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Payroll Protection Program Revisited With Jordan Butler & Rich Brown: MFGMonkey Episode 6, Part 3

MFG Monkey | Jordan Butler and Rich Brown | Payroll Protection Program


Welcome to MFGMonkey Episode 6.3 Jordan Butler and Rich Brown are back with new Information on the PPP(Payroll Protection Program). This week, we talk about the issues companies are facing regarding unemployment.

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Payroll Protection Program Revisited With Jordan Butler & Rich Brown

We are back with episode 6.3 with Rich Brown. We also have Attorney Jordan Butler, and have some updates for you on the whole PPP program. Now that money is gone and people have been funded, what’s happening next? Welcome guys, welcome to the show.

It’s good to hear from you again.

Thanks for having me back.

Money’s Gone, What Now?

We’re back-to-back here with this series, episode 3. Jordan, you wrote a pretty extensive memo on this, six pages that you had sent over to me. Rich, we both have some questions about people who have been funded, how it’s utilized, what can be written off and what can’t, and what accounts. Rich, you and I chatted a little bit about people who are looking at taking unemployment versus staying on the payroll. There’s a whole lot of things that we can ball into this. Jordan, you touched on this in your memo, but the money that’s gone, what does that mean for people who were approved but aren’t funded yet?

When we talk about the money being gone, that means it’s all been allocated. It has not all been funded yet. If you’ve gotten approval, which is in the form of this SBA number, I forget exactly what it’s called. If you’ve received that number indicating that you’ve been approved, then you’re still in. If you’ve been approved, you should sleep easy at night. The issue is there are still 800,000 applications out there that are essentially in limbo now.

They did not get approval before the money ran out in terms of it being allocated. I don’t know yet if they’re being withdrawn, rejected, or sitting there because I think everybody expects sooner or later, Congress is going to approve more money for this program. The number that’s on the table is $250 billion, but it’s being held up in Congress essentially over politics.

My understanding from speaking with my congressional reps is that the ones that are in that limbo will probably be resubmitted, but they’re in a holding pattern. Whether that’s going to be the case or not, I couldn’t tell you, but getting on the front end of things, I got funded quickly. I’ll start on my end with this. Everybody that’s tuning in to this, I put an emphasis on having a personal relationship with your bankers. Go through your business plan, talk with them, and break bread once a year to get a relationship going.

In any future instance, you can gear up and get to the front of the line quicker by having that personal relationship. It makes all the difference in the world. Certainly, I feel for anybody that if you did get that funding number that Jordan referred to, again, feel good, but the people that don’t have a whole lot to feel good about right now because there’s a lot of unease until you know you’ve got liquidity, and you keep your business running.

People are burning through cash if you’ve done a good job having cash to keep people on payroll because you don’t want to lose them.

In my world, Dustin, because Honda’s gone into next Monday furloughing virtually everybody, there’s still a core group that is working, but they’re down. The vast majority of their people are all on furloughs starting on Monday for a minimum of two weeks. All the engineers and contractors from laborers all the way up to the most highly skilled contractors working out there, almost all of those are also furloughed. In our case, that’s dropping 64 employees out of billable hours. We’re keeping them all on payroll under the circumstances. The interesting thing is there are all the larger firms that aren’t part of this program or aren’t capitalized to be able to get through it. Whatever combination, they’ve laid off all of those workers.

Jordan, you touched on this in your memo. As far as independent contractors, what does that mean for the independent contractors? You couldn’t even apply for the loan until a week later, which at that point, all the money was spoken for.

Independent contractors, in theory, could begin applying last Friday. It was April 10th. I expected last week before April 10th that the SBA would release some guidance to the independent contractors, or essentially the self-employed individuals. I’ll use that term to encompass everyone. That’s sole proprietors and independent contractors, and then the CARES Act also uses a defined term, eligible self-employed individual, which sends you down a little bit of a rabbit hole of the Internal Revenue Code for exactly what that means. Essentially, every sole proprietor is a self-employed individual.

