Virtual Coffee Series //

Leaders Adapt to the New Normal

Where business leaders can share experiences and ideas to help each other adapt to the new realities we’re all facing on topics, such as virtual work, online sales, the CARES Act, and more.

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4.17.20  Ask the SBA Your Questions about COVID-19 Loans

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Speaker

Roderick Johnson

Lender Relations/SBDC Project Officer
U.S. Small Business Administration

Join us for our virtual coffee with Roderick Johnson in Lender Relations at the U.S. Small Business Administration, who will answer business owners questions about COVID-19 loans and other SBA programs, including:

  • Paycheck Protection Program: An SBA loan that helps businesses keep their workforces employed during the COVID-19 crisis.
  • Economic Injury Disaster Loan Emergency Advance: A loan advance that can provide up to $10,000 of economic relief to businesses that are currently experiencing temporary difficulties.

Rod will focus on COVID-19 related programs but all SBA-related questions are welcome.

Thanks to everyone who attended last week’s coffee and our attendee, Becky Briggs of Our Gift Biz, who connected us to this week’s speaker.

Exclusively for business owners and senior leaders to maintain a peer environment

Transcript

Ken Fischer:

Hi, everyone. I’m Ken Fischer of Atigro. Welcome to our Virtual Coffee Series Leaders Adapt to the New Normal. Our strategic partners in my company Atigro put together a series to address issues that are top of mind to small and medium businesses throughout the COVID-19 pandemic. We think a lot of the changes and how we’re doing business will be with us for some time to come, so we’re doing the series throughout the pandemic.

Ken Fischer:

We’re going to cover remote workforce management infrastructure and cost control. We were going to do that this week, but we had an opportunity to have the SBA answer our questions, so we’re going to be talking with Rod Johnson who’s a loan officer with the SBA, and he’s going to go through and answer a lot of questions that we have. I think it’s going to be very informative.

Ken Fischer:

I’d like to take a moment to thank our partner sponsors who helped put this together so quickly and get the word out. If you think we’re providing a service to the community, please help us get the word out on future events, as well as the video archive that we’re compiling.

Ken Fischer:

Also, I’d like to thank our community sponsors NABOE, the National Association of Business Owners and Entrepreneurs, the Special Needs Alliance, and Tysons Regional Chamber of Commerce for helping us get the word out.

Ken Fischer:

Roderick Johnson’s the lenders relations and SBDC project officer in the US Small Business Administration. He has a long history in financial consulting and banking. He’s extremely knowledgeable. Also, Rod, I understand you happen to be a certified personal trainer as well.

Roderick Johnson:

Yes. All right. Well, thank you, Ken. Good morning everyone. I’m so happy to be able to be a part of this. Again, my name is Rod Johnson. I’m a lender relation specialist, small business development center project officer, and in my role as lender relation specialist, what I look to do is burst open the vault doors of all the financial institutions in the Washington Metropolitan Area so that you can start, grow, and sustain your businesses.

Roderick Johnson:

At this particular point in time, we are going through a very stressful situation with this COVID-19 pandemic, and so there are two loan programs that we’re going to cover in detail. But hot off the press, there is a new lending program that is being sponsored by the Federal Reserve called the Main Street Lending Program, where the Federal Reserve has funded it up to 600 billion dollars for small, medium and large businesses.

Roderick Johnson:

But for now, Ken, if you can go to the next slide and we’ll begin the presentation on the EIDL loan program and the Paycheck Protection Program.

Ken Fischer:

Okay, we’ll do that now. Thank you, Rod.

Roderick Johnson:

It’s very short. It’s only ten slides that you have to remain focused on. So here we’re going to talk about the financial tools or resources to actually help small businesses, and it really should also say nonprofit organizations because as of about six days ago, nonprofits including religious organizations were also eligible to apply for both the EIDL Program and the Paycheck Protection Program. Next slide please, Ken.

Roderick Johnson:

All right. So we’re going to cover just five short issues here that can help small businesses manage, hopefully, manage your cash flow doing this disaster. All right. So we’re going to talk about the CARES Act, more importantly, the SBA Debt Relief Fund that has gotten very little press, but I think it’s very important that business owners know about this SBA Debt Relief Fund. It’s very important.

Roderick Johnson:

Using loan payment deferrals to augment your cash flow, the ability to go to your bank and ask for deferment on your existing SBA and non-SBA loans, the CARES act again, the signature program. The Paycheck Protection Program that everybody’s applied for. Then the EIDL as we call it internally at the SBA, the Economic Injury Disaster Loan Program, then the SBA Express Bridge Loans. All right. Next slide for me, Ken. Thank you.

Roderick Johnson:

All right. They CARES Act, excuse me, and the debt relief, Small Business Debt Relief Program. So this program provides immediate relief to small businesses with non-disaster SBA backed loans, including 7(a)504 and the microloans. It’s important to know that for the first six months, the SBA will cover all loan payments on these loans, including principal interest and fees for six months.

Roderick Johnson:

So actually what the SBA is doing on your behalf as a small business, they’re going to actually be paying the banks this money so that your loans can be deferred for six months. This relief will also be available to new borrowers who take out loans up to September 27, 2020. So if you took out a loan and obviously your company has been impacted by COVID-19, you will automatically receive a six-month deferral that the SBA will be paying for your bank to help ease your cash flow. Next slide for me, Ken.

Roderick Johnson:

All right. So non-SBA business loans, you already have a line of credit. You have a term loan. You have a business, not personal, but business credit card. You can actually approach your lender and ask them to defer your loan up to six months.

Roderick Johnson:

Now what’s important is that between the SBA and the department of treasury, they got together with the federal regulatory agencies to issue a strong letter to the banks to actually put these deferrals through, which is more known as a loan modification, because that’s really what you’re asking the banks to do, is to do a loan modification for your loan. So we needed to give the banks reason for during the deferral sort of flip. So the regulatory agencies came on board, issued a letter to all the financial institutions across the country to say make these referrals happen for small business owners. Next slide. Thank you, Ken.

Roderick Johnson:

Okay. So if you want to see the nuts and bolts of the program, you can go to sba.gov PPP. Now under this program, the SBA provides the banks with a 100 percent guarantee. What’s important about this is the interest rate on this loan under PPP is one percent. Seventy-five percent of the loan proceeds are to be used for payroll. The remaining 25 percent can be used for utilities, interest on your mortgage, lease and rent payments.

Roderick Johnson:

If the funds are used for those purposes, and what’s most important, you have the documentation to back up the loan amount, then that loan will be forgiven. The loan amount is up to ten million dollars, and the formula is the last 12 months of your average payroll times 2.5 percent. That’s how you come up with the loan amount. Next slide please.

Roderick Johnson:

All right. So who’s all eligible for this? Small businesses, nonprofits, tribal concerns and self-employed individuals. For self-employed individuals, if you don’t have a W2, which the majority of you don’t, then actually the EIDL program is the better program for you. The Paycheck Protection Program is really geared toward companies that have W2 employees, not 1099s. You can not include the 1099s in your payroll calculation. 1099 employees are looked upon as small individuals, small business owners and thus they can apply on their own for funds.

Roderick Johnson:

So again, under PPP the loan amount was ten million dollars reflecting two and a half times of your average monthly payroll. Again, it’s at one percent. What’s unheard of for the SBA and the banks is that there’s no collateral needed and no personal guarantee. I’ll repeat that. No collateral and no personal guarantees are needed for these loans.

Roderick Johnson:

The maturity, if a portion of the loan is not forgiven, is two years. You don’t have to make payment on this loan for the first six months. There’s no prepayment penalty.

Roderick Johnson:

I want to review the use of the funds because this is critical in order for the loan to be forgiven. The funds are supposed to be used for payroll costs including benefits, mortgage interest, rent and utilities. There are no fees associated with applying for this loan.

Roderick Johnson:

I’d like to go on and say that unfortunately, I heard of consultants charging business owners up to 2500 dollars to apply for this loan. You don’t need to do that. We have resources, score volunteers, the Small Business Development Centers that I mentioned, the Women’s Business Centers and the in the veterans units that can all assist you for free, for free, to help you apply for the PPP program. Next slide for me Ken. Thank you.

Roderick Johnson:

All right. So let’s talk about EIDL, the Economic Injury Disaster Loan Program. Now I will say, in my opinion, this loan program is the best loan program for the 1099 miscellaneous, the sole proprietorship and the single member LLCs because you don’t have W2s and you can actually get loans under this program. It’s really geared toward you.

