In this follow-up significant episode of this series, we discuss PPP (Paycheck Protection Programs) and the EIDL (Economic Disaster Loan), SBA Disaster, and CARES Act Loans. Jordan Butler helps us dig into the specifics and understand how this act was written.
Each day and each hour, there are more updates. SBA’s FAQ was updated yesterday and today. Today’s update came out after the podcast. The link is below. In terms of what we care most about, this is the key addition:
- Question: The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over an eight-week period. When does that eight-week period begin?
Answer: The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.
Link to SBA’s FAQ: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequenty-Asked-Questions.pdf
Where you can reach Jordan Butler:
Resources:
SBA Columbus Office: 614-469-6860, 401 N. Front Street Cols 43215
David Townsend (key contact)
Jill Nagy-Reynolds – 614-940-8124
http://covid19relief.sba.gov/#/
http://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources#
https://www.sba.gov/funding-programs/loans
SBA Funding Paycheck Protection Program: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp
SBA Coronavirus Guidance: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
BioOhio tools – Great comprehensive list: https://www.bioohio.com/covid19/
Just released from SBA:
disastercustomersservice@sba.gov
If you have any questions, comments, or topics you’d like to hear about in future episodes, please let us know!
Contact us at: info@mfgmonkey.com.
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Economic Disaster Loan With Jordan Butler and Rich Brown: MFGMonkey Episode 6, Part 2
I have Rich and Jordan with us in this episode 6.2 series about the Paycheck Protection Program. Rich, thank you for correcting me on that. We corrected everything online and got that straightened around. Jordan, why don’t you tell us a little bit about yourself and your expertise with all this and how you’ve been helping folks out?
My name is Jordan Butler. I am an attorney in Columbus, Ohio, with Carlile, Patchen & Murphy. We’re a mid-sized firm under 50 attorneys, and our focus is business. That’s a very broad term. That covers pretty much anything that you would think of from a business perspective, contracts, real estate, mergers and acquisitions, etc. We do business litigation, as well as both personal and business succession planning. I’ve been with the firm for over six years now.
I am in our business groups and do a lot of those business matters that I mentioned. I also do a lot of tax work in terms of research and structuring, not so much on the personal side but on the business side. I have an LLM in taxation from the University of Florida, so I get tasked with doing a lot of that type of work for the firm, and this Paycheck Protection Program, even though it’s not specifically a tax law. I become our internal go-to person on that as well.
It was pretty ironic that Rich had reached out. We wanted to get an attorney and finance professional on for our second call and it was interesting him bringing you into the call. You and I had met randomly back in December, was it?
It was 2019. I don’t remember specifically the date, but it’s not too long ago for sure.
It’s a small world out there, so we appreciate you coming on. I know Rich has been working with you guys extensively to get his program up and running. It sounds like it’s going well for him. We’re still doing what the bank needs us to do and trudging forward. Thank you so much for coming on.
It’s my pleasure. Thanks for having me.
We’ll get a link to you guys and you specifically up on the show when we air it. As I told Rich the last time, we typically try and air, and put everything together within a week. The subjects are so day-to-day that we’ll have Luke put it together and try and launch it sooner for everyone. Rich, what things have you found out since last Friday? It hasn’t even been a week yet of us working together and talking through this. What has changed? Jordan weighs in whenever needed.
It’s Paycheck Protection, Not Payroll Protection
I’ll start with something my wife reminds me of every day, and she is my business partner. I don’t know half of what I need to know, but I’m always trying to learn it. I keep researching. I’ve asked a lot of questions, and our process has gone along quite well so far. I’m going to go back to something. Just a quick note of the correction you mentioned. It’s paycheck protection, not payroll protection. It’s an important clarification. This goes into what I’ve learned because the intent of this act is certainly to keep businesses solvent, but I go a step beyond that. It’s to keep payroll going for the individuals so that they don’t get into trouble.