Essentially, every sole proprietor is a self-employed individual. Share on X

I think they were looking at it, saying, “Great. We’re eligible for this program, but how do we calculate our payroll costs?” Forgiveness, are there going to be different rules on that? The banks certainly didn’t know either. It wasn’t until this past Tuesday mid-afternoon that the SBA released its latest rule on covering essentially self-employed individuals. If you jumped on that fast and were able to find a lender to process you, then you’re fine. The issue is this came out mid-afternoon Tuesday. If you weren’t paying attention, maybe you didn’t see it till Wednesday. You scrambled Wednesday, but by Thursday morning, the money was gone. I don’t know how many self-employed individuals got in the door.

I do know that as of last Friday, non-bank lenders started getting approval. The first one was PayPal. Businesses with employees and self-employed individuals could have applied through PayPal. Intuit and Square also got approval early this week. They weren’t ready to start making loans as of Monday because they had gotten approval. Now, they were gearing up. Whether they processed and funded anything by the time it ran out on Thursday, I don’t know. I think the timing of the rule for independent contractors was tough, as well as delaying their ability to even apply until April 10th. As I said, by the 16th in the morning, it essentially closed the business on the 15th, this past Wednesday, the money was gone.

We have to assume that there’s going to be more money that’s allocated. How do you foresee that? Do you think that’s going to happen, or do you think that’s a pipe dream?

I think it will happen because both parties have essentially said, “We’re all on board with the 250 toward PPP.” The holdup is the two sides of the aisle fighting on other money that would end up in a supplemental bill. I think the 250 for PPP is settled essentially. They’re trying to work out other stuff and following it with a little bit of money for hospitals and underserved areas and states. That is the holdup. I couldn’t give you an estimate on when.

The GOP is looking for a clean addition of funding. For the Democrat side, they’re trying to cover more bases with folks needing help and support.

I think it will happen. I couldn’t give you an estimate on when.

Political Play

I think we could both go down the political side of this pretty easily. Not turn this into a political discussion, but what are the biggest things holding this up bill-wise that’s trying to piggyback on the bill that matters?

It’s a pretty simple political play of trying to find additional programs versus adding revenue. It’s a little bit of a chicken game right now of seeing who can hold out the longest and not get blamed for leaving people without funding to keep their businesses operating. Saying right or wrong is a relative thing. It depends on which side of the poll you’re on. If you’re in any of the constituencies looking for additional funding, trying to lump it in forces everybody into putting more money instead of making that a clean separate bill.

Saying right or wrong is a relative thing. It depends on which side of the poll you're on. Share on X

I don’t want to get into the right or wrong of it. I was wondering specifically what additional bills are trying to piggyback on this. Regardless of what your opinion is, what are those additional bills?

I don’t know, Jordan. If you’ve got your list, I could go over the ones I’m familiar with. There are additional monies for hospitals because they’re losing money on not having their normal surgeries and other highly billable things. As they’re dealing with high numbers of Coronavirus cases in those pandemic areas that are bad, those hospitals are in trouble because they’re not getting their normal billables out for high-value procedures. That doesn’t help. A lot of the hospitals across the country have almost zero going on right now. It’s 36% of the counties in the country have zero or near zero cases right now.

A lot of the health systems across the country aren’t impacted at all. This is money that’s being geared into specific areas for hospitals that are in trouble, as well as there are some more political spins on where that money would be applied. The first tranche was built in for the infamous fund, the Kennedy Center, which then laid off all the workers once they got the money. They ended up bringing them back on because it became a nightmare to say they got the money and let everybody go, but nobody could go to the Kennedy Center. They didn’t have a purpose existence at that point.

There are a lot of things that could be getting nonpolitical analysis. Valid or invalid doesn’t matter. They’re fighting over whether this is a clean bill or one that gets a bunch of add-ons. It’s going to get funded. It’s a question of who blinks. The president’s got a much bigger stage to go on every day and talk about it. I think one way or another, there’s going to be a force of common ground. Steve Mnuchin is in virtual meetings with Nancy Pelosi every day trying to find that common ground.

Funding Approval

Jordan or Rich, do you have an idea of the percentage of companies that were approved versus companies that are still in the hopper waiting?