Roderick Johnson:

All right. So the EIDL loans, you’re actually applying through the SBA portal, and typically you can’t have over 500 employees unless you’re a particular industry falls within the SBA size standards, which are your NAICS codes. If you need to find out if your company falls within the SBA size standards, then you just go to www.sba.gov/size.

Roderick Johnson:

Now who’s an eligible for this program? Philanthropic and educational foundations and gaming concerns. Now most people, when they think of gaming concerns are thinking about the casinos across the country. I actually had two people that actually gamble for living. They do file a 1040. A hundred percent of their earnings come from gambling. They travel around from casino to casino to gamble. However, they were not eligible for this program. Okay, next slide please.

Roderick Johnson:

All right. Under this program, you can borrow up to two million dollars. Now this section of it is key. So if you do have W2 employees, which include full-time equivalent, as we say FTE or part-time equivalents PTEs, you may receive a loan advance that’s forgiven up to 10,000 dollars, or it’s 1,000 dollars for each employee. Totally forgiven. Whether or not you’re approved for the EIDL loan or not, you still get the 10,000 dollars, 1,000 dollars for each employee.

Roderick Johnson:

Now the interest rate on these loans are 3.75 percent for small businesses and 2.75 percent for nonprofits. Those are fantastic rates, because when you think about it, most small businesses are borrowing it at least at prime plus one which is 4.25 percent. So this 3.75 percent rate is very good.

Roderick Johnson:

I love these 30 year terms. Yeah, 30 years. Can you imagine? You have 30 years to repay the loan. Most loans go out to five years maximum for your equipment loans. But here you have 30 years to repay the loan and you don’t have to make a payment for the first 12 months after the loan is closed. So again, here’s an opportunity to help manage your cash flow.

Roderick Johnson:

So let’s review. Under the Debt Relief Act, you can go to your bank and ask for relief on your SBA and your non-SBA loan up to six months. You can get six months worth of payments, deferred. Now on the SBA loans, the SBA will actually pay the bank on your behalf for those loan deferments.

Roderick Johnson:

All right. Then you have PPP. Well under PPP, you don’t have to make a payment on that loan for six months.

Roderick Johnson:

Then if you have the EIDL program, then you don’t have to make payments on this loan for 12 months. So as you see, the SBA and the treasury has tried to put a couple of programs in place or actually three programs in place. They help you manage your cash flow while retaining your employees or bringing them back off of unemployment and then having the funds to retain them. Next slide Ken.

Roderick Johnson:

I know I’m going to get a lot of questions after this presentation. All right. So the SBA Express Loan, they had resurrected this product from the dead. The SBA Express Loan allows you to get 25,000 dollars with less paperwork. The idea behind this was for companies to use this bridge loan while they’re waiting for EIDL or the PPP approval.

Roderick Johnson:

This is Rod’s editorial. I’m not really in favor of using the ESB Express Loan because my opinion just go right ahead and apply for EIDL and apply for PPP because they both can be used in conjunction with one another. So in my mind, why put an interim step in place to get a loan when you can just go direct to your bank for the PPP or apply within the SBA portal for the EIDL funds to get the money you need. All right. Next slide Ken, and I think this should be it.

Roderick Johnson:

All right. Our Disaster Loan Customer Service number is available 24/7 at (800) 659-2955, and then of course we have an email address at disastercustomerservice@sba.gov.

Roderick Johnson:

Now there’s another loan program and I haven’t studied it to the maximum yet. It’s called the Mainstreet Lending Program and this one is in the amount of 600 billion, 600 billion dollars that’s going to be administered by the Federal Reserve Board. Okay? You can have anywhere from 500 up to 10,000 employees to qualify, or you can’t have over 2.5 billion in revenue.

Roderick Johnson:

Now you may say, “Oh my gosh, well that’s not small business.” Where remember this program is for small, medium, and what we call in banking, middle market companies.

Roderick Johnson:

All right. The minimum loan amount is 1 million up to 150 million dollars. The interest rate on these loans, depending on the company’s risk, is 2.5 percent up to 4 percent. You actually apply for these loans at your local bank.

Roderick Johnson:

Another minimum is that you have to have 250,000 dollars in EBITDA, which is earnings before taxes, interests, depreciation and amortization. So that actually gives you a rough idea of this program. It probably won’t be rolled out for another week and a half as they continue to find tune the product, but I wanted to make you aware that there is a 600 billion dollar loan fund out there just being administered by the Federal Reserve Board that hopefully will be coming online in another week and a half.

Roderick Johnson:

So Ken, if you’d like to open it up for questions, let’s do it.

Ken Fischer:

Thanks Rod. Let me just make sure I spotlight it. Okay, you on the video. Let’s see. Can you help me spotlight Rod please? I’m losing the control. Thank you.

Ken Fischer:

So yeah, are we making news today by announcing that last program?

Roderick Johnson:

Yes.

Ken Fischer:

Really?

Roderick Johnson:

Yes.

Ken Fischer:

Okay. Call the presses. I actually didn’t invite press today on purpose because that I know causes you a lot of problems as a federal employee. So I didn’t do that.

Roderick Johnson:

Well Ken, in a broadcast that I did a week ago, one of the gentlemen from the Washington Post actually lifted one of my comments and the comment was actually in the Washington Post business section yesterday much to my surprise.

Ken Fischer:

Well we will be posting the video. So I have a lot of questions. So now I’ve got to stop smiling at you Rod and I got to grill you a bit here. So we have a lot of questions.

Roderick Johnson:

Okay.

Ken Fischer:

A lot of people are very concerned, even possibly upset, and it’s not you. You’re just doing the best you can. You don’t make policy, you’re just trying to help wherever you can based on what the government’s doing and the banks are doing.

Ken Fischer:

They’re really not upset.

Roderick Johnson:

Yes.

Ken Fischer:

Yeah, there’s some people who are very frustrated with the banks. So I divided the questions into just basic funding that you addressed at the beginning, but I’d like to go over that in detail, as I might say in English for us.

Roderick Johnson:

Okay.

Ken Fischer:

For us non-financial speakers, and then eligibility, the bank issues and then the forgiveness.

Roderick Johnson:

Okay.

Ken Fischer:

You have questions on that as well. So starting with going over what you said at the beginning, did I understand right that EIDL and PPP are both out of money? Is that correct?

Roderick Johnson:

That is correct. As of yesterday, the SBA and the banks actually stopped accepting applications, actually at about 10:00 AM yesterday morning.

Ken Fischer:

So are those applications going to be funded?

Roderick Johnson:

All right. So here’s the key-

Ken Fischer:

And then there’s who … Right.

Roderick Johnson:

Okay.

Ken Fischer:

There’s people who put in pre-applications, like Wells Fargo was accepting pre-applications I know.

Roderick Johnson:

Okay. If the bank has put in your application and they have received an SBA number for the approval, then your application will continue to be processed and you should get the money. Okay?

Ken Fischer:

Okay.

Roderick Johnson:

And it’s the same with EIDL. If you’ve applied for EIDL and they’ve come back to you with an SBA number directly, then you should continue to be processed and get the money.

Ken Fischer:

I see.

Roderick Johnson:

Particularly for EIDL, if you apply but didn’t receive an SBA number, then you will probably have to wait until, if Congress appropriates more funds for the program.

Ken Fischer:

I see.

Roderick Johnson:

And the same with PPP.

Ken Fischer:

Now I’m going to ask for your personal opinion. Do you think that’s highly likely?

Roderick Johnson:

You really don’t know what Congress will do. Well first, who thought that we would blow through 400 billion dollars? No one thought that we would blow through 400 billion dollars. Let’s think about that, 400 billion dollars in four weeks, in four weeks, in just one month. So I think this caught everybody off guard.

Roderick Johnson:

I would like to think that Congress now sees that small businesses really need to be sustained and so more funds are needed. So I’m hopeful that Congress will allocate more funds. Frankly, I think the number that’s been spoken about is 250 billion depending on who you’re listening to. That number has now climbed to about 500 to 600 billion. So let’s hope within the next week or so that the Congress will appropriate more funds for both of these programs.

Ken Fischer:

And if you’ve applied to both just to clarify for some people, EIDL, PPP and maybe local grants? I know it was really EIDL and PPP. If you get one, you do not get the other, is that correct?

Roderick Johnson:

Oh no.

Ken Fischer:

Oh no. Okay.

Roderick Johnson:

All right.

Ken Fischer:

Great. That’s really good.