PPP is paycheck protection, not payroll protection. It's to keep payroll going for the individuals so that they don't get into trouble. Share on XThe real focus for us is thinking about each of our hundred-odd employees and what we can do. If they’ve got work ongoing, that’s great. If they don’t, what happens to them over the next couple of months? What I’ve learned is my HR director manager is exactly who I thought she was. I told her that we had our verbal approval from Heartland Bank. They’ve done a great job on things recently, saying that they had gotten approval from the small business administration. We’re now waiting for an e-signature to come through from the bank to then kick it into funding to finalize it. That could happen today or tomorrow at the latest probably, but certainly by the end of the week.
My HR manager had tears in her eyes, and I knew exactly what it was. She knew that all of her family that she takes care of every day were not going to face financial hardship for the next couple of months. That’s critical. That’s a reaffirmation of hiring the right people because she was certainly looking at it for herself and her family, but that was what it was all about. It’s payroll protection, yes, but it’s paycheck protection, so we can take care of our people and keep them solvent.
In doing that, it’s going to allow us to also keep our company going through this tough time so we can emerge from it. As I told you in the last call aside from that, my marketing efforts have been focusing on where we could go to get new business going or ramp up business that’s not impacted by this. Interestingly, we’ve got several Chinese clients that are gearing up fast because Wuhan opened up again for travel with some restrictions. That was the worst place in the world a month ago.
We’ve got some clients in pharma that are working on virology and medicines that are gearing up fast and we’re going to get real busy with them. Things work, like with our attorney friend here coming back in a small world syndrome. This all goes in circles and cycles if you’re doing the right thing. You end up looking lucky, which is where we ended our last conversation. Pretend you’re going to work like there was nothing wrong. Focus where it needs to be, and we can come out of this stronger potentially.
I’ve learned and done some clarifications, and Jordan responded to this about 45 minutes ago. A big one that I’ve been seeking for a week was trying to get a read on exactly how 401(k)s apply. In our case, it’s the defined benefit plan, which is similar but not quite the same, how that applies both into the front end of the formula which mine is already approved. Whatever it is, it is. I don’t have the final details on that from the bank yet, but the rear end of it is what we do after we’re funded if we can apply the monies that come from that loan to that program or that retirement plan, and count that against what’s forgivable.
When you did your calculation, you went ahead and figured those monies into your calculation. Now the question is whether you apply those funds.
The application doesn’t give you an opportunity to do all that. It’s a pretty simple formula that doesn’t float everything into it. We provided all this other documentation and then detailed all our processes. Now, the bank is plugging that into their own tables and figuring it out. This is exactly what we’ve gone for. I’ve still got a little bit of mystery, which is one of those things I’ve learned. I don’t know what the exact amount is, but the worst case is covering all the health, dental, rent, utilities, and certainly with payroll on a monthly average over the last year times 2.5.
That’s a good point that you bring up. Jordan, you can probably speak very easily on the updated application. It has the final calculation for the PPP plus the EIDL. Is it all figured in or has that portion already been funded if you applied for the EIDL and received the $10,000 quick cash thing that they did right out of the gate?
The CARES Act
This might be a theme where we’re still not exactly sure. The CARES Act says, “You can use the proceeds from the Paycheck Protection Program loans to refinance any EIDL loan.” The words were made before April 3rd, 2020. The way it’s written makes me think that if you receive funds from the EIDL loan after April 3rd, you’re not shut out of the PPP loan program. You just cannot refinance those funds. Refining those essentially increases the loan amount of funds you can use. I believe that as long as you use those for predictable purposes, they will be forgiven. The $10,000 advance gets subtracted out of that because the CARES Act already says, “You don’t have to repay it.” You would be double dipping by including that, which is already free, and then potentially having forgiveness of that amount as well.
