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Speaker 1: Hi, how are you?

Speaker 2: Awesome.

Speaker 1: Well welcome. Check it out.

Tamara Keith: I’m the owner, welcome, thank you.

Speaker 3: We’re really excited.

Jessica Mendoza: That’s Tamara Keith greeting customers last week at the opening of her newest ice cream shop in Edwardsville, Illinois. It’s her eighth store in the region and it was packed. Tamara’s company, Clementine’s Naughty and Nice Creamery, is based in St. Louis where she lives.

Tamara Keith: Eight years ago, I started in my kitchen and it’s kind of mind-blowing, still. I’m sitting here and I’m looking around and I’m like, “Wow, I can’t believe this is my life.”

Jessica Mendoza: Clementine’s is known for its gourmet and unusual flavors, including what Tamara calls the naughty side of the menu.

Tamara Keith: We have our pink champagne sorbet, chocolate cabernet, if you like classic cocktails, we have our Manhattan, of course. And then on our nice side we have a very St. Louis classic, our gooey butter cake ice cream.

Jessica Mendoza: Things seemed pretty sweet at the grand opening. There were long lines and happy customers, and Tamara says there’s a lot of demand for her ice cream, but behind the scenes, she’s been running out of money. As the Federal Reserve has increased rates over the past year, the loans that Tamara was counting on so that she could grow her business, haven’t come through.

Tamara Keith: It’s just really weird to think that such a profitable growing business would ever be put in this situation.

Jessica Mendoza: Welcome to the Journal, our show about money, business, and power. I’m Jessica Mendoza. It’s Thursday, June 15th. Coming up on the show, how an ice cream company in St. Louis is dealing with the fallout of high interest rates and increasingly nervous banks. The day after Tamara’s newest shop opened, I talked to her about her business. What was your vision for Clementine’s?

Tamara Keith: When I started Clementine’s, I was so exhausted after living this crazy, on the road life in corporate America, and I did marketing brand and strategy for 20 years, and ice cream was my love, hobby and obsession my whole life, so it was a very natural place for me to go. Once I opened my first shop, it’s super tiny, it was 500 square feet on the worst corner in this cute little neighborhood, and we had seven and eight hour lines that never stopped in the summer, that wrapped around two blocks. It was just insane and the St. Louis market was so welcoming. We had such incredible revenue numbers and we just went gangbusters.

Jessica Mendoza: It was like Tamara couldn’t help but expand her business.

Tamara Keith: I really thought, “I’ve really created something. I have the magic sauce here and I think I kind of need to keep doing it,” and I was having fun. I think the world needs great ice cream.

Jessica Mendoza: To keep going, Tamara needed to bring on more staff, open more shops, buy ads, and boost her production. To get the funds for all this, Tamara, lots of small business owners went to a bank in her community. What role has your local bank played in the building and growth of your business, in sort of developing this the way that you wanted?

Tamara Keith: I mean it’s crucial, right? They tell you the story that we’re going to be with you as you grow, right? We’re going to be that partner with you to help you get to the next level.

Jessica Mendoza: We’re on your side.

Tamara Keith: We’re on your side. We want to be the ones to help you grow and we want to be your partner. And so I really believed and trusted that that was the case.

Jessica Mendoza: Tamara says her bank helped her game out different scenarios and make the right plan. They gave her loans and lines of credit, so she could open new locations, but now that’s changed. She’s been waiting months for her latest loans to come through. She asked us not to name the bank because she doesn’t want to jeopardize her funding.

Ruth Simon: Access to credit is really important to small businesses.

Jessica Mendoza: Our colleague, Ruth Simon has been following the story.

Ruth Simon: It is getting harder for small businesses to get the credit that they need to grow and that when things happen in the banking system, rising interest rates, they are filtering down to small businesses and small businesses, when they need capital to expand or to run their operations, they have fewer options than bigger companies, so they’re getting pinched.

Jessica Mendoza: Over the past year, the Federal Reserve has been raising interest rates to counter inflation. That along with the threat of a potential recession, has put pressure on banks and their relationships with small businesses.

Ruth Simon: That may make the bank say, “Well, your profit margins aren’t as big as they were.”

Jessica Mendoza: Right, and that adds to that sense of caution coming from these banks.

Ruth Simon: Exactly. What we’re hearing from small businesses is the process is getting tougher, that banks are scrutinizing more and more. So some businesses have had credit lines cut or they’re having trouble getting their lines of credit increased. They’re being asked for more documentation. They may ask for higher down payments. It’s just gotten harder and it’s more costly too.

Jessica Mendoza: Not all banks are making it harder for small businesses to get financing, but enough banks are that Ruth has found a number of entrepreneurs who are struggling with tighter lending standards.

Ruth Simon: I was talking to one business owner who wanted to increase a credit line that she used to finance her equipment inventory, and she was saying, normally when she goes for an increase, they would ask for the prior year’s financial statements. Now they’re asking her for month to month for this year. They really are digging much deeper.

Jessica Mendoza: All these new hoops from banks have made it harder for Tamara too. Over a year ago, she went to her longtime bank and applied for around a million dollars in loans. She wanted to open two new stores.