Roderick Johnson:

You can apply for both. Now what’s key is you can’t use both for the same expenses. For example, let’s say you applied for EIDL first, okay, and you’ve decided I’m not going to use that for payroll. I’m going to use PPP for payroll. So I’ll use EIDL for my accounts payable. I’m going to pay my fixed expenses using EIDL, and quite frankly, take advantage of getting a 10,000 loan dollar that’s forgivable. So basically it’s a grant. I’ll go ahead and get 10,000 dollars for my employees, 1,000 dollars per employee. So I’ll get that for forgivable grant.

Roderick Johnson:

All right. I apply for PPP. Now I’m going to use PPP 100 percent for my payroll. Now hopefully the PPP loan amount is enough that I can pay off my EIDL funds. Now that PPP loan becomes, all 100 percent of it, becomes forgivable because you’ve used those funds within the parameters that the program has stated.

Ken Fischer:

So just to be clear, you can actually receive both.

Roderick Johnson:

Yes.

Ken Fischer:

If you applied and got your number before the money ran out?

Roderick Johnson:

Yes.

Ken Fischer:

Okay. Okay. Okay, great. That’s been a …

Speaker 1:

… For the money right now?

Speaker 2:

Yes.

Speaker 1:

Okay. Okay, great. That’s been a source of a lot of confusion. Because some people, and I remember vaguely language on there saying, “Have you accepted any other small business loan, etc.?” So it was very confusing. So now we get to eligibility. And let’s just assume for the sake of argument that there will be some more money for people who still have eligibility questions. Can pre-commercial biotech companies with new therapies and development get idle loans? While these companies have no revenue and cannot demonstrate a revenue decrease, their ability to solicit capital is greatly decreased. So is that, I know it’s not a PPP issue, but is it an idle issue? Or actually, it could be. Well, either one, either one.

Speaker 2:

That’s more research and development. That’s not the restaurant, that’s not the barber, that’s not the government contractor that has 100 employees. The biotech industry is basically a lot of research and development. So that’s mainly venture capital and angel money. In my opinion, that’s not what the idle and the PPP was necessarily designed for.

Speaker 1:

Okay, so that sounds like a probably not, right?

Speaker 2:

I think they’d have a hard time making a justification that they’ve been injured. Because raising money is what they do anyway, and raising money for new technology is hard, so I think it would be hard for them to make a case to say that they’ve been injured. Some may disagree with that, but I think it’d be a hard case to make.

Speaker 1:

Okay. And similar question, someone spent the last year, and I’m not reading names because these are sensitive questions, some of them, so I’m not reading names on purpose. I think next time we’ll do this, we’ll ask people if it’s okay to use her name. But, “I spent the last year creating a new travel company,” one person writes, “With new clients to come on board starting in July 2020. The vast majority of the clients have shuttered. I need to pivot and find new clients in the interim.” Does this person qualify for an SBA idle loan? “I’ve approved online and received a confirmation number.” Do you think that will come through?

Speaker 2:

Yeah, that’ll fly. Yes.

Speaker 1:

Okay.

Speaker 2:

That one will go through. Yes.

Speaker 1:

Great. Thank you.

Speaker 2:

And see, that company, that’s the purpose of the idle.

Speaker 1:

Great. Great. But she was also in a situation where she hadn’t received revenue really. It sounded like also pre-revenue. So I’m a little confused.

Speaker 2:

But she started up, she started up, and was she a single member LLC?

Speaker 1:

It sounds like something like that. Yeah, she didn’t say exactly.

Speaker 2:

And remember, she’s not in the business of raising money to fund research and development. That’s the other part of it.

Speaker 1:

Right, right. I see. Okay. So, “I work from home. We lost my main client based in the UK because they laid off all three employees due to the virus. I’m applying for both PPP and unemployment. Will I qualify for both or either? And does one offset the other?” So I guess she’s not paying herself, but maybe if she gets a loan she could start paying herself. How does that work out for small businesses?

Speaker 2:

All right, so she had three employees, so hopefully she …

Speaker 1:

No, no, I’m sorry. Her client, her client had three employees [crosstalk 00:03:50], including her. So she had a client in the UK who basically shut down.

Speaker 2:

All right, so she’s a 1099. It sounds like she’s probably a 1099.

Speaker 1:

Right, right. Or a small LLC, single person LLC. One or the other.

Speaker 2:

Okay, so here’s the key, as I mentioned in the presentation. PPP, although the CARES Act says that a sole proprietor or a single member LLCs and 1099 miscellaneous can apply for the PPP, here’s the key. Typically for PPP, it’s for FTEs. And FTEs get W2s. When you have a W2, then you have to file the 941 quarterly tax payments, and then you have a form 940 that you file annually with the IRS. Typically with a 1099 miscellaneous, you’re not going to have that document. Because on the back end you have to be able to prove how you’ve used that money. So if you’re a corporation that has employees, you’re filing the 940 and the 941s. That’s your documentation. And then if you’re using the money to pay your rent, lease, or interest on the mortgage and utilities, your bank statements will actually show that you’ve made your payments.

Speaker 2:

And when you put all that documentation together, that’s what you’re going to give to your bank to show that the loan is forgivable. When you’re a self-employed, one man, one woman operation, typically you can’t do that. So you apply for idle. Because with idle, you don’t have to provide a 940, a 941 to get funds. Plus you’ll get the $1,000, that loan that’s forgivable. And then hopefully you’re approved for additional funds to cover your accounts payable and other fixed costs. So that’s really the way to go, is with idle, if you’re a one man, one woman shop.

Speaker 1:

I see. And some people have been paying themselves off a schedule C. Would that go into PPP or only for idle?

Speaker 2:

You could use that number. And the number I’m speaking about is the net income. Because look, what you’re doing is you’re running all your expenses through that organization to come up with the net profit number. So for PPP, all you can do is divide that number by 12 times 2.5. And that number may not wind up being a big number. And so what I tell people is, particularly a sole proprietor, and that’s a good question. If you’re sole proprietor, then you need to run the numbers between idle and PPP. Because with idle it’s your gross profit, your annual gross profit in 2019 times two, which is two months of working capital. So whichever number is greater between the programs is the one that you want to use. It’s been my experience that the number has been, like for example, I had a sole proprietor, and when we applied to formula to the sole proprietor based on her net income, the loan amount was $403.

Speaker 2:

Well, the SBA system called E-Tran does not accept transactions under $1,000. So she had to go and apply for idle. And at the beginning of the process, and I was on the phone with her for an hour and a half explaining to her and showing her, going through the numbers with her, but she still wanted to apply for PPP, and she did. And then she called me back and I said, “Okay, well, I guess now you’re ready to apply for idle like we had talked about earlier.” So she got approved. So you have to work the numbers, sister, is the point.

Speaker 1:

One thing you mentioned in the presentation, which I was surprised at and I didn’t understand either, was the $10,000 grant in idle is for every employee, part-time and full-time? Is that what you’d said? Something of that nature?

Speaker 2:

As they say, it’s PT, FT. And then I like to put the E at the end because it’s really full time equivalent and part time equivalent. Yes, for idle, $1,000 per employee up to 10 employees.

Speaker 1:

And one thing that’s always confusing is the full-time equivalent calculation. Those are only W2 employees, and basically a combination of people who work, what, more than 35 hours, more than 30 hours?

Speaker 2:

It’s usually 34 full-time. Yes, for full-time it’s usually 30 hours.

Speaker 1:

I see. I see. Okay. But it has to be W2?

Speaker 2:

A week. Let me say that, 30 hours a week. Yeah.

Speaker 1:

But if you had a 1099 who was basically only working for you, that would not count.

Speaker 2:

No, no. That does not count. You do not put them in that calculation.

Speaker 1:

Okay. That was confusing, because I believe the initial guidance did include them, or people understood it that way, and then it was changed.

Speaker 2:

Right. That’s correct. That is correct. And keep in mind, these programs, when you think about it, remember when I started out and I said, all right, President Trump announced this $50 billion on a Wednesday night, and then on Thursday the SBA was supposed to be set up and ready to go.

Speaker 1:

Yeah. In the banks on Friday.

Speaker 2:

So as we were moving along through the program, then we started getting tweaks to the program.

Speaker 1:

It’s just software. Can’t you snap your fingers and … You’re the government, you should be able to do these things. So idle for nonprofits, any insights? So how do I apply for idle for nonprofits? Just through the same bank process?

Speaker 2:

Oh, okay. So remember, for idle, it’s through the SBA portal.

Speaker 1:

Oh, I’m sorry, through the SBA portal.