That was a little confusion on my end when I was filling out our application because we have cost of goods sold, rent, and some of those other things that when we did our calculation for the PPP, we left out. When we applied for the EIDL directly, that was an extremely simple process with very high-level numbers. They haven’t reached back out to us to ask for supporting documentation or anything like that. I’m curious about how that comes to fruition.
I know that if the EIDL loan does not get rolled into the PPP loan, the CARES Act says that essentially, you need to use funds from those two different loans for different purposes. If you’re using PPP funds to pay payroll, you would want to use the EIDL funds for other operating costs. The allowable uses are a little broader with the EIDL fund.
If the EIDL loan does not get rolled into the PPP loan, the CARES Act says that you need to use funds from those two different loans for different purposes. Share on XI don’t know if the banks and the bankers know the answers to those questions yet either. That was one of the questions that I proposed and never heard back. That told me that they were trying to figure that out at this point.
That’s one of the things I don’t know that I learned. Certainly, with Jordan’s combination of legal and tax background, he probably has a much better fix on the impact of FICA on the employers versus the employee’s side, and how that will calculate into the baseline number, plus what’s forgiven down the road. I’m a little too wonky in trying to calculate out to the penny in the next couple of months exactly what column everything goes on spending. I’m probably overthinking it, but I saw a new brief come out from the Department of Treasury. It mentioned that breakout and that the employees’ portion would not be applied to that formula. Do you have anything on that, Jordan?
Yes. Where do I begin on that one? That’s a topic that I spent a lot of time on in the last couple of days going through. Before I start down that road, I should probably give my lawyer disclaimer that anything I say here should not be deemed by anyone to be legal advice that you should do or should not do this. It’s always on a case-by-case basis. I want to be careful that no one is relying too heavily on this as actual legal advice. As I said before, there’s a lot of I think that I’m going to say because we’re still not sure on a lot of this stuff.
The Federal Payroll Tax
Let’s talk about the federal payroll tax. What we’re talking about is FICA, Social Security which is a 6.2% tax charge to employers on employee wages, and Medicare which is 1.45 that you get to 7.65%. The act defines payroll costs as the compensation with respect to an employee. It lists out wages, salary, retirement benefits, health care plan costs, and state and local taxes. It then says that it specifically excludes taxes imposed or withheld under certain sections of the Internal Revenue Code during the covered period.
By omission, that seems to indicate if our covered period is February 15, 2020, through June 30, 2020, for purposes of receiving a loan, using a loan, and calculating the loan amount. By saying that it excludes those taxes during the covered period implies that it includes them outside of the covered period. You can read that as saying, “Payroll taxes that I, as an employer, paid before February 15th would be includable in my loan calculation.” The SBA, in their FAQ that they released late Monday night, said, “No, you don’t include it.”
Their reasoning was a little odd to me. They said that when we talk about gross costs, you need to look at the gross from the employee’s perspective. You’re not backing out of federal income taxes withheld from the employees. At the same time, you shouldn’t include your portion of federal payroll taxes. In a footnote, they explained this. They cite the legislative purpose of ensuring workers remain paid and employed. If you think about that, my question is, “Who is ultimately in control of whether employees are employed?” It would be the employer.
If the purpose is to keep people employed, what you would want to do from a gross perspective is look at the employer’s gross cost, which would include federal payroll taxes. The other thing that I saw over the weekend was a tweet from U.S. Senator Marco Rubio, who’s part of the Senate Committee on Small Business and Entrepreneurship. I’ve been following him not because of any political leanings but because he’s been putting out a ton of stuff on this program.
He tweeted on Saturday that the SBA needs to make clear that the Senate’s intent was to cover the employer’s growth, which would include the employer’s share of payroll taxes. The SBA’s FAQ after that said, “We don’t believe that that was the intent.” I think there are arguments both ways. I don’t know that I would advise anyone at this point to go ahead and include them. I hope that the act backs you up there. It’s clear how the SBA views it, but I’m not sure that I agree at least with their reason for it. At the same time, it doesn’t matter.
