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hi welcome to ngw is podcast series industry connected my name is Keri Morse and I'm the chief executive officer the national groundwater Association today we've had the opportunity to meet with two principal directors and CPAs from accounting firm called rating associates they're going to share their perspectives on the Paycheck protection program and the small business emergency loan program they're going to share their insight perspectives and expertise on how to one apply for the loans to get approved for loans three manage those loans track them properly so at the end of the eight week period your loan will be and qualify for 100% forgiveness so thank you and I hope you enjoyed today's broadcast now my background is pretty much a general CPA I've worked with I've worked in tax I've worked in audit I currently work and do consulting in the retirement plan qualified retirement plans face and so I wasn't buried in tax returns at the time this whole thing broke and so I volunteered and kind of dove in and became one of the firm resources for this whole PPP loan process and as well as the SBA disaster loan process okay Doug kind of did the same thing Doug but Doug's background is different he spent quite a few years I don't know how many years Doug in the banking industry so he he has a really unique perspective on how banks have been involved in this this whole PPP loan application and ultimately the forgiveness process so if you had anyway he's been a wealth of information for us and for our clients to just navigate this whole process so Doug I don't know if okay share some of your background yeah I've started my career as a CPA many years ago 30 years ago with with Deloitte and then got into as Paul said corporate banking for 20 years and did that and still have a lot of connections in that area and now been back in public accounting for two years so timing wise it's been good because I've been able to rely on a lot of those contacts I have with the banks to understand what they're facing what they need from clients what they will accept what they won't will a deal with non clients best practices problems they're having they've been so bombarded with just trying to get these applications and they really haven't had time to consider the after-effects ie what what a clients need to be doing to you know document and track forgiveness what are some best practices in fact I was on the on a conference call with Fifth Third Bank this morning and they had a problem because they didn't set up all of their clients with a separate account and most of their clients are typically set up on what's called credit sweep in other words the the deposit balances automatically sweep against the line of credit so all the people funds hit and they swept against their their credit lines which technically is prohibited under the the PPP act now obviously Fifth Third was aware of this so they're you know working with their clients to track it but there's just so many nuances and all knows this as well you know one of the other questions we just got this morning was on transportation costs that's you know you're getting down in the weeds here but for example that's defined within the act as being quote-unquote a utility well nobody's ever given any clarification or guidance on what transportation cost means so you know how do we track that what you mean will it be forgiven who the hell knows you know there's a lot of a lot of questions so starting on the front end then what can businesses do to prepare on the front end to make that process easier with some of these financial institutions because it sounds like it took everyone it's a learning as we'll go along yep so what should they do yeah when they approach their financial institution or there's some documents that they pretty much almost it's a universal they should have ready to go to submit that application instead of you know minimizing that back and forth going here and there and then also you know transmitted downward I can start there bad answer there's there's the loan itself is based on it's focused on the calculation of your average monthly payroll cost yeah so they're the most applications that are gonna at a minimum need for for you as a business owner to calculate and probably using 2019 that's what the SBA application specified although it's a little unclear in the actual act itself but you're supposed to take some 12 some previous 12-month period prior to the crisis to calculate what your average payroll cost was and then there's some different factors that go into that but you complete that sheet that calculation and then you've got to provide supporting documentation for that so that's going to be things like nine forty ones we were asked to provide we do a lot of plant retirement plan administration so a lot of our clients we're asking us can you give me a summary of of all of our you know the company contributions of all the employee contributions for 2019 so we had to come up with that copies of employer contributions on behalf of two to health care providers that all of that went into the overall calculation of what are what is your average payroll costs so beyond that what they what individual banks need for underwriting Doug is probably better can better answer that I think some are asking for copies of tax returns things like that I don't know that they all are but do you know Doug you have any better insight into that yeah I mean generally if they're an existing client it's it's been pretty smooth and turn of the information that they want it primarily revolves around some of the detailed payroll records