The Paycheck Protection Program was designed to not cost the borrowers anything if they used the money correctly. So banks were given a fee as high as 5% paid by SBA, which is more than normal, possibly because they were expected to share some of it.
Borrowers Need Help
Borrowers might need help, so there is provision in the law for the banks to use some of that fee to pay agents, who quite often will be accountants, although there are other possibilities. Apparently the people running banks missed those preschool lessons about sharing. They are behaving in accordance with Rule 97 of the Ferengi Rules of Acquisition – Enough is never enough.
Banks are frequently keeping the whole fee. Such are the reports from #TaxTwitter, one of the most up to date sources as to what is actually happening with the Paycheck Protection Program.
CPA Firm That Went All In
Earlier this week I interviewed a CPA who has been in the thick of the program.
Eric Hjerpe CPA of Hjerpe & Tennison saw the significance of the Paycheck Protection Program early studying it carefully right after it passed the Senate. He was prepared to put his firm on an “all Paycheck Protection, all the time” footing when it passed the House.
Eric is something of an outlier but in some ways he typifies the response of local and regional CPAs to the crisis. A common attribute of regional and local CPAs is a sense of devotion, sometimes to a fault, to their clients. This is why it is not unusual for an accountant to be a small or not so small business owner’s most trusted adviser.
Been Like Hell
Eric reports that the last few weeks have “been like hell” with very long hours trying to sort out the requirements and then deal with conflicting interpretations from the banks.
As an accountant for over forty years myself who has compared notes with classmates who have had other callings, I realize that when you take a step back we never experience anything that you could actually call hardship. But when you are in the middle of something like this crisis, there are these feelings of both dread and zeal.
For what it is worth, I sought the perspective of my high school classmate Chris Boetig who spent forty years working for the Army both in and out of uniform and thinks deeply about these issues. He flew helicopters in the First Gulf War and normally abhors comparing things to war that are not, you know, war. This crisis is different:
It has been since Korea and WW2 that we have mobilized the Industrial base of the US like we have for COVID. We have FEMA plans and we have used part of the law for natural disasters but those were for one to a handful of States. Here it is all 50 plus territories plus tribes. I have studied mobilization for 40 years and done bits and pieces and have done the Military part of mobilization but this is the first time for the industrial side.
One of Eric’s physician clients told him that his role is to prevent the community from going into financial panic. So I guess the accountants have been mobilized too.
Local Firm With Some National Reach
Hjerpe & Tennison is a large local firm in Bloomington, Il – two partners and about 30 staff. They have a mix of small local businesses – physicians, dentist, restaurants and the like- and a niche practice of hundreds of independent insurance agents across the country. For many of their clients they provide a complete accounting solution including payroll.
With the total service package they provide it was easier to put the required information together for applications. In some ways there was a larger struggle dealing with the banks, which have taken different approaches and have not studied the rules as closely as Eric has as to what does or does not go into the costs and what documentation is required.
When I talked to him earlier this week his firm had put in 500 applications and had about 134 accepted for loans totaling $14,000,000.
Prospect Of Some Fees
The way Eric dove into this is not isolated. Accountants across the country were looking at it for their clients. Most accountants take a long view in their client relationships, sometimes to a ridiculous extent. There are consultants who teach accountants how to have more profitable practices. One of the lessons is that if somebody hasn’t paid you in two years, they are not actually a client.
Partners in small and not so small accounting firms have to be hounded and harassed by their managing partners to collect. Whenever my first managing partner, Herb Cohan, saw a senior packing his audit bag, he would ask him where he was going. The senior would name a client and Herb would almost always say “Bring back a check”.
In this crisis, there was probably in many firms a sense that work on PPP was going to go uncompensated, since clients were going to have trouble paying for their normal work. So the prospect of sharing in the rain of money that is going to the banks was good news.
The Fine Print
I excitedly called the firm I consult for with the glad tidings.
I have to admit I misread the regulation on agent fees. Here is what it says:
“Agent fees will be paid out of lender fees. The lender will pay the agent. Agents may not collect any fees from the applicant. The total amount that an agent may collect from the lender for assistance in preparing an application for a PPP loan (including referral to the lender) may not exceed: • One (1) percent for loans of not more than $350,000; • 0.50 percent for loans of more than $350,000 and less than $2 million; and • 0.25 percent for loans of at least $2 million” (Emphasis added)
I had missed that not to exceed line.
Go Pound Sand
Well the banks are in a position to tell the agents to pound sand and that is what they are doing in many circumstances paying a maximum fee of 0%. I really hope that Treasury will make them take less if there is no agent involved, but that is probably too much to hope for.
Accountants like Eric have a long term view about the health of their client base, so it is not going to stop them from doing the necessary work regardless. It doesn’t happen that often, but sometimes I am really proud to be a CPA. And I have a little more of Herb Cohan’s wisdom to direct at the bankers -”The world is longer than a day”.
I’m hoping the AICPA and the state societies will be letting the bankers know that as Desi used to say to Lucy they have “some splainin to do”.
Note
This is not just a CPA thing. Enrolled agents and other sorts of advisers are also in the fray.