Speaker 2:

Yeah. And then PPP, you’re applying through the banks. Now, here’s the good thing for nonprofits, particularly, I’ll say your larger ones. And by larger I don’t mean that they have to be AARP or the Boys and Girls Club that have hundreds of employees. So you can have a nonprofit with, what, two, four employees. And so if you have W2 employees, you may want to apply for PPP. Because you are filing the 941s and the 940s. And so at the end of the eight week period, then you have the documentation to show how that money was used, because you already have it. So if you have employees, then I would say use the PPP. If you’re a nonprofit and you’re the only one in the nonprofit, then of course go with idle.

Speaker 1:

I see.

Speaker 2:

And with idle, typically they’re going to take two months of operating expenses as your loan amount.

Speaker 1:

Okay. And for those who have applied and got a pre-application number because that bank was slow, people feel that this is unfair. They were stuck in their bank and other banks weren’t accepting new accounts, and some banks were processing faster than others. There is a general feeling of, “Gee, this wasn’t fair because my bank was slower.” Do you want to address that at all?

Speaker 2:

So let’s step back a minute. And I’m going to keep using these numbers. $400 billion in four weeks. So the banks have to come up to speed, because the banks have thousands and thousands of applications. So think about if you’re a Bank of America, JP Morgan, Wells Fargo, TD Bank, PNC Bank, all large, SunTrust and BB&T, who are now Truist. And some of the larger banks, you have thousands and thousands and thousands of applications. You only have one or two people putting those applications into the E-Tran system.

Speaker 1:

Oh, okay.

Speaker 2:

Okay? And so you have bankers working day and night to input the information into the system. Now, let’s deal with the fact of the bank saying, “Well, I only want to deal with my customers.” Well, if you look at the underwriting criteria, no collateral, no personal guarantees. So a bank is now being asked just to process these loans without really having any financial information. And so that’s why they said, “We’re going to process these applications for the customers that we know.” Because, remember, there are regs in place, like know your customer, that have to be completed. It’s a regulatory requirement. And you can’t know your customer if you don’t have three years of business tax returns, three years of personal and business tax returns, you don’t have a personal financial statement. And so you can’t know that new customer coming into the bank without that.

Speaker 2:

So that’s why the banks said, “Look, we’ll just work with our own customers because we know them.” And that makes sense because there’s a regulatory requirement.

Speaker 1:

Right.

Speaker 2:

And so I would ask that people would be patient, because there are thousands of applications being processed across the country, and you only have one or two people that have authorization within the bank to actually do the input of those applications.

Speaker 1:

Yeah, yeah. Just some people feel like some banks are doing … Comments are just flying right now on, I don’t want to mention the names, banks, but a nightmare to work with, treated the clients very poorly, shouldn’t be allowed to be a bank. There’s a lot of frustration with the banks. It’s not directed at the SBA, it is directed at the banks.

Speaker 2:

Yeah, I understand.

Speaker 1:

Because some banks got on it very quickly. So I understand there’s not much you can do with that. I just want to acknowledge that, that people are feeling that way.

Speaker 2:

Well, let me give you an alternative. So let’s just say that you’re that customer of … Oh, and let me, for some people the banks were even more discriminating by saying you must have a lending relationship with us. Not only must you be a customer, but you must have a lending relationship with us. Line of credit, term loan, business credit card, in order for us to process your application.

Speaker 1:

But isn’t that contrary to the guidance for the SBA?

Speaker 2:

Well, remember, now the banks are voluntarily participating in the program.

Speaker 1:

Oh, okay.

Speaker 2:

It wasn’t a mandate. They are voluntarily participating. And so what has been done, and I’m glad that this happened, was that there were fintechs that stepped up. And so now they can participate in the PPP program for as long as it’s funded. So you have fintechs like Cabbage, OnDeck, PayPal, Intuit, and some others, that all they do is just, like OnDeck and Cabbage, all they do is just process loans. That’s what they love to do. You don’t have to be a prior customer, you don’t have to give them deposits. They just love putting assets on the books. And I have sent small business owners there, and they’ve gotten the funding that they’ve needed through those fintechs. So for the “unbanked,” or what I call the unloved customer from their current bank, go to one of those fintechs and get the money that you need.

Speaker 1:

Okay, that’s very helpful. Thank you. That is very helpful for those who are very frustrated. One question was, why did the SBA do an inquiry to my credit file, since these were non-collateralized, sorry, I’m new to public speaking. And he didn’t say whether it’s idle or PPP, so I’m not sure.

Speaker 2:

All right, so I’m assuming it’s idle, because with idle, they are going to pull your credit. Now, the banks typically like to see a 700 FICO score. Under normal SBA guidelines, the FICO score can be 650. Since we’re in a disaster type situation with our economy, you can have a 600 FICO score. Now, if you have a 600 FICO score, then the likelihood of you getting approved for idle will become much smaller if you below a 600 score. And so that’s why the credit was pulled. And let me say this, because you know what, I forgot to mention this. So for the first $25,000 under idle, the loan is unsecured. Anything over $25,000, collateral is taken, which is a blanket lien on your assets and a second, third, fourth, fifth, or sixth deed of trust on your home. So I did forget to mention that. So over $25,000, collateral is taken.

Speaker 1:

I see. Okay. Sorry, just for a minute, is the SBA grant considered income for unemployment insurance benefit purposes? She thought she might be denied by the state unemployment insurance because it’s like I’m working when I get the SBA grant or loan. So I guess that’s one of these unemployed and getting a loan. So in other words, are these grants considered income? I think is the question.

Speaker 2:

Right. Now, these are supposed to be untaxed. If I remember in reading the Act, it’s supposed to be a grant that’s untaxed.

Speaker 1:

Well, I think it’s about, you get money into your business, that looks like income to the state. And if you’re applying for unemployment, then that’s a potential conflict. So how do the states view this money, I guess, is the question.

Speaker 2:

Yeah. And see, I don’t know how they’re going to view it.

Speaker 1:

Okay. Okay. Here’s a bit of a complaint. The idle should be, and I know that’s not your department, but I want people to be heard.

Speaker 2:

I understand.

Speaker 1:

And so the idle should be focused on small businesses, not bailing out large airlines who have assets to use for loans. So basically it’s a bit of unfairness about, “Gee, it seems like some of the large businesses got first in line here, and here’s the money’s running out for small businesses.” Also, the PPP loan should provide the option to use it when we reopen in order to bring back employees. So if you’re a restaurant, in other words, what’s the sense of keeping employees, but you’ll need that to reopen, to re-establish, when there is actually a market for you. I guess that’s …

Speaker 2:

Yeah, I understand. So basically what they’re saying is, “Okay, I bring back my employees or I get the PPP money. Governor Hogan says we can’t open, I’m using the PPP money to pay these people to say sit at home. All right, so then I run out of the PPP money. So then what do I do?” And I think that’s really what that question is dealing with. And I think that’s one of those tweaks that Congress, if they decide to go ahead and provide more funding, I think that’s one of the things that they need to take a look at. Because in our area, the DMV, restaurants and other things are closed down. So if you bring these employees back, you pay them for the eight weeks and we’re still not through this COVID-19, then what do you do?

Speaker 1:

Right.

Speaker 2:

So yeah, that’s one of those tweaks, honestly, that has to occur.

Speaker 1:

Okay. And so hopefully there’ll be more funding and more guidance in that.

Speaker 2:

Yes, yes.

Speaker 1:

A lot of questions about forgiveness. That’s our last section of the pre-prepared questions.

Speaker 2:

Okay.

Speaker 1:

So the questions range from, how do I maximize my forgiveness, and then, why doesn’t the SBA note form contain language regarding the forgiveness of debt? So banks will give you the money and you ask, “Well, how much of this will be forgiven?” They’re like, “Not our problem. You owe us money.” That’s what the bank tells you.

Speaker 2:

No, there’s a standardized process. All right, so at week seven you’ve been funded.

Speaker 1:

There is, but I’m just saying the banks are not telling you that. They’re like, “Not our department.” I’ve heard them.

Speaker 2:

Well, they should be. They really should be. Because at the end of the day, when they submit the forms to, they, the bank, submit the forms to the SBA, we have 30 days to approve whether or not, based on the documentation, if that loan is 75% forgivable or 100% forgivable. So the bankers need to be telling the clients the terms of the forgiveness and what documentation they need to show. And actually, one of my roles is to actually push that information out to the small business owners in forums like this. This is exactly why we’re hosting this type of coffee, if you will.

Speaker 1:

So on the loan forgiveness, basically, one confusing thing is, for instance, it’s over an eight week period. But is that your cash out? For instance, if you’re paying for payroll from the previous periods, does that still count in that eight weeks? Or does it only count for payroll paid out for people working during that period?