When Does My 60 Days Start?
Jordan, can I ask you this to simplify it? What’s the end impact of that? This was another question that I think would be good for clarification. If I get funded tomorrow, when does my 60 days start? What would the impact be of whether I can count the employer contribution or not at the end of the day?
If you get funded tomorrow, that’s when your eight-week forgiveness period starts. In terms of your ability to use the funds for allowable purposes, there’s no deadline for that. If you still have funds left over after eight weeks, you can still use them. They just won’t be forgiven. I don’t think there’s any doubt that you cannot use the borrowed funds to pay federal payroll taxes going forward. It does explicitly say that those are excluded during the covered period. The covered period, as I said, technically ends June 30th. It’s going to encompass where we are now. It’s still at a cost to employers that they will need to pay outside of the loan fund.
If you get funded tomorrow, you have eight weeks to spend the money on approved costs to get it forgiven. You can use any leftover money later, but it won't be forgiven. Share on XIn search of simplicity then, it sounds like the question is, do you put it into your formula for how much you’re seeking for the loan? No matter what, it’s not going to be forgivable money at the end.
That’s correct.
That’s my clarification. I read that same primer that you referred to. If I remember it right, it said going forward, but if you had already applied, having that plugged in was going to be counted.
There are a couple of parts to what it says. First, on the first page of the FAQ, it says essentially that this is not law. This is just a guide. Later, it says that if you’ve relied on previous guidance or the act or whatever before this came out, then you should be fine.
They’re not going to give you that you should have known.
They’ll leave you alone unless they can somehow prove that you did something wrong knowingly, purposely, or something like that.
Good answer because that last one is the piece I was looking for that you clarified. It was what I assumed, but I didn’t see any clear language on it, which is you’re going to pay the employer’s contribution period. It won’t be forgiven as part of that formula at the end. That’s not going to go into your 25% of outside-of-payroll costs.
Nope. The way it’s written is it’s technically not in all-out total costs, period. The only question is whether I can include my calculation. I think there are arguments for yes. However, the safer route at this point is to exclude them.
That’s a lot to take in. Each time I do one of these shows, I feel like I’m pretty well-versed, like when I was talking to you, Rich, on the last one. I sit here and I’m trying to wrap my head around what I’m learning now. Jordan, thank you so much for clarifying a lot of these things. There are so many unknowns at this point, especially for somebody like myself who’s trying to keep our business going, try and stay up with the law, and calculate things correctly as we give them to the bank.
I’ll jump back through the original question to me. What have I learned? Jordan’s probably got updates on this as well. As I stated in the last episode, it looked like the total demand or need was going to be about three times the current funding level. That is working its way through draft and discussion right now. The banks are scrambling like crazy. I’ve got two banks for my business, Chase and Heartland Bank. Chase was getting in touch with me. My private banker there called to say that they could push it through fast.
I heard a lot of feedback going across the Twitterverse that people calling the big banks were being told they had to wait till the existing customer relations were taken care of first. I don’t know if that’s come full cycle yet, but I was told by Chase, “We’ll put you right up front and get you done quick.” My intent was to stay with Heartland. They’ve been our primary. Have you seen any changes on that in terms of access, Jordan?
No. I know that when this opened up last Friday, those who got through and got applications submitted on Friday were generally more successful with the community banks than the big ones. I don’t know exactly the reason for that. I’ve been following the lender side of this a little bit less. Many of the questions that I’ve been answering are from the client side. I think the big banks are generally subject to less regulation than the community banks. It makes it a little easier. The bigger banks might also be more conservative. We said a lot of this. That first interim final rule came out on Thursday night. I think by Friday morning, a lot of them said, “We need to digest this. We’re just not ready. We’re not comfortable pushing this through yet.”