I could give you an industry rundown, and then I’ll shut up. Construction led the way with almost 14% of the approvals for that first roughly $350 billion. Professional and scientific services were second at about 12%, manufacturing at 12%, healthcare and social assistance agencies are over 11%, restaurants and hotels as a bunch came in at about 9%, retail was a little under 9%, wholesale trade was a little below 6%, the lumped in other services at 6%, then administrative and waste management was about 5% and real estate and rental oriented companies were about 3%. Those are the top 10 that did get funding approved.

That’s a percentage of the total.

Production and manufacturing. My company would fall into professional services. Those are the top three.

I saw something a few days ago now. It probably changed. It was a relatively small sample size, but I think that it bore out pretty well. Someone was gathering as much information from people who had provided about the PPP loans. As of a couple of days ago in the study, 91% of applicants who applied and were approved were essentially eligible for it. Only 9% got cut off right at the beginning because they weren’t eligible. In terms of funding, it’s probably still pretty low in terms of the percentage that has been funded. I guess you’d have to say 100% approval now if the money is gone. Of course, there are 800,000 or so applications that are now stuck in limbo.

Did you say 800,000 that are stuck in limbo?

That’s the number I’ve seen.

The goal of being approved for funding is supposed to fall within ten days. That’s the guideline.

Once you have your approval number, it’s supposed to be funded within ten days. It sounds like talking to Marlisa at Heartland. Some people are approved that they’re trying to fund that the monies aren’t being accepted. How often can that happen? If you apply for it and they can’t physically fund the loan, that’s astonishing to me.

I’m guessing they don’t have Heartland accounts, which makes it a lot easier. Heartland does a lot of things well, but I keep Chase accounts for doing wire transfers because Heartland’s internal systems for movements of funds between other banks aren’t quite as strong.

Memo On Self-Employed Individuals

They have their niche. We do a fair amount of wiring overseas, and we use, which makes it super easy most of the time. Jordan, I think after going through your memo, it’s six pages. What are the big highlights? What are the most important things that you see within your memo that you want to talk about in this episode? I would love to talk about each question that you answer here, but I think it would be a lot of information to absorb.

It would be too much to go through with the time we have in this episode. I’ll say that the memo that Dustin is referring to, our firm, has turned into an article. It’s on our website, It’s a very detailed FAQ, concerning self-employed individuals. It answers some questions with almost everything that has come out. You get an answer to one question, and that answer creates a new question. By no means is any of this settled.

One of the things certainly that caught my eye was right off the bat, they said, “Partners and partnerships were not going to treat as self-employed.” Even though the CARES Act terms eligible self-employed individuals, as it takes you down that rabbit hole through the Internal Revenue Code would include partners in partnership. What it said was, “We think it would create confusion because partnerships, for the most part, will be borrowers that apply and have employees. Go ahead and treat up to $100,000 of a partner’s income as payroll costs for purposes of determining your loan amount.” It gives a little bit of its reasoning for that. The implication is, “Now that we’ve said that partners are going to be excluded from this, the rest of this rule doesn’t apply to them.”

It does say with respect to partners that their income can be included in determining payroll costs for the loan amount. Can you use PPP funds to make distributions to partners? If you do, is that forgivable? I think the answer has to be yes because if you’re increasing your loan amount by including their income but then saying you can’t pay it, you’re leaving yourself with an excess at the end that will not be forgiven and have to be paid back. What else would be interesting is a lot of partnerships applied for and probably got approval for their loans before this rule came down.

A question would be, “Can we go back and amend?” At this point, it would have to be once more money is available. Our law firm is a partnership. We got lucky that the loan that we were seeking hadn’t been approved yet. We scrambled and were able to add more and get more money. I have a sense that there are a lot of partnerships that missed out essentially because they were too diligent or their bank processed them very quickly. Normally, they’d be very happy about it, maybe until this came. They are excluding partners and partnerships now. We are talking about sole proprietors and independent contractors.

I think the big question that was answered was, “How do we calculate where our payroll cost is?” What you’ll do is look at your net income, your net profit from self-earnings that you would report on your 2019 Schedule C to the IRS 1040, or your personal tax return. No tax returns at this point are due until July 15th. Even if you haven’t filed for 2019 yet, you can still go ahead and prep Schedule C, and that’s going to tell you what your loan amount will be. It also says that they will use the calendar year 2019, essentially even though the CARES Act and then the later clarification from the SBA said, “You can use the calendar year 2019, or you can use the last 12 months from the date you apply and figure out which one you like more.”