Speaker 2:

During that eight weeks. Because before those people were getting unemployment, so now you’ve brought them back. They’re off of unemployment, you have them on your payroll for eight weeks.

Speaker 1:

Or you were sustaining them out of your pocket.

Speaker 2:

Oh, yeah, or you were sustaining them out of pocket. But typically most people have filed for unemployment. But generally the restaurants, which around here is just huge, the restaurant industry around here is huge. So a lot of those people got laid off. They filed for unemployment. In fact, what I’ve heard is, some people or some employees are getting more in unemployment than they would if they’d come back to work. So some of the owners have asked, “Well, what do I do? Because I can’t compete with unemployment.” And I said, “Well, that’s an issue that we can help you with.” But that’s something as a business owner, you may wind up losing that employee.

Speaker 1:

So to be clear, if you didn’t lay people off, if you were trying to be a good person and not lay people off, and then you had payroll to pay and you paid it within that eight week period, and then you also paid the payroll for people working during that eight week period, can all that money be counted toward the grant?

Speaker 4:

Can all that money be counted toward the grant?

Ron:

I mean, you’ve used it for payroll.

Speaker 4:

Okay, so it’s basically cashed out during the eight weeks.

Ron:

That’s the key. Yeah. We use the Tor payroll.

Speaker 4:

And I will say one thing is what’s interesting is suppose you have 1099s that you rely on to keep your business going. What’s interesting about the 1099 separation is that even though they weren’t “employees,” you’re kind of breaking up the company. And you’re saying you’re on your own and you can’t utilize their services to pivot, remarket, etc. So that’s a bit of a disruption there that I feel is a valid criticism of that approach. Oh, 1099s don’t count at all. Even if you continue paying them. Because they might be a critical part of your business. I know that’s probably not jiving with some of the 1099 guidance, but that’s the reality, right?

Ron:

Yeah. See they’re looking at it, I guess Congress is looking at it as double dipping. So if you include them in your payroll, but yet they can also on their own go and get funds, yeah. They’re looking at it-

Speaker 4:

Well I think the simple thing would be to choose. But yeah, I mean these people are not trying to double dip, but yeah. It’s hard to keep together small businesses with no 1099s is what I’m saying. It’s hard to keep that together as a unit sometimes. And now we’re going to go to the chat questions, which there’s just one or two or 10 or 100. I’m not sure yet.

Ron:

I’m enjoying this by the way, because I want to make sure that business owners out there get the answers to the questions that they have.

Speaker 4:

Okay. So there’s a sentence you have that says you have until June 30th to have all employees back on the payroll, but yet another sentence that says you must start paying as soon as you receive the money for loan forgiveness. Can you explain these two sentences? And I’m not sure where the sentences are coming from. Jared, since you said that to everyone, I’ll call out your name if you want to unmute and tell us where you saw that.

Jared:

It’s actually in the guidelines of the SBA, I can forward it to you. But again, my business is closed, required to be closed. But there is a sentence, actually an SBA consultant had sent it to me, that says you have until June 30th to put them back on payroll. But then there is a sentence in that same section that says you have to start paying as soon as you get the funds.

Ron:

Yeah. And that has been my understanding is that as soon as you get, so in other words, you can’t stockpile the cash. And so you’re supposed to use the funds. As soon as the bank is ready to fund you, you need to use those funds on payroll or the other expenses that are allowed under the program.

Jared:

So I’m trying to figure out, okay, so how do I pay the federal taxes? I still am responsible for employer taxes, but I have absolutely no revenue coming into my business. So I’m going to go deeper in debt.

Ron:

Yes. The act doesn’t cover that. So yes. Remember what I said. Hopefully, because some of these questions have already been addressed with Steve Manoukian and our administrator. And so we’re hoping that if Congress does appropriate more funds, issues like this will actually be addressed in the next traunch of funding.

Jared:

But it doesn’t help this round. And so my fear is I wouldn’t get approved the next round, so would it be better to just hold on the money, not bring employees back and pay them money back, or wait until it gets clarified for the next round and maybe that will apply to my first round? Did that make sense?

Ron:

Yeah, I understand.

Stuart:

In regard to the legislation, the term was if you had employees that you laid off between February 15th and 30 days after date of enactment, if you brought them back by June 30th, they would not count against your forgiveness. I think that’s the language that he’s referring to, that there was this period of time that said that if you laid off people up to 30 days after the enactment but you brought them back by June 30th. But the problem is what happens to those people who didn’t qualify this time? Are they going to rewrite that piece? Because I’ve got clients calling me and saying, “What do I do if I didn’t qualify this round regarding layoffs, et cetera? Because how do I know what my forgiveness will be?”

Speaker 4:

Thanks, Stuart. And that’s Stuart Sorkin who is a CPA and he and Wendy [inaudible 00:55:37] Lane from Schulman Rogers and Hornbeck, Lane Hornbeck. Sorry for a second there, Lane, your last name left my mind. And also Stephanie Katz gave a lot of detailed breakdown on the PPP and EIDL last week and that’s now available on the website. So you can look on the website and go through that video and go through their decks and handouts.

Speaker 4:

They went into a little bit more detail about how to calculate forgiveness and that sort of thing. So we own two restaurants and banquet Eagle. We were on top of the PPP and kept calling the bank about it. As soon as we got it together, we forwarded the application the day before SBA announced that they stopped taking applications. Eagles suggested if we had a turn, it’s a way to go for it, but it was a bit late. So we find ourselves at the mercy of the banks. And so again, I know you can’t answer that question, but is there going to be a second opening for PPP and when, and that I guess is yet to be determined. Is that right?

Ron:

Yes. You know what I mentioned to people is think about this. Everybody’s looking for the forgiveness of the loan, but your documentation has to be spot on for that forgiveness to occur. So then I go back to EIDL and say, you know what, I have 30 years to make a payment on the loan, but I don’t have to make a payment for 12 months on EIDL versus under PPP, I only get a six month deferment. And then I have to take a chance on whether or not my loan turns into a grant under PPP. So you just have to weigh that.

Speaker 4:

But Ron, I have to give you a hard time there because you’re telling us clearly, here’s how you predict it. It’s very predictable. And then you’re saying you have to take a chance. And that makes people nervous. For business owners that want to bring back employees, that’s anxiety producing.

Ron:

Well the documentation, I say it that way because the documentation is really key here. Do you really have the documentation to support it? Now, again, it goes back to W2 employees and you’re filing your 940s and your 941s. And as long as you have that and you have your bank statements to show that you’ve paid rent and you’ve paid the utilities, then you’re fine. But the key is really in the documentation. So I want to stress that.

Speaker 4:

Okay. Let me go back to a couple of things I missed. So some people would advise opening up a separate account to withdraw PPP as part of that documentation. Is that something that you feel is necessary or important?

Ron:

It couldn’t hurt actually because that account is dedicated just to PPP, so that would be great. That’s a great idea actually to do that.

Speaker 4:

I think Wendy [inaudible 00:08:59], our speaker last week, that was something she was saying. Stew might’ve been saying that too. The other thing is people who have received their e-trans number, when do you think they can expect to be paid at this point? Or is it going to be a bank by bank decision? Do you think in two weeks everyone should have been paid? What do you think?

Ron:

No, it just depends on where they are in line. Remember we’ve got thousands and thousands of applications.

Speaker 4:

So it’s that one guy in the bank entering data and then the one guy in SBA going through each one. Is that kind of what we’re dealing with? Obviously not one person.

Ron:

Once you have the approval for the PPP, actually it should go pretty quickly. But again, it depends on where you are in line at your larger institution. So they can have the approval, but you have to do the note and the loan documents to close the loan and then have the funds deposited into your account. So it just depends on where you are in line.

Speaker 4:

One thing you said earlier about EIDL getting the 10K per employee grant, I thought I read somewhere that you can’t do that and the PPP loan forgiveness, that that gets subtracted. Is that true or not?

Ron:

The 10000 gets subtracted from the loan, yes it does.

Speaker 4:

Okay. So yeah. If the bank can’t answer the questions about where you are in line, is there any help at the SBA hotline that you gave?

Ron:

No, [inaudible 01:00:51] banks.

Speaker 4:

But if you have a trans number or it’s really depending on the, okay.

Ron:

Just a financial institution.

Speaker 4:

Okay. And this is something we’ve answered, but I’ll just say it anyway. I submitted my bank application, sorry, my PPP application last Tuesday. But as far as she knows it’s not gone through. Does that mean because it’s run out of money and she hasn’t received an e-trans letter number, or might there be an e-trans number received by the bank and not given to her?