This week, in the portals that have been opened up, from what I hear, there have been problems with that that the government is working on. I think it’s moving more smoothly now. It’s not perfect. The one point I saw now is that already $66 billion had been committed, which is a little less than I would have guessed. There is an expectation that the Senate will approve another $200 billion to $250 billion to be allocated to this program. The expectation is it’s going to go fast, and we already need more.
Some of the banks are already shutting off applications. We also bank with Huntington, and they sent an email out this morning saying, “If you don’t already have your application in, we are no longer accepting applications for this because we’re so overwhelmed. We need to get through our applications.”
Not a good PR move there.
Not at all. Like you, Rich, we work with Heartland Bank, and we got our stuff in with them immediately. If something would have happened that we wanted to go through Huntington, we can’t now.
I think it’s been critical to have a relationship with the bank. I have put across the board that there’s no shortage of interest in borrowers for any of these banks. They don’t have to worry about finding any borrowers. They’re going to start with their existing customers and those with whom they have a good relationship with. Anybody who walks into a local branch or a new customer is going to apply for this loan. There are only so many hours in the day and only so much money to lend out. It makes sense at this point that the banks are either saying no more or “If we don’t know who you are by this Friday, then we’re sorry.”
It's critical to have a relationship with the bank. There's no shortage of interest in borrowers for any of these banks. Share on XHave you seen how much movements are clients getting through? We’re part of that initial bunch that’s been approved, but not necessarily funded yet. I’m going to guess we’re still in that staunch. Have you seen clients getting funded already, and how have you seen that play out from those early applications to approval of funding?
I don’t know that I’ve affirmatively seen any news come through from clients before this day that’s funded. I know that news of approvals is starting to trickle in. As of the previous day, I’m still having phone calls and email correspondence with clients still working on their applications, and still getting stuff from the banks to get them in. For the most part, it feels like it’s still in application prep mode. The funds that have been committed, $66 billion or whatever that number was in terms of actual dollars hitting accounts, I don’t know that that’s happened yet. I don’t know that it hasn’t happened either.
The EIDL
What about the EIDL? That’s a direct application you get on, and you apply directly with the SBA, not through your bank outside of the $10,000 quick cash. How long has it been taking for people to hear back on that program?
That program is not a new one. It’s been around for a while. You see it most commonly used in natural disasters, tornadoes, hurricanes, or whatever. With the Coronavirus, it’s been deemed a disaster for the purposes of these loans. As you mentioned, they are direct loans with the SBA. The timeline for that, based on what I’ve seen from the SBA, is if you apply, you can get up to $10,000 advance within three days. Even if you are ultimately turned down for the loan, the advance is still free, essentially.
After that, it takes 2 to 3 weeks to process the application. Once it’s approved, you can get an initial funding of up to $25,000 of whatever your loan amount is. The rest talks about how well you’ll work with one of our loan specialists in terms of getting the rest. I don’t have a timeframe for that. The $10,000 will come quickly, and then another up to $25,000 within 2 to 3 weeks after that, assuming approval.
When we did our initial application, we hit submit. That’s the last that we heard. We haven’t received a confirmation that it went through correctly or anything like that. It went into a black hole. I was interested in what that typical process looked like.
It’s supposed to be moving quickly. It’s not surprising. Lately, 99% of the interest I’ve seen is on the PPP loans first because it’s potentially 100% forgivable. If you could choose between the two, and you were thinking about something like payroll, you want to go down the PPP loan route first. That’s where a lot of the focus has been. We do have some clients who had previously applied for the EIDL loans and are rolling those loans into the PPP loans.
With the PPP, can you also put your cost of goods and rent and things like that? Rich, I think you had mentioned when we first jumped onto this that you did figure that into your calculation with rent and other fixed expenses, correct?
