards buying another small business or canceling a loan they had taken out with 6% interest in favor of the government's money.

Overall, Stembel says she saw companies backed with venture funding or money in the bank receive the government bailout - while other small "bootstrap" companies like hers were left in the lurch.

Christina Stembel says she had 'all her ducks in a row' prior to applying for the PPP loans

"We applied, and we applied the second we could," Stembel said. "I had all of my preparation done ahead of time - I sat in six conference calls about what we needed to do, pulling all my reports together so that I was ready the second it went live. From what I was hearing, they were going to run out of money within a week, so I knew I had to be prepared. I was ready."

Stembel says she had an alarm set on her phone for 12:01 AM on April 2, the day that the first round of PPP loan applications were supposedly made available.

However, when Stembel went to submit her application, there was a notice saying that her bank wasn't ready to receive them yet, and not to contact them as they were "inundated with people contacting them."

"I was one of those people, as I had called [the bank] twice the week before and couldn't get anyone to talk to me," Stembel said. "It was very 'don't call us, we'll call you.' They sent out a few emails that said it could be nine days before they could receive applications, but every conference call I was on said that we had about four or five days before they would run out of money."

After calling the bank again and being asked who her relationship banker was - which Stembel didn't have as she said she couldn't get in contact with anyone at her usual bank about the PPP - she decided to switch gears and attempt to apply through another bank.

Stembel said she called dozens of other business owners to help connect her with other banks

Stembel said she reached out to between 40 and 50 other business owners asking if their banks were accepting applications from non-clients, and she heard that virtually no banks were accepting applications as they had only received information regarding the loans from the government the night before.

"I have some friends that are also CEOs, and I asked them all for a favor. I said, 'If you have a good relationship with your bank because I don't and nobody will call me back or help me, then please put me in touch with them.' I talked to everyone that I could, and one CEO got me connected with another bank," Stembel said.

"I applied with them the second that they opened up applications. When I got the notification they could accept my application, I was driving back from a farm. On the side of the road, using my phone as a hotspot, was where I applied. It was supposed to be first-come, first-served, and I did everything to be at the front of the line," she said.

Stembel said she noticed that while she didn't receive funding in the first round, others with more funding and better bank rapports did

While Stembel was told to only apply from one bank, she ended up submitting another application through her original bank in a last-ditch effort to receive funding for her company and avoid laying off her employees.

Prior to even hearing about the PPP, Stembel said she had a good relationship with her company's bank but was never able to take out a bank loan to put towards per business, as much of the company's profits had been reinvested back into Farmgirl Flowers - she was never sitting on millions of dollars in the bank and has had trouble raising the kind of capital and pre-revenue that her competitors have.

"When we heard that the money was running out, I reached out to my network to ask other CEOs if they had gotten it. The split was uncanny," Stembel said. "All of the CEOs I knew that are either funded or had really solid relationships with their banks got it. All of the ones that I talked to who weren't funded or didn't have good relationships with banks hadn't gotten it."

She continued, "How is it that the funded companies got this 'free money,' when their employees are working remotely and not being laid off? They're taking money from the taqueria or the flower company who isn't looking at these loans as a way to invest in their company's growth, but rather as a means to continue to pay their team members through very lean months. The lack of integrity floors me."

Other small business owners may have noticed similar discrepencies. Several major US banks are being sued for "unfair practices" when it came to processing PPP applications, including front-loading the largest loans so that banks could earn higher commissions from the government, which is paying banks to process loans, according to the lawsuits.

Farmgirl Flowers has been forced to relocate and open four new distribution and fulfillment centers in just four weeks as it prepares for Mother's Day

"We had 12 and a half hours to shut down our San Francisco operation, where 80% to 90% of our orders came from," Stembel said. "We already had hundreds of thousands of dollars in flowers on the way to us, that we had to throw out. Without the orders, we can't pay our team members."

Farmgirl Flowers then switched the orders that were supposed to be handled in San Francisco to the company's Ecuador-based distribution center that the company opened in January. The facility, which was only intended to handle 15% of all orders, didn't have the infrastructure needed to make such a drastic switch in operations.