but ultimately they were able to the banks are able to negotiate in the final act they don't technically have to verify anything initially when it came out the banks were charged with verifying this information and they pushed back on that because they didn't want to be responsible for it so ultimately it's incumbent upon the the customer or the client to provide accurate information and they have to certify that it is accurate and and then the bank just to be honest they're doing kind of a cursory review of that and if it's a known client much easier if it's not you know a little more onerous but they're not really digging into it a whole lot now we don't know how much that might change with the forgiveness piece you know there's an inspector general that was appointed by the federal government how much scrutiny starts to come into play you've already seen that with some of the large public companies that got PPP funds so we don't know at this point how much additional scrutiny there might be with the forgiveness piece but as of now the banks themselves aren't tasked with verifying that so it should be pretty pretty easy and smooth but but really do you anticipate a it checks and balance at on the back end of this to verify oh and every time your forgiveness how's this over through up so the forgiveness process and that is that I mean that's where we're spending all of our time though now because our clients these funds are beginning to hit as Doug was describing before they're starting to hit their accounts or they've created a separate account or into an existing account now they want to make sure they get they qualify for the forgiveness portion right and so right now they're asking all kinds of questions about how do I calculate my payroll cost for purposes of the there's an eight week period following receipted alone that's it's really imperative that you spend all the loan proceeds and they just spend the loan proceeds on the right things in the right proportion and they to document that all the way through but we're flying blind like we have with the rest of this process because we did have we have no application to go by it's yet to be thrown out there so we don't know what the calculi dia of what the calculation is going to look like they're trying to encourage employers to maintain headcount and maintain wages and salaries at pre-crisis levels at least for the eight weeks so that you can use up these alone proceeds and the loan proceeds you used for the intended purpose but we really don't we in terms of the actual calculation and the ordering of how the reductions are going to be taken if there are reductions in the forgiveness amount that there's a lot of mystery still a lot of questions to be answered yet and I don't I haven't checked the Q&A or the FAQ is from SBA yet this morning Doug I don't know if you did or not but when I checked last night there wasn't anything new out there so yeah nothing it's been a we've gotten a lot of guidance but there's a lot of guidance yet that we expect to get infor before the application process starts and you have to understand the eight-week period is just now starting the funds have just hit so we've got this but I've got some time where we can you know hold this information together and and I think just having the application itself is going to answer a lot of questions don't you think Doug I mean once we get that then I think we can really begin to hone in on the important stuff I would agree we would hope certainly we expect there will be some additional guidance either interim rulings or fa Q's as Paul suggested to clarify some of these definitions certainly when we do get a an application once they develop that the forgiveness application hopefully that will have some clarity as well but you know some of the primary issues were dealing with for example you start to think about it is the forgiveness piece measured on an accrual basis or a cash basis well yeah basic question doesn't 100% specify other than it says payments made so really the entertainment made for infer incurred costs yeah as a CPA that's it's like hate is another and you throw them together and what do we got the the interpretation out there pretty much industry-wide right now is that that means a cash basis however they could change that they could come out early next week and say no no that's not what we meant you know because you get a lot of questions about you think about a business that maybe had to defer some rent for a couple of months it might have been for February and March well now they're able to perhaps pay that for example but does that count well on a cash basis of course it would I'm obviously subject to the limitations that rent utilities and mortgage interest can't be more than 25% of what you spend in order to qualify for forgiveness but still you know there's there's a lot of questions with issues like that the other the other thing we get is like well okay should I track this towards the end and then maybe pay a bonus to my employees or give them some kind of hazard pay bonus so that I can you know juice up the the payroll amount to make sure that I follow Phi for the maximum amount of forgiveness those all sound like good ideas and and our best guidance right now says that it okay that's that's probably okay but the bottom line is we don't 100% know for sure that's interesting so how would a business then I guess try and clean a quarterly and protect themselves based on just the situation you gave with accrual versus cash how do they only know what's the best way to go right now they have to make a payment or work out a new contract or something so with some of