I’m going to give you an overview of the SBA loan program, I’m going to focus on the CARES Act when I get to that segment and then I’ll circle around to the questions from the Zoom chat (3/31) that I didn’t get to answer.
Before I get started on the particular questions, I want you to be focusing on 3 very important questions you should be asking yourself right now:
1. How much can I borrow (and from which program?)
2. How do I spend the money? This is dependant upon program you’ll be taking advantage of
3. How much will be forgiven?
We all want our money to be forgiven right? Because the government is the factor that shut you down, it wasn’t because of mis-management of the business, so you should have the intention to try to go into a grant, waiver or forgiveness program as much as possible.
Let’s get started with the Big Picture, how does this work?
The federal government has a division that has branch offices in all 50 states called the Small Business Association Bureau. The SBA is an administrative department within the federal government.
They give money to the banks, a portion of what the banks will then in turn loan you. So, the banks have great security and comfort loaning you SBA funds/loans.
Forget about Covid-19, this has nothing to do with it – this is real-world, not pandemic world. The bank has confidence giving you loans because what they loan you you’re going to put 20% in, they’re going to give you 80% and of the 80% they give you typically the government’s going to back them on about 70% of that. So, they have a very low exposure and risk. So, this is why SBA loans are attractive for so many people – they’re guaranteed by the government, they have longer terms and typically lower interest rates than commercial loans.
So that’s the SBA.
Now, the SBA has a loan program so let’s start with that:
The program is called the SBA 7a loan program. Under the SBA 7a loan program, you can find multiple loans – there’s business loans under the 7a loans, there’s 504 loans, there’s microloans, and there’s the Small Business Investment Corp loans. These are investment capital loans that can be used for purchasing equipment, supplies, and whatnot. You can use these loans depending on your needs, depending on the business you’re starting up, for start-up capital.
Now, one of the questions that came up in our Zoom chat was “Brian, are they offering lower rates, and better terms during Covid-19 for us to become start-ups?”
I want you to grab this document that we have on our resource page (https://www.megbusiness.com/covid-19-resources-info/) because there is a link here called “Resource Partners” and there are links to all the branches – you must call your local branch, go online, and find out “have any of these startup program loans been altered/made more favorable” for you if you’re a startup practice owner.
Honestly, we’ve signed up 4 start-ups in MEG Academy in the past two weeks, I really think that’s going to be the fastest part of the rebound here when we come out of the Covid-19 epidemic – I really think you’re going to see a lot of businesses just sky-rocket. It happened after the financial crash, it’s going to happen here, too.
Because the opportunities are going to be GREAT for startups. That’s why, while you have the time, energy and effort, get started on your career-development training so you can start off with the most educated and highly-training staff you can, that’s my advice there.
Let’s jump below the bar:
Now we get into the turbulent/troubled times. They have special programs for that too.
The first one here is called the Emergency Economic Injury Grant (EEIG). The EEIG is something that you do not have to pay back – it’s forgiven. That’s also in this program for you to look up and get the details of how that works for you.
This one’s very popular, many of us when Covid-19 first hit, it was very easy for us to go online and go to the website for SBA and we were able to file the Economic Injury Disaster Loan (EIDL). I know I did, most everybody else I talked to did. Now, this program is one that you definitely want to enroll in get your application going through it, you do qualify for it, and currently as of 2 days ago they put out an abbreviated version, a Plus+ program on it if you will, where they will give you immediate funds within 72 hours, and that has to do with the EIDL program.
So, there’s the long application, it’s going to take 2-3 weeks possibly for you to get your money and get approved. There is the short, abbreviated version which is 72 hours (3 days) and you should get I think it’s about $10,000 they’re going to advance you – an advance on the loan.
So, look into that, that’s currently up on the website, I was on it last night, it’s quick and easy, check that out.
The other thing here is for non-disaster situations. This is for your business in trouble, it’s on the ropes, you’ve been punched a couple times, you need to make some money quick to buy inventory or to shore up some staffing or to do some immediate diversification within your business model, you can go for the Small Business Debt Relief (SBDR) and they will help you with the debts you have so you can advance your business.
So, this is all standard stuff, this is out there and accessible to you.
Let’s jog over to what’s actually happening now which just got released as of last Friday – the CARES Act.
The CARES Act, the big package in the CARES Act is the Paycheck Protection Program (P.P.P.)