Ron:

Right. I was going to say the e-trans number could have been received, but the bank just hasn’t, again, because you have so many people to contact, they may not have just contacted her yet. So I wouldn’t be necessarily nervous about that. It’s just that they’re going through all the phone calls to let people know. And in fact, I had a law firm yesterday that I had assisted with the PPP and I said, well, okay, did the bank get their SBA number, their e-tran number? He says yes. And I said, well then you should be hearing from them soon. And then he sent me a text last night saying, yes, the bank contacted me and told me that we’re going to be funded today, Friday. So that’s actually how it works. The bank will contact you.

Speaker 4:

Okay. And someone submitted that this slide, I’m not sure which side she meant. It says the SBA is covering the payments, but that’s different than deferring the payments. So since I deferred the payments, do I need to talk to my bank about the payments being covered instead of by the SBA. Do you want to clarify or do you understand the question?

Ron:

Yeah. From the customer standpoint, all you care about is the deferment. You don’t need to worry about the SBA paying on your behalf. That’s between the bank and the SBA. As the borrower, you just talk to your bank and say, look, I know the federal regulators have said that I can get up to six months deferrment on my on non-SBA loan or my SBA loan. 7A504 or micro loan. And you know what? There’s one thing that I forgot to mention and this question actually jarred my memory. So let’s just say that you already have a disaster loan from Hurricane Maria or Harvey or Hugo. Actually, if you have a current disaster loan, then that’s being deferred until December 31st this year.

Speaker 4:

I see. We applied for the EIDL when it was first released, sent it right to the SBA, but we haven’t heard back. How do we check on that? Can we call the help hotline?

Ron:

Yeah, I’m really surprised at that. Particularly you apply when at first when it first opened, that 800 number that’s in the slide, go ahead and call them. What I would say, all right, so if you’re calling like between the hours of like nine and I guess typically between nine and four, you’re going to have a wait time of about an hour. So what I’ve been telling people is call them what I call the off hours. Call early morning, like at seven o’clock or call at night around nine or 10 or 11 during the off hours and you have a better chance because your wait is typically about a minute or two and then you’ll have someone pick up and you can get the answer that you need.

Speaker 4:

Okay. This is another question. I’ve applied for under three entities for the EIDL. Even though they’re all independent will the SBA review them as one? I assume that she’s 100% owner of three entities or three different companies.

Ron:

All right. So as long as they have different EINs then they’ll be looked at and processed separately.

Speaker 4:

Okay. Let’s see. So you mentioned the EIDL is best for a single member LLC. If there’s just the owner and the other’s a 1099, so that means the grant says a thousand, but I believe it’s 10,000 right?

Ron:

Well, no, it’s a thousand. It’s a thousand per employee.

Speaker 4:

Okay. I thought it was 10,000, I’m sorry. My mistake. It’s a thousand per employee up to 10,000?

Ron:

Up to 10,000.

Speaker 4:

Okay. Go back on the audio and dub that. Okay.

Ron:

I just saw in the chat where they said maybe you should repost the 800 number for EIDL.

Speaker 4:

Sure, sure. I can do that, and the slides will be available on download come Monday evening.

Ron:

Oh, one of the things that I’d like to mention, unfortunately we have business owners that have two or three employees and they’re not good with the paperwork, the 940 and 941s. So what I’ve been advising owners to do, if you’re not using a payroll company, ADP, Ceridian, Paychex, Gusto, Intuit, please sign up and use all services because in times like this where you need documentation to show your payroll and that it’s correct, it just saves you heartache on the back end. So I’m advising people to go ahead and sign up for payroll service.

Speaker 4:

Okay, I’ll give a shout out to our client peril network. For a little bit larger companies, but they actually put together reports on how to figure out forgiveness and amount of loan very, very quickly for your clients. The SBA has issued new guidance making it very easy for self-employed individuals to get PPP loan and most of it is automatically “forgiven.” My company is a single member LLC, Schedule C. Is this a new program or is this funding used up as well? In other words, there was new guidance I think on the PPP loans for single member LLCs for 1099s, but then right away they announced the funding was shut down. So is that separate money? Is that the same money that came from [crosstalk 01:07:56]?

Ron:

It’s the same money.

Speaker 4:

I see. Okay. Should we apply for EIDL now or wait for new funding?

Ron:

You know, I’ve actually been mulling that around myself. Should businesses continue to apply? And I’m leaning toward go ahead and get yourselves in the queue, whether it’s the PPP or EIDL, get yourselves in the queue because you don’t want to wait and then you have this big mad rush of applicants in front of you. So I would say go ahead and still apply even though at this point, programs out of funding, let’s just hope the Congress will continue to go ahead and fund the programs.

Speaker 4:

And there’s one person who got a number for EIDL but doesn’t know how to follow up. How should she follow up?

Ron:

That 800 number.

Speaker 4:

Great. Okay. We’ll definitely post this before we end the session. Profitable companies that were still open got the money first. This is a bit of a complaint that again, we want to hear. And versus the ones that were forced to close, they were closed and they didn’t realize, oh, I can benefit from this. And they feel there’s unfairness because some companies are actually profiting from the forgiveness part of the loans and they’re not.

Ron:

Yeah, they got in first. I mean they did. It was first come first serve. They got in first.

Speaker 4:

Okay. And this one Ron, you need your calculator for. So my client was told that regardless of whether the employee worked six or 12 months during the 2019, the amount used for loan calculations calculate during the using the total payroll divided by 12 and understand you can use either the calendar year or February one to January 31st. It’s up to you I think. She has an employee who was hired in June 2019. When she pays them from this loan, can you please verify that she will base this weekly check on the 2019 number divided by 12? Example, employee number one 2019 salary, $40,000 June through December. Employee two, 2019 salary, $30,000 January to December. The loan calculation is those two added together divided by 12.

Ron:

Yeah.

Speaker 4:

And she’s asking basically, does she pay the employee? It sounds like she’s asking does she pay the employee a smaller salary because he or she worked half the year?

Ron:

No.

Speaker 4:

Okay. So in other words, you can use that pot of money to pay full salaries to people.

Ron:

Yes.

Speaker 4:

And it doesn’t matter if they worked last year or not. It’s my understanding. It’s the count of employees.

Ron:

That’s right, yes.

Speaker 4:

So it’s not about paying each employee based on last year’s earnings, it’s simply about paying what you owe now on payroll.

Ron:

Yes. And let me say it’s not, because some owners ask well, Susie left and I replaced Susie. So do I still qualify? We say well, we’re not looking at each individual employee, which sounds terrible. We were looking at the bodies. The number of people you had on a payroll in which you were paying them.

Speaker 4:

And what if you added an employee, but it’s still looking at the amount you paid divided by 12 times two and a half. It doesn’t matter if you have more employees, less employees, it’s just whatever you paid in payroll.

Ron:

It’s whatever you paid, that’s right.

Speaker 4:

Say my firm receives a $10,000 EIDL grant and the PPP loan both. Say we get $150,000 for salary and the EIDL. And $10,000 for permissible overhead expenses. In other words, a $10,000 grant, I assume from the EIDL. All the PPP proceeds fall within the forgivable category. Will the EIDL likely wise be forgiven? I think we answered that saying that you can only get forgiven the total amount of the PPP, and that EIDL get subtracted from that. Is that right?

Ron:

That’s right.

Speaker 4:

Okay. I’m going [inaudible 01:12:54] finances by the time this COVID thing is done, it was always my weak spot as business owner. I hear financial things and be like, please help me, someone tell me what this means. Can the application be canceled and submitted to another bank if you haven’t received the loan application number?

Ron:

All right, so we’ve had people go to, so let’s just say you’re a customer and you have three banking relationships, and you’ve applied to all three. Well, what has happened is those customers have gotten canceled out of the system. Because remember the banks are the ones that are reporting through an SBA portal E-tran.

Ron:

E-tran is going to pick up on your EIN number and know that you’ve applied to three different banks and automatically kick you out of the system, which is what you don’t want. So just apply to one financial institution, okay? Just pick whatever you have the best relationship, and just go ahead and apply that once because going around town trying to apply to different institutions, you’re not going to get better terms and conditions because all the terms and conditions are the same. So spare yourself that aggravation.

Speaker 4:

And a quick question on time. We’re running up against the half hour. Can you stay for a few minutes longer because we still have questions coming.

Ron:

Yes.

Speaker 4:

Great. Thank you, Ron. Our owner draws from the LLC member members eligible as part of the payroll calculation under the PPP.