the stuff some of the stuff is more cut-and-dry and we're encouraging clients to do is to create a spreadsheet we've got a spreadsheet that we created that that we're using internally and and if clients have requested a copy we're sharing that now there's big disclaimers at the top of the spreadsheet that says this is this is subject to change but what I'm telling clients cast a wide net let's try to capture everything that we think might apply and then another graer that that we're wrestling with is for large profit sharing or retirement plan payments that typically happen at the end of the year are those going to be can we prepay those during this eight-week measurement period so that we can kind of juice up our payroll related costs and get to that that 100% forgiveness level that's a great we don't know it could be that when it's all said and done you're gonna be limited to just normal payroll related retirement costs like match or some sort of 3% safe-harbor non-elective contribution that you would be making typically concurrently with payroll even though it's an employer contribution we're not sure about these extra large profit share and discretionary profit sharing contributions or cash balance contributions that our clients make many of our clients made so let's capture that let's not do it right now let's see how the the guidance plays out and with a little bit of luck they'll be pretty they'll interpret this thing pretty broadly in terms of what's included and what's not and then we can make a deposit towards the near the end near the end of the eight-week period and an included but good is that that kind of how you're approaching it with your conversations yeah absolutely you know be cautious and until we get closer to the end then if based on hopefully additional clarity and guidance we can do some of those things you know pay some bonuses do some additional things like that to capture maximum forgiveness absolutely okay so proceed cautiously right now hoping that there's gonna be more details as we get further into this eight-week period before we get to the end exactly exactly we know we're gonna get some guidance we just don't win and that's that's the tough thing clients are asking very specific questions and all we can really do is give them our best guess in terms of the way things will play out and then be honest with them to say not sure that's an open question it's not addressed correctly in the act so we get to the end of the week you've used all the money according to the guidelines you're good to go hundred percent forgiveness but what if there's portions that aren't forgivable how are those monies what were the terms of paying that money back so that's it's pretty well defined in the act it becomes a two-year term loan at 1% interest so obviously still quite favorable those payments can also be deferred for six months up front so it's really still quite a favorable program even if you don't get it all forgiven I mean it's a you think about it it's a cheap source of capital very attractive obviously the extent you can get it forgiven that's that's certainly more attractive there's we're still waiting some guidance to around how to treat ultimately the the forgiveness I mean if you think about it from a GAAP perspective you've got to book this loan as you would any traditional loan we're also telling folks account for the expenses just as you would under GAAP but at the end of that period typically when a loan is forgiven that's a taxable income event however there's been specific guidance here that that's not the case so then a question became well if you book that as income then you have a permit book tax difference and what does that do the guidance right now also suggest though that those expenses will not be deductible for tax purposes which makes sense if you think about it they don't want to give you the double benefit of not taxing that income that you receive for the free event moment amount and then likewise giving you deductibility on those expenses so they've said that we think at least now that those expenses won't be deductible which would wash it out from the books but still just like that we don't have a definitive answer yet on this right no just a lot lot up in the air good so kind of switching gears would staying in the same world the SBA loan that you need additional monies for operation how does that play into this a business owner I don't know which is best either go for this pay tech protection program or take out more of the SBA loan that has a longer term payback but not forgivable where's that kind of play in and can you do both the FT one or the other yeah I can I can start that response and then Doug can jump in but we were having that conversation a lot early on early on it was just with disaster loan that was available because the cares Act had not been passed and so we that's what we were focused on was what are the terms on that disaster l
