Originally published on Forbes.com.
“Think fast. Make mistakes” is one of the few sayings from my days at Joseph B. Cohan & Associates that would not run afoul of the contributor deadlines. And that is the major lesson of the passage and implementation effort of the Paycheck Protection Plan, the portion of last week’s Coronavirus Aid, Relief, and Economic Security (CARES) Act most relevant to small and not so small businesses.
Don’t Worry About Assigning Blame
One of the most lamentable thing about the culture of JBC was that when something went wrong, the biggest priority was to argue about who was to blame to establish that it was not your fault, especially if it was. I found the most effective way to get off that and onto a solution was to blame somebody who was not there anymore. So I suggest that we should all agree that this perfect storm is the fault of Ronald Reagan and Lyndon Johnson. You can vary the proportions based on your ideology.
Background
PPP conceptually allows a business or not-for-profit to borrow 2.5 times average monthly payroll costs, pretty broadly defined. The money can be spent on “payroll costs”, rent, interest and utilities. The loan terms and requirements are very liberal and some, most or all of the loan may be forgivable.
The program will be implemented by banks following rules laid down by the Small Business Administration.
There are three sets of rules that are interrelated which causes some confusion. How much you can borrow is an interesting thing to ponder, but at that end of the day it is going to be up to your bank. It is a sweet deal, so get as much as they will give you.
What you can spend it on is also important, but if you keep it in a separate account and use it for things that a reasonable person would think were payroll costs, rent, interest and utilities you should not have to worry about the US Marshall showing up to take you away.
How much is forgivable is the real rub. You are working on a shorter clock and there is a cloud of uncertainty surrounding payroll costs. You don’t want to be spending money that you think is forgivable and have it turn out not to be. You want that nailed down before the eight week clock starts. The only people who might be less concerned about that are those who are certain their corporation or LLC will go under if they don’t get this lifeline. It is non-recourse, so there is that.
Banks Are Not Ready
As best I can tell here is what it is like at the banks.
Except it is all being done on the phone, because of, you know, social distancing. Where is George Bailey when we need him?
Somebody forwarded a message from a community bank, that sums the situation up pretty well.
“We plan to notify our customers when we are ready via e-mail (if you got this letter via e-mail) and website listing, FacebookFB, Instagram and other social media. So please watch for an e-mail on Monday (4/6) with more details on what we can do. In the meantime, please don’t simply call the bank, as the lenders do not have additional information yet, and we are being overwhelmed with telephone calls.”
U.S. Bank had promised to be ahead of the curve on PPP. I received this announcement from their media relations people.
“Our plan is to begin accepting applications on the afternoon of April 3, 2020. We will begin by contacting customers who have previously expressed interest in the Paycheck Protection Program. They will receive an email from U.S. Bank to request some initial data. That request will be followed by a request for supplemental documentation. “
My biggest concern is that the bank that gets to you the fastest, might not be the one with the best follow-through.
Big Mystery On Forgiveness
The most disturbing part of the SBA guidance, which is drawn from the legislation is the following exclusion from payroll costs:
“Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees”
Considering just the words, rather than the overall intent of the program, they seem to be saying that they will loan you the gross payroll, but you can only spend the money on net payroll and have to come up with the withholding someplace else.
I have to confess that when someone suggested this to me over the weekend, I was dismissive of it. There I go thinking fast.
There are some other odd things, like how partnerships are treated, which might mean there will be technical corrections to the bill. That would be nice, if it is quick. Nancy and Mitch may have to give some people some ponies to make it happen. Go for it.
I don’t think this concern should slow you down in applying, but it needs to be resolved before the eight-week clock starts. If you ask me why it is that way I will give you an answer after you explain to me how it was on Gilligan’s Island that they had so many clothes, given that it was only a three-hour cruise.
Get Some Help – It’s Free
The banks are getting paid pretty well by SBA for all this work that they have not yet figured how to do. A downward sliding scale from 5% on loans below $350,000 to 1% on loans over $2 million. If you mention an authorized representative who can be:
“An attorney; An accountant; A consultant; Someone who prepares an applicant’s application for financial assistance and is employed and compensated by the applicant; Someone who assists a lender with originating, disbursing, servicing, liquidating, or litigating SBA loans; A loan broker; or Any other individual or entity representing an applicant by conducting business with the SBA.”
they get a piece of that action on the same scale going from 1% to 0.25%. Unless you really, really love your bank, I am sure you can think of someone who helped you.
Who To Call?
SBA has a finding tool to locate an eligible bank near you. This could be a great opportunity to create a collection of on-hold music.
Here is what is as far as I can tell the latest application which will give you an idea of the requirements, but don’t expect a bank will process it.
PPP Not The Only Game In Town
I have spent this week focused on PPP. It is important to note that it is not the only thing out there meant to aid employee retention. Adam Markowitz has a nice piece discussing the interplay of the various programs. You might want to be reading that while you are on hold with your banker.