Yeah, the only missing piece on that was the 401(k)/defined benefit. I was asked to create a formula in terms of what was going to be in the other 25%. I did a quick calculation and guessed 18% for health and dental costs, 5% for rent, and the other 2% fall into utilities under what I knew was allowable, or what seemed to be allowable, and did not include the funding at an average of my last year’s funding. If I took my last year’s funding for the retirement plans for the company and divided it by twelve, I didn’t plug in two months’ worth of that. I’m still waiting to see where that one goes, and whether I’d be able to fund and apply that over. At the end of the day, I probably will have more expenses or enough expenses to eat that 25% up anyway. It may not even matter.
Jordan, can you shed some light on that with working capital? The Webex that I did, I pulled up one of the slides and it had EIDL, working capital loans of up to $2 million, the rates, and then the terms of the loan. The way that this slide reads from the SBA seems to be more than the $25,000. Am I not understanding that correctly?
With the EIDL loan, you can use it for a little broader category. It is intended to cover certain operating costs that the PPP loans, based on the language of the act, do not. The PPP loans are restricted to payroll costs, healthcare benefits, eligible mortgage interest obligations, rent, and utilities. You can use it to pay interest on other debt. That use would not be forgivable. The forgivable uses are limited to payroll costs, rent, utilities, and covered mortgage interest.
Those who are looking for additional help with accounts payable would also want to do the EIDL loan.
Yeah, I think that’s where you want to go. If you need to replenish inventory or pay independent contractors, which it appears you cannot do with the PPP loan funds, you would want to do that. I guess what you want to be careful about is if you already have an EIDL loan, if you roll it into the PPP loan, then you might be restricting yourself to what you can do with it because they essentially become PPP loan funds at that point. Now, your ability to replenish inventory, pay independent contractors, or other expenses is probably going to be restricted.
If you need to replenish inventory or pay independent contractors, which you cannot do with the PPP loan funds, you would want to do the EIDL loan. Share on XIt is interesting. Especially with our company, people are hoarding cash. Your receivables are getting stretched out a little bit longer, and that is trickling through everyone right now because nobody wants to give up their cash to pay their payables. For companies like us that have receivables and payables, it’s like, “What are we all trying to do here?” We can’t shut everything down just because of the unknown. That’s the thing that’s interesting to me, especially with the EIDL loan. We want to pay our vendors and partners as quickly as possible, regardless of what our customers are doing on their end. That portion would be very helpful for us.
One other interesting facet I was trying to project forward on costs and everything is we’ve got a number of employees who are in excess of $100,000 in salary. The excess was backed out of the formula for the loan application. With some of them, I still got work for them. With a couple, we won’t have work for them. Figuring out what we can do to be able to adjust for that until and unless the clients to whom we had these technical experts assigned are back up and running, and need the contract labor support.
The likelihood is rather than having these people go off of payroll entirely, we can still keep them as solvent as possible and take salaries down to that $100,000 level and use that, as opposed to laying them off and having them going into the unemployment system. They’ll still be better off than not having to pay for their health and dental, and everything carried. We can keep our cashflow as strong as possible. We can keep the strength of the company up so that if this extends for a long period, we’ll be better able to do it. I’ll move from that to good news. If you didn’t see it, the Fed’s main projecting device for debts went down again to about $60,000. That was like $61,000, which is great news. The stock market is up nicely at present. I think it’s mostly off of that.
The retention goes back to your original point when we talked last Friday. It was retaining those folks. I’m sure that there are going to be companies that don’t do either one of these programs and have to let folks go. It means that companies like you, Rich, are going to be able to recruit a better type of employee for yourself and your clients. It’ll be interesting for those companies that do drop a salary down how many employees end up leaving and trying to go find work in other places that are still willing to keep their salary the same?
We’re searching for a factory maintenance tech, a senior-level person. It is easier now than it was a month ago. We got all kinds of options.
We did the same thing. We had to part ways with one of our folks who was over 100. We’re getting applications that are far less than what we were originally paying for a better applicant, quite honestly. It is very interesting how the employment market is, I don’t know if I want to use the word, correcting itself, but it’s lowered the bar as far as salary and things like that.