"Ecuador was then put on a half-day curfew, so we had to rethink our entire distribution in order to be able to do orders," Stembel said. "We didn't have any place to do them."

Stembel said that Farmgirl Flowers has since set up two distribution centers and two fulfillment centers in the past four weeks.

One distribution center on a California farm required Stembel's team to move their equipment there and train an all-new team, for many of whom English is a second language, using social distancing practices and only a week before their launch date. Another distribution center was opened in a different region of Ecuador in a larger facility.

"We needed to do all of this to get enough supply to meet the demand in time for Mother's Day," Stembel said. "We had just four and a half weeks to open four new centers, and had to furlough most of our employees."

Though Stembel said that the company has been hiring people back on as they are able to, getting the PPP would have allowed her company to rehire more employees and cover relocation costs for employees willing to move to the new distribution and fulfillment centers, she said.

"We've brought back 40 of our 200 employees, but I don't know if we'll be able to bring back more unless we get the PPP loan," Stembel said.

Stembel's experience highlights the many challenges small businesses face in the wake of the coronavirus

Before the $350 billion set aside for the PPP ran out in just two weeks, 1.6 million loans were approved by the Small Business Administration. In the United States, there are more than 30 million small businesses employing fewer than 500 people. In essence, only 5% of businesses were able to get financial relief before the funds ran out.

Many small businesses that held out hope for another round of PPP funding are now applying for the second time. On Monday, April 27, the government released another $310 billion in loans. However, many small business owners report they are facing the same frustrations with the application process.

According to NBC News, lockouts, login issues, and a slow system prevented some banks from submitting more than a few hundred applications, while one bank was locked out of the system after submitting just 60 loans.

There are seeds of hope, but it may not be enough

Christina Stembel is quietly optimistic about her company's future, but worries about the unforeseen fallout of the coronavirus pandemic on the economy and the company's summer sales.

Stembel said that Farmgirl Flowers saw a 60% decrease in sales as COVID-19 spread. Stembel believes this is largely due to longer delivery times as a result of switching operations to Ecuador and partly due to uncertain economic conditions. That figure has since almost evened out to normal, but there's still a long road ahead.

"We had eight weeks of runway set aside in case something were to happen, but we never expected a pandemic," Stembel said. "Our customers have been amazing and supporting us with their dollars so we can stay in business, and telling us that. In just a week after we saw that 60% decrease, we were back on track to where we were before COVID-19."

However, despite optimistic pre-Mother's Day sales, the future is still uncertain for Christina Stembel, Farmgirl Flowers, and other small businesses.

"From what I'm reading, I do think that there is a recession coming, and the summer is always a hard time for floral," Stembel said. "That's why I'm so upset about the PPP loan. We need it to bring our team members back, and although our sales are good, I don't know what's going to happen come June. That was my security net to be able to get through whatever is coming recession-wise."

As for what Stembel hopes for in the second round of PPP loans, she wants the government to put in place safeguards that will prevent the money from falling into the hands of companies who don't need it.

"I know that the intention of this program is to help small businesses, so let's change it to make sure this money does fall into the hands of small businesses," she told Business Insider. "I would help do that."

For now, Stembel is applying again and doing everything possible to save her business

In the wake of the second round of funding, Christina Stembel took to Farmgirl Flowers' social media to inform their followers about how the company would be proceeding. According to an Instagram post, Stembel has filed 16 applications in the last week alone, in addition to the two applications the company submitted in the first round "that are supposedly still in the queue."

The PPP loans will remain available until the money is completely dispersed, and experts say the money could run dry even more quickly than the first go-around. For now, Stembel can just submit her application and keep her hopes up that this time, her business will receive funding.

"I've stayed up till at least 3 AM every single night this past week filling out applications," she wrote. "My fingers are crossed that it will be worth it for many small businesses this time.

"Even if we don't get it, it's important that the government see how many small businesses needed it and didn't receive it. Those statistics count. ⁣⁣And, I don't know about you, but as much as we need it, I'd even be thrilled if we didn't get it, but every mom and pop company did."