Ron:

Well, think about the owner’s draw and where that’s coming from. So what that person is saying is that they’re not on the payroll. And just a little editorial, you really should be on the payroll not taking owner’s draws. Here’s why. You’re taking an owner’s draw and what you’re doing is you are actually taking away from the company’s net worth every time you take a draw.

Rod:

… away from the company’s net worth, every time you take a draw. So what happens is, now what you’re doing is, you’re increasing the leverage of the company. So when all this is over, and then you have to go get a regular bank loan, then your company is going to be highly leveraged, and the bank would probably not want to make the loan to you. Because at some point, you keep taking draws, and then your company doesn’t show any net worth. So put yourself on the payroll. All right, so that’s my sermon on that.

Rod:

Now let me answer the question. So what we’re going to have to do is go through your… So the question is yes, you can go and do the PPP, but now we’ve got to go through your month by month bank statements, to see that draw that you’ve taken, has now been put into the checking account. Now we got to go through each bank statement for the month, for the last 12 months, and apply the formula. Okay? So it can be done. It’s just not as easy as looking at the 941 and the 940, that’s all.

Ken:

I see. But would it also be eligible for forgiveness on the backend?

Rod:

It can be, because you paid yourself. Yes.

Ken:

Great. Because it’s not W2, and there’s this emphasis to W2, so I just wanted to clarify. How do you calculate part time employees that do not have set hours under PPP? So I’m not sure about what that means. I would assume you’d do it based on hours worked?

Rod:

I was getting ready to say, that’s what you do it on. Yes.

Ken:

Okay. Are guaranteed payments to members part of the payroll calculation-

Rod:

Nope.

Ken:

… for PPE? What kind and which one?

Rod:

No.

Ken:

That’s not part of the payroll [inaudible 01:16:42] to members. But I thought you just said that an owner’s draw is… But not…

Rod:

That’s what we were talking-

Ken:

An owner draw for the LLC members, was the question earlier.

Rod:

I thought it was, we’re talking about one member. But now you’re talking about a guaranteed payment. A guaranteed payment is different than… Typically, the guaranteed payment is not a draw. That’s typically included in the payroll.

Ken:

Okay.

Rod:

Yeah. So the money is coming from two different… It’s coming from two different places. One, the draw is coming from the balance sheet. The guaranteed payment is coming off the income statement.

Ken:

Okay. And so the guaranteed payments are not part of the payroll calculation?

Rod:

It’s not. Yeah, it’s not.

Ken:

Okay. I was on another webinar last night… I keep on looking at other webinars, I tell you. And they were saying that the SBA and PPP had run out of money. Okay. We covered that. I’m sorry, I’m trying to pre-read these as best I can.

Ken:

Why are some loan structured to cover six months, and others to cover four months? For example, Rod said EIDL only covers two months of operating expenses? That’s PPP, I think.

Rod:

Yeah.

Ken:

Yeah.

Rod:

No, that’s EIDL.

Ken:

[crosstalk 01:17:56]

Rod:

No, that person’s correct, it was EIDL. All right, so here’s what happened, here’s one of those tweaks as money was running out. So when the program was first introduced, it was six months. And then it went down to four months, and then toward the end, where we are now, it went down to two months. And so that’s what happened. But originally, it was six months. And now it went down to two, and now we’re out of money.

Ken:

I see. I applied for EIDL on 4/2. I received an email from SBA on 4/14 addressed to Dear Applicant. The email was a form letter outlining the two programs, but there was no reference to being accepted or not accepted, or any instructions as to what to do. It was as if I hadn’t applied, despite the fact it was addressed to Dear Applicant. Can you shed any light on this? In other words, it said Dear Applicant, but it didn’t say anything about a number, or thanks for applying. It just was like, “Here are the two programs.”

Rod:

Yeah, that’s unusual. Because typically with the Dear Applicant, it will say you were approved for X, and then typically, then is going to direct you to a portal where you put in your bank’s routing number and your checking account number. Then your funds will be deposited into that account three days later, typically, from that notification. So I’m kind of surprised that there was no direction or anything on that notification. Yeah, that one you definitely call the 800 number on. That one’s highly unusual.

Ken:

Okay.

Stephanie Katz:

Thank you.

Ken:

This is from Stuart, one of our CPA’s. If a business was not approved for an initial PPP loan because funds have run out, and they’re hoping to qualify, any thoughts regarding furloughs, layoffs, or reduction in salary to maximize forgiveness?

Rod:

Okay. So you can’t reduce the salaries more than, I think it’s 25%, for that loan to remain qualified to become a grant.

Stuart Sorkin:

But the issue is, that I’m trying to get at is, if people weren’t approved, didn’t get funding initially, and they’re trying to make sure they can maximize forgiveness if there is a new program, is there any hints you can give with regard to what they should do?

Rod:

No.

Stuart Sorkin:

Because, what I’ve been telling clients is, “We’ll have to see what the legislation is.” Because it’s likely they’re going to change dates, and do other things, potentially, in the legislation.

Rod:

Yes, that’s true.

Stuart Sorkin:

Okay.

Rod:

Remember the question before? Here’s what can’t be… Management fees, and guaranteed payments, can not be included in that payroll. I mean, I had to look it up because I thought that was correct. So it’s, yeah, management fees and guaranteed payments can not be included in the payroll costs.

Ken:

Okay. And then here’s a request for you, Rod. Thanks, Rod, for acknowledging the issue with a closed business paying for eight weeks of payroll, if an employee’s not working. Please advocate for us to tweak the current PPP programs. I guess I’d like you to call your boss, Don, and have a chat with him about that.

Rod:

Actually the conversation has already been had, it has.

Ken:

Oh really? Great.

Rod:

Yes.

Ken:

Thanks for sticking up for us, Rod.

Rod:

And let them know, just to add to that, actually it’s already been raised up to the administrator, okay?

Ken:

Okay, good, good, good to hear. I’m sorry, there’s a lot of computer speaker issues, and scrolling through.

Rod:

Oh here’s a positive, from Judy. I did call the 800 number and they answered it, immediately. Oh shoot, it went away. Can we pop it back up? And they actually answered… Right? Is there more to it?

Ken:

Judy, you want to mention that? I’m not scrolled down that far yet.

Stephanie Katz:

It said they answered quickly. What they said was, that they’re way, way running late, due to volume.

Judy Schramm:

Yeah. I was really impressed with how quickly they picked up the phone. But the news was, that they’re just running so far behind, that even though I have an application number, nothing. And mine went in on March 31st.

Ken:

That’s Judy [Schramm 01:23:00] and Stephanie [Katz 00:08:01], two of our partner sponsors. And then Judy also asked, “For companies that hired new employees this year, do loans include 2020 head count, or only 2019 headcount?” I think there’s a calculation. So you can comment on that, Rod?

Rod:

It’s really the average last 12 months.

Ken:

Since January 31, right? Before…

Rod:

Since January, yeah.

Judy Schramm:

February 15, I think, is what the form said.

Rod:

Is it the 15th or the 31st?

Ken:

I remember it being the 31st too, [inaudible 00:08:37]. Chime in on that? Wendy?

Ken:

Will we have to reapply, or we will we stay in queue, do you think, if new money is approved? What’s your best guess on that?

Rod:

I’d like to think you’d stay in queue. Yeah.

Ken:

Okay. Yeah, I would hope. That would be, you know, there’ll be torches in the street, I think, if people have to reapply.

Rod:

I’d pull my hair out if that were the case.

Ken:

Can we cancel our loan application, and apply for another bank? So you talked… I’m not sure if you answered this earlier, you talked about submitting across banks, but we’re talking about just, this bank’s not doing it right. I want to just cancel it, and go to another bank.

Rod:

Yeah, but then you go to the other bank and you risk going to the back of the line.

Ken:

But if they haven’t received a loan auth number yet? In other words, the banks not getting the loan auth numbers.

Rod:

Yeah. But see, they… Remember, we’ve got thousands of applications. So bankers calling people, right? So I don’t know. I don’t think I would risk it myself, but you know, that’s up to them. I don’t think I would risk that.

Ken:

Okay. Someone said they applied when it first opened, and just got an email today from SBA regarding EIDL. And I will repost the 800 number.

Rod:

Okay, so what did it say? Give us some updated news. All right, they got the letter from EIDL.

Ken:

[Daniella 00:10:12], do you want to comment or what your email said?

Daniella:

Sure. It just said that your application has been received, you will be receiving an additional email giving you access to your portal.