It’s supply and demand. Going back to paycheck protection. At the end of the day, the biggest priority is trying to do everything you can to keep people funded through this period. Whether they’re with our company or have a different opportunity, at the end of it, for everybody to stay solvent can be a concern to keep the economy going.
As we wrap up here, Jordan, is there anything that we have missed or you’ve been thinking about that you think everyone should know as we close up here?
I’ll hit on just a couple of things, going back real quick to what Rich was talking about, to make sure we’re clear on that. My belief is based on everything I’ve seen and read. With respect to those employees who make over a hundred, you can certainly still pay them out of the loan funds. You can’t pay them in excess of a hundred as would be correlated during that monthly period. If we look at those eight weeks, the gross during those eight weeks would be like $16,666 on $100,000.
You could keep them at whatever their normal salary is and say, “We’ll pay up to X amount out of the loan funds, and we’ll pay the difference out of operating costs.” You don’t necessarily have to reduce them if you’re otherwise able to handle it. What else is interesting about them is what the act says. It looks at the potential of forgiveness. It says anyone making under a hundred, if you reduce their pay by 25%, then your forgiveness is going to be reduced. The implication there is that if anybody who’s over a hundred, you could go from a hundred to zero without any effect other than losing an employee for purposes of measuring whether your employee count has changed.
In that case, it’s not up to a $100,000 type of thing. If they’re over $100,000, you can reduce them as much as you want without penalty. Also, the FAQ by the SBA that came out a couple of days ago does contain some guidance saying that when we talk about that $100,000, we’re talking about base compensation, not including your costs for healthcare or retirement. Another thing that is going to be very important in the coming days is independent contractors, sole proprietors, and “eligible” self-employed individuals are eligible for these loans.
The FAQ by the SBA that came out recently contains some guidance saying that when we talk about that $100,000, we're talking about base compensation, not including your costs for healthcare or retirement. Share on XThere’s not a whole lot of guidance out there about how it’s going to work for them. They can technically begin applying this Friday, but I would expect the SBA to put out a decent amount of guidance on how that’s going to work for them before Friday, and hopefully, not Thursday night at 11:00 o’clock. It’s something to keep an eye on in the coming days. I have had a lot of inquiries from independent contractors and sole proprietors, “Can I get in on this?” Yes, but beyond that, I don’t know what to tell you because I don’t know much else about how that’s going to work.
I think I know how it’s going to work, but I don’t know if I want to go down that road yet without further guidance. Keep an eye on that. The last thing that I thought was interesting from the FAQ is the act says that in determining your loan amount, you look at these twelve months before the application date. The SBA said, “You can use calendar year 2019 if you want to.” It’s not necessarily supported by the act, but I think I understand why they did it. It would be so much easier for most employers to figure out all those costs from January 1 to December 31, versus April 9, 2019 to April 8, 2020. It’s something to keep in mind there if you were to look at the act and say, “I got to look at the last 365.” They will allow you to use the calendar year 2019.
That brings up a great point because I was struggling with that myself because we had things going on at the beginning of this year that increased our fixed expenses and so forth. What I was reading is you had to use 2019. We could not figure into the calculation the first quarter for those adjusted expenses with employees and so forth.
The FAQ says you can pick. For anyone who has not applied yet, you’d essentially run the numbers under both scenarios and see which one works out better for you.
That’s very good to know. When we submitted our supporting documents to the bank, I included both. What I put on our application was just for 2019. That was something that I wanted to work through with the bank as to how we calculate that. That’s interesting. Jordan, if you will, email me the link to the FAQ page and contact information, for Rich. Jordan, we can forward on or we can give people your direct dial, whichever you would prefer. If you need more specific legal advice, it’s probably best to reach out directly to you, Jordan. How would you like to do that?