Now I’m going to focus on that, and I’m going to hunker down here with some questions that were in this document so I can answer them for you. And I want to make sure that we’re keeping in mind our 3 big questions, this is very important as a practice owner to keep these 3 in mind.
So, here’s some of the FAQ’s:
Q: “What types of businesses or entities are eligible for the PPP loan?”
A: This is a loan, everyone is talking about forgiveness, that’s true, but it will come to you as a loan first. And as I’m talking about all of these loans, SBA recently passed a rule that they’re going to abate any monthly payments for the next 6 months no matter which loan program you’re on you don’t have to make payments for the next 6 months – the government is going to cover that for you.
So that’s a new rule and I didn’t want to forget it because it applies to all the loans that you may or may not have whether you have it right now or not. But when you get your PPP and get your funds, who’s eligible? “Business entities must have been in operation on Feb 15th, 2020.” So, if you haven’t been open for business on Feb 15, 2020, you’re not eligible for the PPP program. That’s #1.
Small businesses, as small as sole proprietorships, they can have independent contractors, they can have self-employed individuals – you still qualify.
If you have more than 500 employees you do not qualify, you are not considered a small business.
Q: “How is the loan size determined?”
A: If you were a small business open between Feb 15th, 2019 and June 30th, 2019 the maximum loan will be 250% your average monthly payroll cost. What goes into that payroll cost? I’m going to break that out for you next.
If you were not in business between Feb 15th, 2019 and June 30th, 2019 your max loan is equal to 250% of your average monthly payroll between Jan 1st, 2020 and Feb 29th, 2020. If you weren’t in business about a year ago, they’re going to look at your numbers from Jan 1st – Feb 29th of this year. If you were in business a year ago, they’re going to look at those.
Q: “What costs are eligible in the payroll cost?”
A: “The costs eligible are your compensation such as salary, wages, commission, payments of cash, tips and so on – payments for vacation, parental and family medical leave, severance pay, pay for group health insurance premiums, retirement benefits and your state and local taxes.”
This is what goes into making the payroll cost. That’s what’s going to be used to establish your baseline.
Q: “What costs are not eligible in the payroll costs?”
A: Anything that you paid yourself as an owner that’s greater than $100,000, compensation for employees who are not residing in the U.S. and anybody who qualifies for sick and family leave credits under the Family First Corona Response Act (FFCRA), remember this is to handle the people that actually either had family members or they came down with it themselves. You cannot double-dip between these programs. That doesn’t mean you can’t have the PPP and the EIDL, you can, it’s just the funds that you have for this cannot be spent on the payroll cost that you’re taking for the 8-week period in this program. So when you get this program you have 8 weeks of payroll cost covered with this program, you can’t then take the funds that you have here and say “oh I need those funds to pay the payroll costs” – you already had it covered over here.
Q: “What are allowable uses for the loan?”
A: “The payroll costs, cost for continued healthcare salaries, interest payments on mortgages, rent, utilities” – and this one’s a little ambiguous so you’re gonna need to call and talk to somebody at your local district – “interest on other debt obligations.” Does that count for lines of credit? For car loans that you have in the business, the interest portion? I’d like to get some clarification on that, it does not state that here.
Q: “What are the loan terms?”
A: It’s not going to be greater than a 4% interest rate and it’s usually going to be somewhere close to a 10-year term, that’s the max – whether it’s 5, 7, 10, I said that in the Zoom chat, we really don’t know.
Q: “How do you get forgiveness from the loan?”
A: This is important. “How you get forgiveness is that you must apply by an approved lender which is an FDI insured bank, there’s 1,800 of these institutions nationwide you can also go to a credit union. Your documentation must verify that your total number of FTEs on payroll and their payroll rates are equivalent or higher than what you did in your baseline period.” Remember, they’re looking at that period of time, if you’ve been open over a year, they’re going to look at last year’s average monthly payroll and FTE equivalents and then they’re going to make sure that you have the same, if not better, or no greater than a 25% reduction in reducing of staff hours across the board – staff reduction. If they’re a 40-hour employee, that you didn’t cut people below 30. That’s going to disqualify you.
Any loan amount not forgiven will be carried forward as a 4% interest rate and a 10-year term. You’re going to need to have documentation to verify payments that were covered under this loan program, and documentation to verify the number of employees on payroll, the payroll rates including the IRS payroll tax filings for your state and local governments.
*Here’s what I recommend: if you get approved for the PPP, make sure that the funds get deposited into a separate checking account and pay all of the qualified expenses out of that separate checking account so that you can meet this documentation requirement very easily.