For the self-employed sole props, it’s 2019. For the most part, it’s pretty similar to the other rules. They do say they’re going to issue more guidance for those who were not in business in 2019. That’s another issue. Somebody started up on January 1. Maybe they caught this rule in time and said, “Great, I’m going to apply.” The bank said, “We don’t know how to treat you yet until this new guidance from SBA comes down,” which it hasn’t yet.

I was going to say that the guidance for calculating your payroll was very loose from what I saw because we had similar questions as our payroll towards the end of the year and the beginning of this year was much different than the beginning of 2019. If you take and do an average of what our payroll was for all of 2019, it’s a much different picture than if we take into account only the end of 2019 or the beginning of 2020. As we were filling this out, the bankers couldn’t answer that question.

Jordan, wasn’t there a shorter period you could do a measure on a section of this year as a basis?

I think that was only if you essentially started in business this year. There was a separate measuring period for seasonal employees in the main CARES Act, but for self-employed who were in business in 2019, it said to use 2019. You have to prepare Schedule C for 2019 anyway when you do your tax return. It’ll be too difficult for you to figure out your portion of 2020 at this point.

How are individuals or employees treated that would get a raise? Let’s say they’re going through this, and the company decides that they’re going to give their employee a raise because they stepped up through everything and that they were making $80,000 and you give them a $20,000 raise. Is that additional $20,000 up to $100,000? Is that forgivable? Can that go into that calculation?

Right now, I believe the answer to that is yes. That is based solely on the lack of anything out there right now saying otherwise. A payroll cost is very loosely defined there as compensation, wages, etc., and not to exceed $100,000 during that two-week period. The SBA and Treasury could always come out with something saying, “No, you can’t.” If you get to the end of the eight weeks and you think you’re going to have a bunch of money left, just pay out a bunch of bonuses. Let’s assume that if that happens, nobody goes above 100. If that rule comes out four weeks from now. So far, pretty much everything that’s been released in terms of guidance has said, “If you did it differently before this came out and you were otherwise in compliance with existing law and rules, then you’ll be fine.”

It’s a conversation I had earlier now that we don’t know for sure what they’re going to say about that if they say anything at all. You could go two routes. You could go right off the bat, run the numbers, and say, “We think we’ll have this much left. Let’s pay out bonuses or give raises or whatever right now.” If the SBA comes out later and says, “No, you can’t do that,” then presumably, you’d be safe because you did it before they said no, and there was otherwise nothing out there saying that you could not.

You could wait until the end and see if they’ve addressed it and see if they’ve given an affirmative, “Yes, that’s okay.” If it is okay, you still need to be mindful that if you’re going to bonus somebody, let’s say you got someone making $95, you want a bonus of $5, that should be fine. If you want a bonus of $10, then I think for PPP forgiveness, half that bonus would be includable, and the other half would have to come out of your other income.


Rich brought up this question, which I think is a great question. If you figure in an employee to be on your payroll and it’s part of what you were funded for, and that employee decides, “I can go and collect unemployment, and I’m going to make more on unemployment,” so you have an excess amount leftover at the end. It seems so awkward to me that somebody can choose or go on unemployment and make more money when their job is secure. How would they even be approved for unemployment at that point if they’re not let go or they decide, “I’m tapping out. I’m going to go watch Netflix,” as Rich put it?

I’ll give you a case study on that because, as we talked to the employees, we had to go through and do what we do on the recruiting end of doing a benefits analysis form too. We walked two employees off that cliff by demanding that they give us a resignation letter if they were refusing for us to continue employment. Saying, “Now you realize as the state comes back to verify unemployment because you’re saying you don’t want to work and we’re willing to pay you and keep you employed. You’ve nullified your eligibility.”

That’s a pretty uncomfortable position for me to be in to tell somebody you have to work for us or you can’t get this other money. It’s a crappy scenario set up by a bureaucratic system that incentivizes people to not retain their jobs. They’re much better to stay in employment because, in each case, these furloughs are likely to turn right back into work. If we take them off the payroll, it’s as easy for me to hire somebody else into that role as to bring them back on. Whereas, if we don’t have a break in their employment, they’re walking right back into that role.