Tamara Keith: I said, “Okay, we’ve got these other locations. We want to sign these leases, but we’ve got to secure this funding. Are we good to go? What else do we need to do?” And they said, “No, we’ve got you, don’t worry about it. And we’re like, “Are you sure?” And they’re like, “Yes, don’t worry about it.”

Jessica Mendoza: Tamara already had the new storefronts picked out, so in the following months, she put down deposits, signed leases, ordered equipment, and hired contractors to build out the spaces, but the bank wasn’t coming through with the loan. Now, banks aren’t the only place, small business owners can get capital. They can go to outside investors, but that’s something Tamara has resisted from the jump. That’s because…

Tamara Keith: It changes everything. Once you sell equity into your business and other people have a say to some extent, because money always comes with strings, and money always comes with opinions, and money comes with time, and money comes with phone calls, money comes with reporting, and whether they have ideas that you take or not, you have to listen, right? Right now, I’m an incredible CEO steering this great ship and we’ve had great success and I’m afraid because we’re on the right path and doing all the right things and I need to stay that way. It just gets a lot more complicated to do business once you take other people’s money.

Jessica Mendoza: Tamara didn’t want to go to outside investors, but she still needed to cover her bills. So she says she started spending down her cash reserves and kept her fingers crossed that the loan money would finally show up in her bank account. When did you start to really have concerns about whether the loan would come through?

Tamara Keith: That was probably in January or February of this year is when I really started to get nervous because I owed so many people, so much money. And then March is when I really started panicking and freaking out and sleepless nights and having to have conversations with people on a regular basis. And I really started getting upset with the bank saying, “Hey, look, what is going on here? How do I tell my local electrician who has been my electrician for all my locations for the past eight years, who has a family of his own and they have other families they have to support, ‘I’m sorry, I can’t pay you.’ Do you know what that feels like?” That’s terrible.

Jessica Mendoza: Tamara has to get her bills paid, the sacrifices she has to make to do that is coming up next. Would you say small businesses are kind of an economic bellwether?

Ruth Simon: They can be, yes.

Jessica Mendoza: That’s our colleague, Ruth Simon again.

Ruth Simon: And so we’re watching closely to see how they fare with these and other challenges. As we’ve gone through all these different economic issues over the last few years, I’ve been really watching to see how small businesses have done. There was the pandemic, there were supply chain issues, there’s inflation, there are labor shortages. Small businesses have been remarkably resilient, but it is exhausting to go from one challenge to the next.

Jessica Mendoza: Right, especially just when you thought you’re out of the woods, like a new mountain crops up in front of you.

Ruth Simon: But I really think for many of these small businesses, some of them are doing very well and there’s a mix, but it just feels like you get through one challenge, you think you’ve made it, and then there’s this next challenge. Small businesses are often more vulnerable than bigger companies. They tend to operate with smaller cash reserves. They have less market power. When there are things like supply chain issues, they often get squeezed more. When banks are pulling back, they’re going to be the first ones to feel the pinch.

Jessica Mendoza: This pinch is something that could start having bigger consequences because small businesses are so important to the economy.

Ruth Simon: Small businesses create jobs. They’re a source of innovation. They’re also often the local merchants in your community. It’s such a range. It’s from self-employed people, to your local restaurant, to manufacturing companies with 400 people. They serve all sorts of different roles in the economy. They help make it vibrant.

Jessica Mendoza: What’s your sense of what’s going to happen with lending to small businesses in the coming six months to a year?

Ruth Simon: I don’t expect it to get much easier unless the Fed stops raising interest rates and people get less anxious about the direction of the economy. So I think we’re going to have these tighter conditions for at least a little while.

Jessica Mendoza: Back in St. Louis, Tamara is trying to get by without the loan she planned on.

Tamara Keith: We should have closed seven or eight months ago. And it has been incredibly trying and frustrating and traumatic, and if it were not for the good people who I’ve worked with all these years, who know me as a person of integrity, I probably would’ve already been sued by now. I don’t come from a family that has a lot of money that I can go to and say, “Hey, can I get a couple hundred thousand dollars from you?” That’s never been an option in my world.

Jessica Mendoza: Tamara is still hoping she gets her loan, but even if she does, she says she’s lost faith in the process and doesn’t want to get any more money from banks.

Tamara Keith: It has led me to change my business growth strategy plan to now I will be going out and for the first time ever, I’m going to have to sell equity in my business to make sure that I have the funding that I need to pay people what I need to pay them. Yeah, it’s fundamentally changed how we were going to grow and I’m having to give up a portion of my business way earlier than I had anticipated or wanted to.

Jessica Mendoza: Do you have any advice for other small business owners that may find themselves in a similar position?

Tamara Keith: Don’t do anything until you have the money in hand. I can’t forget that saying about something in the-

Jessica Mendoza: A bird in the hand is worth two in the bush.

Tamara Keith: Thank you. A bird in the hand is worth two in the bush. So I would say based on my experience, I would be very cautious in expanding or growing your business, without having the dollars in hand to do what you need to do. Because it doesn’t matter how good of a business you are or how profitable a business you are, you could end up in a really tough pickle like I have, for no reason and through no fault of my own, and through it being totally out of your control.

Jessica Mendoza: That’s all for today, Thursday, June 15th. The Journal is a co-production of Gimlet and the Wall Street Journal. Special thanks to Sarah Fentom. Thanks for listening. See you tomorrow.