Q: “How does the PPP loan coordinate with the SBA existing loans?”
A: So, a lot of people may have an existing SBA loan, you now get a PPP loan, how do you balance between these two? “Borrowers may apply for the PPP loans and OTHER loans for assistance, such as the Economic Injury Disaster Loan (EIDL)” this one is very common, many people are going to apply for this and for that, I know I did. You can do that, but you cannot use the PPP loan funds for the same purposes as this SBA product.
You shouldn’t have a problem with that, put this to the attributed expense buckets that it’s meant to cover and spend this money on your other expenses that are not covered in that program.
I want to end off by answering some of the questions (5-7 questions) from the last Zoom chat on March 31, 2020.
Q: First one is from Sharon, she asks “If the owners take draws and are not on payroll specifically, how do they fit into the PPP?”
A: If an owner takes a draw or a distribution they must be logging it in their QuickBooks, otherwise it’s embezzlement. So you have to have some record that you’ve been taking draws, disbursements, or distributions out of your business. You can declare up to $100,000 of compensation to the owner whether it comes in the form of salary, commission, distribution, it does not matter. You are eligible to get that cost covered under the PPP.
Q: From Dawn, “Is there a max amount of PPP available to each business?”
A: Yes, the maximum amount of PPP available for each business is up to $10 mill. I don’t think there’s many of us that will be able to justify that through our payroll, but that is the max number.
Q: Next is from Allen, “Do we need to bring our PPP employees in for work on a normal week even if we have no patients?”
A: Yes! The PPP’s whole purpose is to keep your people employed, keep them getting a check, you may not have the work for them – this is where I’m coming from with what we already know, 85% of businesses that have a career development training program do better than those without. You have to update your policy and procedure manual, you probably have compliance programs that you wanted to put in place that you haven’t gotten to for a very long time, you probably have chart audits that you need to attend to, you probably have updated files and home exercise programs you need to get to. But most of all you probably need training of your staff to get consistency, to get compliance with all of these things. You’re HIPAA compliance – this is a great time to reach into us and let us connect you with Daniel Hiersh, his company to get you HIPAA compliant for the long haul, get your TelePT Solutions up and running and appropriate for the long haul, it’s not going to be the wild west forever on the iPhone.
So in my mind there’s plenty of work for your employees to do, but they have to come back to work, be on the clock, and then you assign them these administrative duties. If you’re a MEG client, this is the time, give them their bulk hours of training and hold them accountable to it.
Q: From Motion, “What is the cutoff to the number of employees to qualify for the PPP?”
A: You can be a sole proprietor and qualify for the PPP. You can have up to 500 employees and qualify for the PPP, that’s the range.
Q: From Jereme, “I had heard that the SBA and the PPP are linked and that there’s only a certain amount that you can take, meaning $100,000 if you use $50,000 for the PPP you can only have so much with the SBA ($50,000). So they’re linked or is this right?”
A: No, I’ve not read or seen that. I could be wrong. You will qualify for this program based on the application you send in, you will qualify based on the application and information you send in. Now, you will probably get one approved before the other. Once you get them approved the trick is you cannot use the funds for one to cover the same expenditures of the other. Reach out to us or hop on the next Zoom chat if you need more info.
Q: From Kristi, “About the coverage period, what is the coverage period?”
A: When you get approved for these funds you’re gonna tell them what 8-week period of time you want those funds to cover you for. For me, I’m gonna take April 1st – June 1st because I believe the full impact of this is gonna be felt in April; the fact that we’re in the stay-at-home order all the way until April 30th I think that’s going to really impact May as well. I think that’s the critical mass for most people to look at as a coverage period. Others can go as early as between Feb 15th – June 30th, I believe.
Q: Next one is from Tiffany “One of our employees went on unemployment a few weeks ago because of compromised health. I need to rehire her back by June 30th to get full pay back to keep the head back”
A: Good question, if the person went on unemployment due to health concerns, due to Covid-19, they’re going to fall under the other program that came with the CARES Act, the family one, like the old FMLA, family coverage act for people who’ve come down with Covid-19. They’ll be covered there and I don’t believe that’s going to work against you because of that.
Q: Last one, from Kimberly “Does the CARES Act allow for coverage of the owner’s paycheck?”
A: Yes, the CARES Act does. It’s more the PPP allows for coverage up to $100,000.
There you have it! Thank you!