an those loans are up to just two million is the maximum loan on that but and there's no forgiveness available on those loans however part of the cares Act included and up to ten thousand dollar grant that's part of the what's known as the economic injury disaster loan the e IDL loan through SBA and so and they basically said if you apply with very little information you'll get it within three days so of course everybody applied yeah but there was confusion about what you could use those proceeds for compared the PPP program and so we were answering those questions a lot I think and even the banks were confused a lot of misinformation out there but it was clear to us from the very beginning that as long as you didn't try to use if you applied for both and we're fortunate enough to receive loans from both programs and we have clients that did receive loans from both programs as long as you didn't use the disaster loan proceeds to pay for your payroll costs mortgage interest rent and utilities then then we think you're fine as long as you can and and you can pretty much use the disaster loan proceeds for any any normal operating expense including payroll costs I would say outside of the eight week period following the receipt of your PPP loan okay so so you can really set those these aside if you want to if you don't need them right away and use them after you've used up your PPP longbows used to have fact I would say that's probably part of the best practice if we can do that program that program still available in business is still apply and would you recommend that they apply as a backup because you don't have to use the fund yeah yes we were very adamant with clients that they should apply for both if they needed to Canada the Eid alone is very much focused on not payroll but focused on economic damage so you had to be able to show that your revenues had crashed right and that you had this sustained economic damage but assuming you apply you you were eligible and you met the requirements for both loans we encouraged clients to apply for both you know in terms of the the terms on the disaster loans - those are payable up to over 30 years so it's a lot longer payback compared to the PPP loans and but the rate was a little bit higher it's 3.75 for any small businesses so but still a very favorable rate you know one of the problems they did have with the IDL though is because there's so many applications they actually rationed the Eid L loan amount to a maximum of $15,000 per company which doesn't amount to a whole lot now I should I should say that the Act it's pending in Congress today hopefully passed today or tomorrow and signed into law provides an additional 10 billion for the grant portion of that program and an additional 50 billion for the loan portion of that program so hopefully that should open that one up a little bit more so that it becomes more available and they can avoid rationing it as they had to with sort of round one point oh one other thing I wanted to add too and my conversations with some of the some senior bank execs last night and this morning they are already entering the applications for this round 2.0 so that as soon as quote-unquote the the law is signed and the system is turned on though those will be already done they expect this next round of 310 billion to be run through in a matter of 48 to 72 hours max so it really it will go quite quickly because the banks are all set up to process it now which the first go-around they weren't really as as as ready to do it so that's at least the guidance that I've gotten from some of the both major banks and and smaller community banks as of a certain order so they feel they've already got enough applications in the system already just waiting to absorb those those monies yep yeah the interesting thing interesting thing I'll just throw out there right now and Doug and I were kind of going back and forth on it this morning via email they in round of funding they've carved out sixty billion for smaller lending institutions with the hope that these smaller lending institutions have relationships with smaller businesses there was a lot of concern we alluded to it early on in the conversation a lot of concern that big business was swooping in and applying for because of some of the exceptions that were made in terms of who's eligible but but relatively large even public companies were getting this each PPP loan proceeds yeah and so Congress was very concerned that the true small business the mom-and-pop out there was not did not have a legitimate shot they weren't organized I mean if you think about it the bigger the business the more sophisticated the advice yep we're sophisticated people the better the banking relationships they the skids were greased for those loan applications and the normal mom-and-pop small business you know backbone of America type of business really had no chance in terms of since it was first come first served to get in right head of the requests so it'll be it'll remain to be seen and dug and I dug a little that's more skeptical than I am I think in terms of how that will actually work out but I would say tell any of your members if they missed out on the first round and they have a relationship with a smaller bank they should be on the phone with or with their bank okay seeing if some of these funds were targeted for their size of institutions so you know I'd have a better chance of getting in ahead of some other folks great so he's going to ask you so if you're your small business owner didn't have the resources that act immediately like those larger companies maybe avoid some the big banks who they've already got their applications filled out ready to go to reach out to more of a community bank who maybe has a has that resource of about sixty billion so theorists are taking new applications they can get in with that and that's not wheezed out you yeah the the carve-out was 30 billion set aside for banks that are under 10 billion in assets which is still okay large and then additional 30 billion set aside for banks that are between 10 billion and 50 billion in assets that's kind of a super community bank so under 10 billion certainly more community but yeah I would absolutely advocate for all of your members to go to a smaller type of institution I think they'll have much better chance for success at getting getting an application