It’s a pretty uncomfortable position to be in to tell somebody you have to work for us or you can't get this other money. It's a crappy scenario set up by a bureaucratic system that incentivizes people to not retain their jobs. Share on X

It’s a strange dynamic, and Jordan, correct me if I’m wrong, but if they’re denying and saying they refuse work, they should not be approved for unemployment. The reality is we still lose cases like that. If it goes through and we’re challenging it, the state, as we’re talking through and making a challenge, we’ve lost cases where somebody quit, which would be the case in this instance where we still ended up losing the appeal.

I’m not an employment lawyer. I have a colleague that’s good at that. I would defer to her on all these questions with respect to the unemployment side. With respect to how it relates to PPP, it is certainly an issue, but if you do have people saying, “I can make more or even virtually the same by not working, so that’s what I want to do.” Fine, I guess, but for the business, you’ve lost an employee.

When we talk about forgiveness, now your headcount has gone down, your payroll presumably has gone down, and if you can’t replace them right away, that is going to work against you. Maybe that’s ultimately one of the supporting arguments for giving bonuses out of funds that you know will be left over. It’s like, “This wasn’t purely to spend the money to spend it.” It’s like, “I got to try to incentivize some of my employees to stick around.” That’s why I did it.

That number is pretty high. It’s not like you’re paying somebody minimum wage.

I think when I’m looking at the breakdown because I ran some numbers on it, it looks like when somebody is below $25 an hour with the $600 in CARES Act straight coming from the feds, they can be on the plus side of unemployment pretty easily.

That’s a $52,000 a year salary. That’s a good income.

Yes, it is. You have to work through it. We had to strategize. Looking at the business end. Jordan did a good redirect there back to the real point. If I’m seeing that I’m dropping payroll, it doesn’t hurt me. It just means I’m not using that fund for forgivable money, which I can convert into a loan or I could return with no penalty at the end. It doesn’t hurt me other than the fact that, as a business, I’m better off to keep those workers going in this circumstance so they can return to work immediately with no interruption. Because I do know we’ll probably have a couple of people fall off, I’ve been interviewing recruiters all week because there are a lot of recruiters who have been laid off.

My plan there is I’m going to hire somebody and train them while we’re slow. When we pick up, I’m ready to go. I can take my top trainers and my top producers and have them getting somebody up to speed, ready to go when things gear back up. I’m very transparent with those people. If things don’t pick back up, nobody will be able to give you a job, and we might have to let you go. Assuming that things do get better, we’re going to be in a much better position than anybody else, which is why we’re bringing you on to be ready.


I think that Jordan brought up a great point with the bonuses and so forth. That’s a great argument to make that forgivable. The next question is if somebody does jump ship, if you’re not a recruiting firm like Rich, for somebody like me that would have to replace them, we may have to hire Rich. That’s an additional expense. Does that go into the forgivable pot of we have to retain Rich’s firm to go find a new engineer because engineer A could sit at home and make the same amount of money potentially? That opens up a whole new bag of questions and things moving forward.

Another side of this coin is I have gotten inquiries from clients saying, “If I get this PPP loan, I can pay my employees. The problem is I don’t have anything for them to do right now. Can I pay them for no-shows for eight weeks, and maybe at the end of those eight weeks, I can open again if I’ve been shuttered by the state? Even if I am open, it’s so slow that I don’t need these many people working. If I’ve got the money, and it’s forgiven if I use it, pay them to come in and play around on their phones for eight hours a day.”

I guess the paycheck protection is the point. Even if they’re not even going to work, you’re keeping them solid. You’re keeping their families safe. You’re keeping them funded. That is the whole point of the whole program because it’s the quickest and most efficient way to not get an interruption of pay to those workers. We’re talking about our end of it. The end of that siphon is keeping paychecks going, whether you have something for them to do or not. The question is if you don’t, can you get creative about finding something they could do? If you’re dropping an employee in one area, could you replace them with another worker who can do something? That’s going to help your business on the other side to emerge so you’re better prepared.

