Food News

Honeychild's Sweet Creams Loses Funding After Suit Over Minority Preference

Kathleen Morgan hopes to finally move into her storefront this August.
Kathleen Morgan hopes to finally move into her storefront this August. Honeychild's Sweet Creams
Kathleen Morgan first started selling her from-scratch frozen custards at the Galveston Farmers Market. Cold desserts at a farmers market might seem like a stretch, but by using milk from family-owned Texas producers and ingredients from local growers, she was right at home.

After a few years and an ever-growing following, Morgan decided to find a more permanent home for Honeychild’s Sweet Creams in Houston. In early 2019 she signed a lease on a space that was part of a new development still under construction.

After the pandemic hit, all her sweet dreams melted. In addition to mandated closures and capacity restrictions, the city of Houston’s permit office was in limbo during the pandemic then faced significant delays from a rush of restaurants anxious to open after vaccines became widely available.

Morgan stayed busy making custards at a commissary specifically designed for frozen foods. She peddled her goods at farmers markets, special events, pop-ups and catering gigs while simultaneously trying to secure funding for her eventual brick-and-mortar. This has turned out to be more complicated than keeping her custard from melting at a Galveston farmers market.

At one point, she thought she’d finally gotten relief. A number flashed on the screen: $21,000.

“That would have been huge,” she says.

Morgan contacted us after reading our story about a lawsuit filed by a North Texas restaurant, The Lost Cajun, as she tried to piece together the clues about what happened to her funding.

A Slippery Slope

Funding a new restaurant is challenging and the pandemic only heightened the risk.

“Access to funding through banks was hard,” Morgan says. “Figuring out how to fundraise was a challenge, too. Once the pandemic hit, it was really hard to get anyone to show interest. Most banks wouldn’t even speak to me; they just wanted the least amount of risk.”

Morgan didn’t apply to the first round Paycheck Protection Program (PPP) because she feared the debt would diminish her chances of getting a bank loan.

By the time the second round of PPP became available, she applied and was given $7,000.

Then early in March, more significant help seemed to be on the way. President Joe Biden signed the $28.6 billion Restaurant Revitalization Fund into being. The Small Business Administration was to deliver the money to restaurants with “significant funding going to our hardest-hit, underserved businesses.”

For the first 21 days of the program, May 3-24, female-, minority- and veteran-owned businesses were supposed to be given early access to the funding as data have shown those businesses have suffered the most during the pandemic. Morgan diligently filled out the SBA packet.

“I applied right when it opened,” Morgan says. “I submitted my application on May 3. I knew it was important to get in early.”

Based on the paperwork she filed, she was immediately informed through the online portal that she was approved for $21,000.

“I got another email shortly after that they needed to verify information submitted,” which she took as a good sign because they wanted her to verify her direct deposit information.

click to enlarge Ice cream cookies from Honeychild's Sweet Creams - HONEYCHILD'S SWEET CREAMS
Ice cream cookies from Honeychild's Sweet Creams
Honeychild's Sweet Creams

On May 27, the owners of The Lost Cajun in Frisco, Jason and Janice Smith, filed a lawsuit against the SBA seeking a preliminary injunction to prohibit the organization from distributing the $28.6 billion in grants “awarded to a priority group based on race or gender.”

The suit was backed by America First Legal and Stephen Miller, adviser to former President Donald Trump.

In the suit, the Smiths report they lost nearly $350,000 during the pandemic. The business previously applied for and received PPP funds, once even self-reporting as a woman-owned business. They received $67,900 in April 2020 then $95,073 in February 2021.

Even through the height of the pandemic, the Lost Cajun remained open, including the deadliest week of the pandemic in North Texas when the restaurant threw an anniversary party.

Just One Scoop

Since dangling the $21,000 on the portal and asking for verification of bank account information, the SBA has ghosted Morgan.

“I tried to follow up, but the phone system just always leads to a dead-end,” Morgan says. At one point she got an email at 8 p.m. on a Friday (after the SBA was closed) telling her and everyone else who applied that the more questions they ask, the longer the process will take, so don’t ask questions.

“I think two things happened,” Morgan says. “First, the SBA tried to create something more equitable, ‘How can we set this funding to create equity?’”

She then refers to the adage that it takes money to make money. “The people who already have money can leverage that money to get more capital,” she says, which is something that played out after the first round of PPP, for instance when Shake Shack received (then returned) a $10 million PPP loan.

All along, small business owners — sandwich makers who fiddle over the digits at night — continue to be left in the cold.

“The people who already have money can leverage that money to get more capital." - Kathleen Morgan, Owner of Honeychild's Sweet Creams

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“Second, I think the lawsuit overwhelmed the system. It fundamentally broke the system,” Morgan says.

On July 7, Morgan called the SBA again. They told her that since the lawsuit, they had to stop processing priority applications entirely.

“So, now I’m left wondering if they stopped processing my grant weeks ago and just didn’t tell me until the fund was out of money and there was nothing I could do about it.”

The Lost Cajun, however, received its funds just three days after their preliminary injunction was granted:  $187,753, bringing their total pandemic funding to $350,726.

Morgan isn’t upset that The Lost Cajun self-reported as a female-owned business at one time. “But don’t take the opportunity from everyone else,” she says.

On Tuesday, the SBA announced that the fund is now closed but will remain operating for two weeks to allow applicants to check their status. The platform will officially shut down on July 14.

Congress could stop the impending shutdown. On June 8 a bipartisan group of legislators introduced an act to pump more money into the fund. However, the July 14 date leaves little time to refill the tank: Congress is on vacation and won’t return until July 12, leaving just two days to get the job done.

“I found out I would not be receiving a grant while Congress was on vacation,” Morgan wrote in an email Wednesday afternoon. “It doesn’t make any sense.”
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Lauren Drewes Daniels is the Dallas Observer's food editor. She started writing about local restaurants, chefs, beer and kouign-amanns in 2011. She's driven through two dirt devils and is certain they were both some type of cosmic force.