in and getting approved and getting through the program in that in that way great yeah and I guess just let me let me toss one last comment on in terms of the Eid L we know that there was additional funding thrown into that because it it had been come you know completely tapped out as well but but as far as we know they've still got the same limitations in terms of the grants you know Kerr's Act said up to ten thousand in terms of a grant that doesn't have to be repaid not alone but they didn't really define how they were going to calculate that SBA after the fact kind of decided well we'll do it based on employees so $1,000 per employee up to 10 employees you'd get if you had 10 employees you get 10,000 if you had more than 10 employees you would still be maxed out up to 10,000 so we think that rule is still in play I haven't or anything to the contrary about that and I'm assuming the $15,000 max loan is still a play Doug I don't know if you've heard anything to the contrary on that yeah I'm haven't heard yeah well one thing that's different we haven't really talked about Terry is the eid al loans were direct online applications with sba there is no bank or lending institution that you go through on those it's online so we don't we don't really have the resources that you know doug has lots of banking contacts and resources that we and get information from on the PPP loan process we don't have those same resources on the Eid process so it's it's the informations a little bit slower coming out as far as I know this ain't some same limitations are still out there okay as we look to wrap this up is there anything else you think that our members or small business owners should know that we haven't covered I think you know one I think we said I really would reiterate tracking all of this as best you can through either a separate account also separate GL accounts on on on your accounting system if you can not necessary but I think for ease of tracking and all that makes sense just be be aware try to plan and as we get more guidance and get towards the end of this program hopefully you can be ready to apply some of these funds towards things that we we get definite clarity around yes you can use it for some of these things and take advantage of that to it to its maximum extent there is all it also a one other thing I'll throw out there there's a quote unquote Main Street lending program which also is available for any entity that has $250,000 of EBIT da or greater now that program is just getting underway with the banks it is also like the PPP program run through the banks so there is an additional program that's coming that one is not forgivable but the loan terms again are fairly attractive there are some interesting restrictions with that program so we're just starting to learn more about that as well so I guess I say all that say more news to come you know stay abreast of the latest developments and communications make sure you're talking to your banker and your CPA and and getting good advice great yeah and Terra you the only thing I would say the only thing I would add that we really haven't talked about is very common question that we're getting with respect to the forgiveness piece of the PPP loan is hey I've laid off all or a substantial portion of my employees do I need to bring them back and get them on payroll so they can use up this money and the answer is definitely yes one of the things so so the first bogie that you should have if it's goal that you should have with this money is spend it all spend it all on the right things and in the right proportion seventy-five percent on payroll cost as possible there are some reductions we talked about those earlier for head count if you don't maintain your head count if you don't maintain wages within at least 25% of pre-crisis levels couple different measurement periods to compare there but the first goal ought to be you know if you don't spend all the money whatever you don't spend in that eight weeks is not going to be forgiven it just isn't regardless of the reductions at least that's our best guess at this point so let's try to spend all the money and try to spend it on payroll costs if at all possible at least 75% and and there will be there will be many companies that are very payroll heavy and if somebody gives you two and a half months of payroll and tells you to spend it in eight weeks it's just it's gonna be really hard to do it if you can't do some of these bonuses and other things that we talked about so focus the sooner you start focusing on collecting the expenses and trying to use up all of the proceeds in that 8 week period the better off you're gonna be I mean you're gonna give yourself the best possible chance to get a hundred percent of it forgiven so that's great and how we're working with clients right now great ok and as we move forward I'm assuming you all have your own individual podcast or information you put out on your website that we could forward to our members you know sure this goes on if there's follow-up we just with WWE are a CPA calm that's Rea pa calm and we have a an entire kovat 19 resource center you can find copies of our webcasts that Paul and I have done other information documents things like that tools to help with with planning and all of those things great we'll make that available on our website as well so way I appreciate your time today I know you both of you're busy and you share some great information and some insight that things can be very helpful for our members so thanks Terry anytime take the opportunity great great okay stay safe stay healthy you as well talking Cirie thank you okay thank you okay