I don’t think there’s anything in the Act that says if you have to let somebody go and you replace them, that money is tied to that individual.

It’s the opposite. They want you to replace them on the payroll. You’re incentivized to keep the payroll up.


That’s right. My mind is going in a million different directions with all this, but I think it’s safe to stay on track. One of the other questions that Rich brought up is how important or how you track payroll as far as what goes in, what accounts? When you have to justify your payroll at the end of this to apply for your forgiveness, what supporting documentation if any are they going to require once you apply for the forgiveness piece of this?

When it comes time for forgiveness, what you do is you apply to the bank and the bank makes the decision. I keep saying bank. I guess I should say, lenders. Theoretically, your lender could be PayPal. They’ve got some guidance out there in terms of what you need to ask for. Certainly, payroll reports and bank records are going to be a big one. What we have done and what I’ve recommended to others is don’t combine these funds with other business money. If you’ve got one bank, open a second checking account, put the PPP loan in there, and pay all your normal bills out of your operating account.

If you've got one bank, open a second checking account, put the PPP loan in there, and pay all your normal bills out of your operating account. Share on X

If you do payroll on Friday morning, and your payroll for that month is $100,000, pay it out of operating and then move the exact amount from the PPP account over so that there’s a trail of, “I paid X dollars for payroll and X dollars, I can pull the exact amount out of my PPP account.” If you put all those funds in one account with your other assets, then there could be a question, “How do we know exactly that you use PPP funds to pay payroll and other funds to replenish inventory or whatever?” I think, ultimately, common sense will prevail, but when we’re talking about the government, you never know.

I would certainly keep separate accounts and do it that way. I don’t know if you necessarily have a payroll provider say, “Switch over to my new account for the next eight weeks, and then we’ll switch back.” I think that might be going too far and probably a headache for you and payroll, but certainly, bank records and making sure that the numbers match up. If you’re still cutting paper checks, get copies of those checks and get a little more detailed on the memo line that maybe you otherwise would have.

The accounting is not that complex because there are only certain categories of expenses that are allowable. For us, we use paychecks. All I have to do is run paycheck reports from the 10th of April through the last day of that eighth week on everybody who was on the payroll for that period. That’s my expense. Rent for those periods. That’s very simple for utilities. For the defined periods, that’s very simple. There is nothing too tricky about that. Jordan hit on an interesting one before that this relates to. When I answer one question, it turns into several more. I’m probably who he’s thinking about going through a lot of different scenarios and questions. He’s been very helpful.

One of those was if you’ve got a 401(k) or a qualified benefit plan, it looks like that qualifies as an expense. That one, to me, is a little bit trickier, and we’ll still see if rules get written to change what we can do with that particular plan. With two and a half months of payroll and eight weeks of forgivable payroll, there’s a tranche of money that’s going to be a gap in there that we could go after for forgiveness, that we could produce the invoices, the statements on those expenses. With our health and dental insurance and our rent utilities, which are the things that we could recapture there, we’re not going to make up that difference for them.

It appears right now that I could use the remaining funds to fund our 401(k) equivalent cash balance plan, which is a qualified benefit plan for retirement funds. That could change. Jordan hit on this with me. If you’ve got workers that are making over $100,000 and part of that money goes in, does that exceed the $100,000 in salary? It looks like it does not right now, but we’ll see. I don’t trust that one. That’s the one that I’m still watching the closest to see what happens. Currently, the rule seems to be that whatever gap we have, I could fund that amount based on my monthly average contributions to that plan last year. I could put that much in and should be forgiven for it. I’m not planning on that yet. I’m not funding for that yet. We’ll see at the end.

Jordan, it sounded like it was pretty clear, and if somebody is bonused over that $100,000 mark, whatever is over $100,000 is not forgivable from what your comment was earlier. That seems to be pretty clean-cut and dry.

I think there are indications out there too in the various rules that it’s technically not even allowable. You’ve got allowable uses and forgivable uses. Forgiveness is what we care about, but we also want to make sure that we’re not using the funds totally for disallowed purposes because if you do that, you could get in trouble. The application says, “If I misuse these funds, the government can come after me for fraud.”