The best way right now would be to email and I’ll provide my direct office number. I’m working from home these days like so many others. If I get a voicemail, I’ll get a notification. I have a voicemail and can get back in touch with anyone that way.
Why don’t you tell everyone how they can contact you?
My email address is JCButler@Cpmlaw.com. That’s Carlisle, Patchen & Murphy. My direct dial is 614-628-0797. Also, you can find all my information on our website, www.CPMLaw.com.
Anyone who wants to reach out, give us feedback, and ask questions, feel free to email us at Info@MFGMonkey.com. Funny name, big topic. We appreciate you, Jordan, coming on. Rich, we appreciate you getting Jordan to come on. I’m sure that folks will have a lot of questions. Maybe we can do another follow-up session with any other updates as the times come. Jordan, if you learn more about 1099, good, bad, or indifferent, and if you’d be willing to jump back on and talk through those things, that would be great. I know some of our 1099 folks were asking those questions as well, “How does this work for us? When can we apply if we can?” All those things. There are a lot of uncertainties for those folks, unfortunately, that are straight 1099.
I have to think we’re going to get some answers soon. Otherwise, they’re flying blind going into this Friday without further guidance.
It may be that everyone is flying blind because you can figure in your 1099 employees/contractors into the Paycheck Protection Program. That is not the case.
They’re essentially treated as if they’re their own business. They can get their own loan. You cannot include your payments to them in determining your loan amount. Based on how it’s all defined, you also can’t use the funds to pay your independent contractors. To the extent that you have them, you would need to find another way to do it, whether it be through another EIDL loan or from the operating income that you have.
That was a question that came up during the Webex with the SBA. Either they misspoke or is that an update by chance in the last week or so or has that always been the case?
I think it’s more of a clarification. When I first looked through this, the way I read it is they are included. You parse the language very carefully. You can see why they would be excluded. What’s come out of the SBA since has been quick and crystal clear. No, you cannot include them. They are eligible for their own. I think that makes a little bit of sense because if I can include the amounts I’ve paid to independent contractors in determining my loan amount, and they can include amounts they’ve received in determining their loan amount, it’s like going on unemployment, and still getting paid to work. They are two separate loans made on the same dollar.
I agree with you. I’m glad that that clarification came out because I understood that differently up until right now.
All this goes into the overall theme of this. If you own a company or you’re managing one, have good attorneys that you have a relationship with, have a good bank that you have a relationship with, and have a great accounting firm where you’ve got smart people that can help you and answer questions when you need it.
If you own a company or you're managing one, have good attorneys and good banks that you have a relationship with and a great accounting firm that can help you and answer questions when you need it. Share on XThis is very enlightening for us, for me specifically. I’m sure everyone who tuned in will see a lot of value. I can’t encourage people enough to email and ask questions. We’ll respond and try to get them answered as quickly as possible. Feel free to reach out to Jordan. He’s been a huge help to everyone he’s touched. Guys, thanks again for coming on. Let’s get this wrapped up. I know we’re approaching an hour here. My attention span checks out after about 45 minutes. We’ll get this wrapped up unless anyone has anything else to add before we close up.
Thanks, Jordan.
Thank you, Rich. Thank you, Dustin.
Rich, thanks again. We’ll talk to everyone soon. Bye.
Important Links
- Rich Brown – LinkedIn
- Jordan Butler – LinkedIn
- Paycheck Protection Program
- Carlile, Patchen & Murphy
- JCButler@CPMLaw.com
- https://www.CPMLaw.com/people/jordan-butler/
- Info@MFGMonkey.com
- SBA.gov/updates
- Jill Nagy-Reynolds – LinkedIn
- http://Covid19relief.sba.gov/#/
- http://www.SBA.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources#
- https://www.SBA.gov/funding-programs/loans
- https://www.SBA.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp
- https://www.SBA.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
- https://www.BioOhio.com/covid19/
- DisasterCustomerService@sba.gov