Rod:

There you go. Yes. So that means they’re going to ask for your checking account. They’re going to tell you how much you got approved for. They’re going to ask you for your bank’s routing number, and your checking account number, so that then they can fund three days later.

Daniella:

Which is really interesting, because when I initially applied, it was the first application. So I had to put all three entities under that one application number. And then they changed the application to the short version, which is the 10,000. So I did apply, and I got three separate numbers for that as well. But the response came to that one large… The first number that included all three. So I was very relieved to see that. That the first loan application went through.

Speaker 5:

But the application already asks for the banking information. So they should already have that.

Daniella:

Correct.

Rod:

They should. What I found is that when they’re ready to fund, they’ll ask it again. Yeah.

Daniella:

I had a question regarding… Ecobank told us the last day to basically look for alternatives, because they’re so overwhelmed, which means they never processed our applications. And I immediately called Lendio. Should I just go back to Eco and just say, “Look, if another round of funding comes up, do not apply. I’m going to go with Lendio”?

Rod:

That’s a tough one. I shouldn’t say this, but Lendio probably will get it done faster.

Daniella:

They already have it ready to submit.

Rod:

They do? Oh, because I was going to say, Lendio will actually get it done, they’re going to get it done.

Daniella:

Okay, thank you.

Rod:

I’m not supposed to be endorsing anyone, you know, fintech or bank. But I know that Lendio will get it done, and fast, okay.

Ken:

Okay. Can you still get in line, since there’s no more applications being accepted?

Rod:

I would.

Ken:

But how do you do it, if there’s no application? How do you get in line at this point, for a future round of funding, if they’re not accepting applications? Or do you just hope that if you’ve gone for PPP, if you’ve gone through the bank, and for SBA, to go direct, how do you get a queue number at this point?

Rod:

All right, so I’m going to give the same disqualifier, disclaimer, as last time. What I would probably do is, go to one of the fintechs. Because you’re not going to have that issue with Lendio, Kabbage, OnDeck, PayPal, versus the banks, that have totally shut it down, in terms of applications.

Ken:

Why is that?

Rod:

Why is that? The banks have chosen to do that, that’s all.

Ken:

I see. I see. Okay. Any other questions? We’ll go to open mic. Does anyone have any questions that we did not cover?

Joan Michelson:

I do. So if I applied when the amount that was covered, according to what you said a minute ago, was six months, but I still haven’t… I got an application number from, or submission number from, the EIDL. Does that mean that the submissions that came in, in the beginning, when they were covering six months, will cover six months? Or does that mean it’ll only cover whatever they’re doing at the moment they process it? How does that work?

Rod:

You know, what I was told, and it remains to be seen, if you were one of the earlier people, then you should get the six months, and not the current two months. And that’s what I was told as of yesterday. Because that’s actually a question that I had when I’d heard that the funding had run out for the program. So what happens to those people that applied early on? Is it going to be two months, or is it going to be six months? And I was told that it should be six months.

Joan Michelson:

So, short, is a wonderful word. When I call the 800 number, and they push back at me, what’s my recourse? To go for the six months?

Rod:

Yeah. And I really don’t have an answer for that, except to say, that you applied early and so you are in… Well, you should get the six months.

Ken:

Okay. Any other questions for open mic?

Susan Bierly:

I have a quick question. Susan Bierly, here. Thank you so much for putting this on, Ken. Rod, this was awesome, so I will say that. The question I have is, I’m one of those companies that are going to heed your advice about getting off of an owner’s draw, because I’ve been on an owner’s draw for 31 years with my business.

Susan Bierly:

So with that said, when I filled out all the paperwork, I have not included any income for myself in any of the numbers, because I was told if you’re on a draw, you cannot. Which at the end of the day, that leaves me with no income, income from my business, through paying my employees, for example.

Susan Bierly:

Someone told me yesterday that I should apply for unemployment, which was the farthest thing from my mind. But at this point, our business serves customers, offices, client’s offices, with water coolers. They’re not open, so we’re not working. We’re down from 20 service calls a day, to four a week. So it’s drastically affected, not only my business, but my personal income, with being a single member LLC. So long winded question is, do you recommend unemployment for this position?

Rod:

For you?

Susan Bierly:

Yes sir, for me.

Rod:

Actually for you…

Susan Bierly:

Talk to me.

Rod:

You know, that’s a good question. I don’t know if I have the proper answer for that question.

Susan Bierly:

Nobody wants… You know?

Rod:

Yeah, I don’t have the proper answer for that question. I’ll just say, off the top of my head, it would make sense that you’d go ahead and do that. But because you’ve been… But here again, you’ve already said it, but you’ve been taking draws.

Susan Bierly:

Yeah.

Rod:

That’s the issue, you’ve been taking draws.

Susan Bierly:

Yeah, right. But there’s no new net business to take draws from.

Rod:

Right, that’s right.

Susan Bierly:

Right?

Rod:

That’s right.

Susan Bierly:

And I’ve applied for five different funding opportunities, and have heard nothing back at all. And I did call, I put that in there, you may have seen it, I did call the SBA number while you were doing your thing up here, and they actually answered. The lady was awesome. But when I asked her-

Rod:

Good.

Susan Bierly:

Yeah, she was awesome, and I mean, extremely helpful. So good for you guys. But when I asked, I said, “I’ve heard nothing back. Can you point me in the direction to at least find if they have all of my information?” And she’s like, “No, we have no way at all of monitoring anybody’s applications.” And so I then said, “Well, will we know if we do not qualify, so we don’t keep that opportunity open for potential income coming in?” She said, “You will get an email saying you’re not getting it, or an email,” like you have already said, “that you’re getting it, and these are the next steps.” Is that correct?

Rod:

That is correct. So let me give you a little insight. When I first started with the SBA, I was working on Hurricane Maria and Harvey, so I did work in the Office of Disaster Assistance. And I did it for, what was it, Florida, Texas, Puerto Rico, and the Virgin islands. Now those disasters are certainly not of the magnitude of the national magnitude that we have here, with COVID-19. But I can tell you, being the guy that’s actually processing and approving those loans, and then sending them on for documentation, it’s a mad house. Because you have thousands of thousands of applications that you’re trying to get through.

Rod:

And there would be people that are manning the customer service number. But imagine if you have 100 loan officers in the office, and you have thousands and thousands of applications, it’s kind of hard within a minute or two, to pinpoint who has your particular application, and where it is in the process. And so, typically, yes, I would send out the email saying you’re approved, or I would send an email out saying I needed additional documentation.

Rod:

And that’s the other thing, when you’re applying for these loans, make sure that the applications are complete. Because if they’re not, I can tell you, because I did it, then I would set that loan aside, and work on the next loan, until I got the supporting documentation that I needed to complete the processing of your loan. But it is an incredible job for that customer service person that actually tracked down your particular loan. It will take a while to do that.

Susan Bierly:

Okay, and I thousand percent appreciate that. I think the silver lining here… Because I thought going into this phone call, because I haven’t been notified, that we did not get accepted for any of the opportunities out there. But based on what she said, and what I’m hearing you saying is, just because people haven’t been notified as of this second, there’s still opportunity that funding may be coming through.

Rod:

Yes, yes.

Stephanie Katz:

Rod, I just want to suggest that you guys might want to get something called Salesforce, which we can track whoever the loan is, with who, and what the status is, in about four seconds. Or one of the other-

Rod:

You know what? We have actually… I’m glad you said that, thank you. Because we’ve actually mentioned that to our Regional Officer, that we need that, and please put it into budget. We certainly have.

Stephanie Katz:

Thank you for the talk, it’s been extraordinary. Really, really, really great.

Ken:

Okay. I think we were going to have to wrap up, it’s getting almost 10 of, and we promised Rod an hour and a half. And he’s been really nice to go longer than that, thank you, Rod, so much.

Stephanie Katz:

Thank you.

Ken:

I’ve shared screen with the customer service number. And I’d like to also, just once again, thank our sponsors and our community sponsors, for helping put this together. This will be available in the Virtual Coffee section of Atigro website early next week, with the video. I’ll email everyone when that’s available. Rod, could I ask you and Lane to just stay on for a couple minutes for a technical issue?

Rod:

Sure.

Ken:

And then I’d like to ask everyone to go ahead and just email me, if you still have… If we didn’t get to your question, email it to me, and I’ll relay it to Rod, and we’ll try and get an answer for that. Okay.

Rod:

Good, yes.

Susan Bierly:

This was awesome. Thank you guys, so very much. Take care. Bye bye.

Ken:

Thank you. And thank you all for your questions, by the way.

Rod:

Yes.

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