Forgiveness is what we care about, but we also want to make sure that we're not using the funds totally for disallowed purposes. Share on X

You still want to be careful there. If you get to the end and eight weeks are up, and you’ve got money left, you could pay it back. The interest doesn’t even become payable for six months until after you get the loan. You’d have 1% interest for eight weeks. It would not be a lot. You could hold onto it and continue to use it for payroll and rent and those other approved uses.

It’s not going to get forgiven, and you are going to have to pay it back. Eight weeks in the grand scheme is not a whole lot of time. You could get to eight weeks and say, “I’m still struggling. I need something to keep me going for another month.” You now have an extremely low-interest loan that you can use to do that. If you can’t make it through and you default, there’s no personal guarantee and there’s no collateral. The lenders are out of luck anyway.

We always get to this time, and I think we could keep going. Jordan, are there any items that we have not touched on that we have glossed over or completely missed that you think are extremely important that folks should know before we wrap up this episode?


A question that I’ve gotten a little more lately that I think is very interesting and very important for the SBA to address is different questions about rent. One, are we talking about real estate only? The rule that came out this week for self-employed had an example. It said, “You can use the funds for rent.” It said, e.g., rent for your office space or a lease payment for a vehicle for your business. That indicates there that rent includes equipment leases. There was never anything out there that strictly limited it to real estate. That’s one of those things that until they say otherwise, you could probably include equipment leases in there as well. I’d still like to see it addressed one way or another.

Another interesting question is a related party. There are rules out there with respect to affiliation. Those rules are meant to address the 500-employee limit, the general limit out there for what’s a small business. If you’ve got a bunch of different entities with different employees, but there’s one single owner at the top, they all get grouped together in terms of calculating whether or not you’re eligible. There are a lot of small businesses that have their operating company and then the owner has a separate real estate holding company. He or she owns the building that the business operates out of and pays rent to that other entity. Is that a permissible use and a forgivable use? I think that’s an extremely important question to be answered.

Once again, it’s one of those things that we haven’t been told no. The last thing with rent that I’m curious about is prepayments. I shouldn’t say the last thing about rent. I’m curious about a couple of things. We talked about you getting to the end of those eight weeks and you got funds left over. Can you say, “Landlord, here’s my rent check for the next six months?” I got to get this money out before my period expires a day after.” Is that going to be allowable? I don’t know yet.

The last main thing that I’m interested in is it says rent, including under a lease that was in force before February 15th, 2020. What does that mean exactly? What if the lease was signed in January, but there’s an extensive buildout, and the commencement date when rent starts to get paid isn’t until May 1 or something like that? What if you amend a lease that was in effect before then, or you extend it? Does that affect anything?

I think that’s also an important question to get answered because you might see people entering into new leases and trying to backdate them, saying, “Let’s make this effective 1/1/2020.” Particularly related party leases to say, “My lease was enforced before February 15th.” I think there are a lot of questions about rent that need to be answered. I think they ultimately will be, but we’ll see. That’s something at this point.

The last week, I was keeping an eye out for the self-employed. We got some guidance there. As I said at the beginning, by no means are all those questions and issues settled. At least we’ve got some. The next thing I’m keeping an eye out for are some of those ancillary questions. What’s the rent exactly? What’s a utility? What if you pay under your lease? You pay real estate taxes and utilities as a separate additional rent or common area maintenance or whatever. Are those lease payments? Are those utility payments? Are they neither? Stuff like that. That’s what I’m looking for next.

If somebody pulls that trigger before it’s clarified, what does that do in your world? If somebody makes a payment for rent, let’s say a fictitious scenario that I own the building that my company rents and I pay six months in advance of rent, but I do it before that the rule is clear, do I have to say that I cannot do that? Do I have to pay that money back or do they say, “You did it before the actual law was written, we can’t hold you accountable for that?” How does that work out? It’s going to happen where somebody pulls that trigger before the rule is clear, and they get themselves into a situation. The way I read it, we didn’t even figure rent and utilities into the PPP loan.

That’s not a calculation for the amount of the loan. That’s a calculation for the amount of forgiveness.

There are still people out there who figured that in, calculating it into the loan because the application was so loose that you could easily put that in there, and nobody is going to catch it. The forgivable part of it is that now that it’s allowable and forgivable, there’s going to be somebody that pre-pays their rent. Jordan is bringing that up, but it’s not clear. It’s just not allowable at this point. How’s that going to be seen when somebody does that? What’s your argument on that when it goes to court?

For one, I’d be very careful if we’re talking about related party leases by making a massive repayment or amending the lease to say, “Before it was $5,000 a month, and now it’s $25,000 a month.” I would not do that. You’re setting yourself up there. At some point, even in the absence of a clear statement saying, “You can do this. You cannot do that.” Common sense and reasonableness come into play a little bit.

When we’re talking about non-related party leases if you go to your landlord and say,
“Let’s amend it to jack up our rent payment for the next couple of months,” or “Here’s six months’ rent in advance.” It’s unrelated, you’re not putting the money in your pocket. It is an obligation that is coming up in the future.

You’re only doing it now for forgiveness. Is that abusive? I’m not ready to recommend to anybody to go ahead and do that because they haven’t told you can’t. At the same time, if you decide to do it before they tell you that you can’t, then at least you have a reasonable argument. You’ve got a reasonable defense there.”

That falls into the 401(k) stuff for me. I’m not going to do it until I feel like it’s totally safe.

I think some people completely ignore common sense and do things vindictively or try to get away with it. There’ll be that. That’ll be interesting to see those scenarios roll out when all this is said and done, like the massive bonus payout in our last economic downturn and how that put a black eye on Corporate America for sure. Rich, do you have anything to close out? I don’t want this to keep stretching out.

Higher Compensated People

A real simple one, Dustin. On higher compensated people, I’ve got some IT, some technical people that are highly compensated. They will end up making more than $100,000. Jordan helped clarify this. I wanted to take what I viewed as common sense and make it into acting policy. It doesn’t matter if somebody is making more than $100,000. You don’t need to adjust them down. You can only claim them for $100,000 in salary.

Going through the vagueness of all the rules and stuff. There was enough fuzziness in there. I don’t like to trust fuzziness, just to make sure that there isn’t some strange twist that was written in there that forced you into lowering salaries to hit that cap to have them qualify in some way. You have to adjust the same way you did on your application.

All in all, it’s pretty remarkable when you think about where we are. This CARES Act was passed twenty days ago. I think it was signed exactly three weeks ago now, and $350 billion is out. The speed with which everyone scrambled. No one is a true expert on this. It’s amazing how fast this is moving and that much money has been borrowed with still so many questions unanswered. I haven’t been crazy about everything I’ve seen come out of the SBA and Treasury in terms of guidance. At the same time, I don’t know if they’ve ever been asked to move this fast on something.

They did ten years’ worth of SBA loan volume in twelve days.

That’s incredible. It truly shows you what are governments capable of if everyone puts their head down and works to do that much volume in twelve days, and everything else in the world seems to drag out, and hammers are still costing $500, and things like that. It’s pretty astonishing.

It’s a weird thing that for me, it’s going to dominate a lot of the next couple of months in terms of following all this and keeping it on track. Probably, by the fall, it’s like, “That happened and now I can’t ever do anything with it again.”

I’m sure it’ll keep you busy from all the unethical people out there trying to do stupid stuff with it. I’m sure that there’s going to be attorneys that pick up.

The litigators might still be interested in it by the end of the year, but I don’t know that I will be by then.

Not the practical that will help you get through it.

Guys, I appreciate your time. I think so much of this stuff is so important to all of us and the folks who have been funded. It’s certainly going to help save their companies. The folks who have not been funded are going to do everything in their power to hang on. There’s certainly going to be fallout, which is going to be devastating for some, and it’s going to create opportunity for others and have positive affirmations and positive outlook on life as you take those opportunities. When we’re running back and everything is up and running again, it’s going to create different opportunities for different people.

Governor DeWine stated that we’re going to have a soft opening on Friday, May 1st. Hopefully, that’s the start of all of this getting back to normal. Thanks a lot for coming on. Thank you everyone for tuning in. You can contact us at You can email us at if you have questions and so forth. Thanks again, and we’ll see you next time.


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