As we continue to navigate these unprecedented times, KCBS Radio is getting the answers to your questions about the coronavirus pandemic. Every morning at 9:20 a.m. Monday-Friday we're doing an "Ask An Expert" segment with a focus on a different aspect of this situation each day, sponsored by the San Francisco Police Department.
Today we’re focusing on small business loans with Stanley Jaskiewicz, Esq., an attorney who advises privately held family businesses on a wide range of matters, including the Payroll Protection Program.
Here we are with this program having been relaunched this morning.
And probably out of money already, from all that I’ve read.
Well, that's where I was gonna go with this. It's only about two hours ago that they re-opened the spigot. Anywhere near enough money, as far as you could tell?
From all that I've read - and I have no better knowledge than you do - but just reading general news stories there's just so much demand for these funds that I have no reason to think that any of the predictions that these will be exhausted will be incorrect. In other words, I think there's so many people, so many businesses - I read through some of the questions that your station sent me - I think there's so many people who really need money that I would be shocked if the funds weren’t gone.
And I think, going to debate - why do this? The government is trying to put cash in the economy to get people to spend it and start the whole cycle. There's an economic concept of the cycle of money. I buy from you, you buy from John, John buys from Mary and that just keeps business going. And so that's what that ultimately is with this whole program is about.
You work with smaller or family held businesses on legal matters. There's been an emerging awareness that a lot of these businesses function a lot like a lot of families do. They don't have great big reserves.
Or any reserves. That's correct. And I had actually written when this program was first announced, I had a letter published in the Wall Street Journal where I said, essentially that type of a concept. That it's nice to create these programs to do funding, but it seems to be a very Washington type of approach to say, “well, we'll run it through banks.” I think smaller businesses frequently are not all that different from an individual. They live from balance sheet to balance sheet. They know what they need to pay. They know what they have. And they look at their cash balance everyday. Cash is king in the world of small business, as well as individuals.
Okay, well, let's get to these questions, and we did have quite a few. I mean, there's obviously great concern and confusion around this issue.
And I will assure you that I suspect that there are many I won't be able to answer credibly. A lot of the rules were being made up as they go along. There's a government FAQ - frequently asked questions - on the whole program and there were multiple additions to it just over the weekend.
I appreciate that. And I should always make that clear we ask people to do the best they can, recognizing even in these times, the most expert experts don't know everything, is the way it's going.
And the people running the program.
It would appear. Alright, number one - I'm a sole proprietor and recently applied for a PPP loan. I've seen mixed information regarding what the loan will cover. The application from US Bank only asked for information regarding my staff payroll.
Yeah, the program is meant to put money into keeping employees on payroll. 75% of the loan has to go to payroll. The other 25% can go for rent and utilities and such. But it's primarily, as I mentioned to get people to work so you can pay them.
In fact, I’m fairly active in my local community, I live in a small town and one of the businesses that does training says me when I told him about the program, “there's nothing for me to do because of the concerns about crowds. No one wants to training.” And I said, “well, bring your people back and let them help you prepare for the future. Maintain your equipment.” The goal is to get paid cash into employees hands.
Next question is kind of a corollary here. Does it cover some portion of my income? I don't pay myself through the payroll system. Will it cover rent and or utilities? If so, how would I get this information to the bank as part of the loan request?
Well, I think since all this is running through a bank, you should be hopefully informed about that. There are several parts of the question. You can use it for things that you as a business owner would pay like rent and utilities, but only up to 25%. And there's also some caps. You know, if somebody's making 10 bazillion dollars, you can't cover their payroll costs. I believe it’s $100,000 that was the cap on salary you could cover.
But the answer is, it's 75% to payroll, 25% to other costs. Whether it's as owner costs, overhead costs, that’s all permitted.
I'm a one man company that gets a monthly commission check from a company I represent. Since the pandemic, my checks have been reduced significantly. Am I eligible for a $10,000 grant or loan I won't have to pay back?
That question points to the fact that there are a lot of different programs out there. The one that we began by speaking about, the payroll protection plan, was the forgivable loan. Where a business can borrow money and if you keep people on payroll for eight weeks, you get it back.
There was a not entirely separate program, the EIDL - economic injury disaster loan - which was not a forgivable loan, but a very low interest loan. And one of the attractive points about that program was that you could get a cash advance that you wouldn't have to pay back based on your employment. And so that was something again meant to get cash in people’s hands.
To get to your specific question - he said “one man” so I’ll say he - is an individual. I don't think that is a disqualifying factor.
My husband and I own a small general store in La Porte, California - that's a lovely place in Plumas County. We have no employees and do not pay ourselves a salary. I applied through the SBA for the EIDL loan on April 3rd, again on the 9th. The only email I've gotten from the SBA states, if approved, funds will be dispersed based on the number of employees at a rate of 1000 for each. We have no employees. What are we supposed to do? We are a real mom and pop store.
And I love mom and pop stores. My son happens to have autism, and I used to love to take him to these types of stores as a way of helping him learn how to engage in the community. The answer to their question is, number one, the fact that you haven't heard doesn't mean that you're not going to get a loan. Speak to the bank about reapplying again today, if it's not too late. I know there were a couple of nonprofits that I've been involved with who applied initially and thought they had been shut out, and then several days after the initial application, they found out that they have been improved. In this questioners case, it's been a little bit of a bit of a bit of a while, so I'm not sure I would hold out a lot of hope there.
And as far as the point about no employees. Well if nothing else, there's the husband and wife. And I will be honest, I don't know the rules on this point, whether they would be counted as one or to. But to go back to the philosophy, get cash in people's hands - I don't think that they would be disqualified.
I heard that the CARES Act has suspended RMDs for the year, is that true?
This would be like taking money - required minimum distributions - from a retirement plan.
Yeah, I'm not a benefits attorney. I've seen that in stories, and I believe that's correct.
Heard starting today, small business owners can apply for unemployment benefits. Is that true? And if so, where do you start?
I don't practice with unemployment, but I know that was an expanded - and in fact this is something that's more than a professional interest. My wife was laid off from her job and has applied for unemployment benefits.
The federal programs expanded funding for state unemployment programs, and I quickly looked online and saw that California is one of those states. And so I think the answer is to join, unfortunately, the millions of Americans who visited the unemployment office for the first time in their lives. Apply.
I have 11 employees, applied for the PPP program, did not get funding the first time. I've had to have at least half my employees apply for unemployment. If I get the funding this round, how does the forgivable part of the loan work if some of the employees are not off of unemployment by the date set by the program?
This goes to the “making it up as we go along” portion of my answer. I've seen some commentary that said it was hard to get people to come back if they're going to make more on unemployment than they would if I bring them back.
What I would recommend to this employer is to encourage the employees to come back. But if they are in that category, where they make more on unemployment than working, I'd be hard pressed to say to their employees, drop your unemployment to come back to work, especially because this could last a very long time.
You know, when the programs first started, I spoke to several clients or others that I know who said, “we're okay for now, we have plenty of cash.” And I said, “but you have to think, will those situations be the same in five weeks, six weeks, two months?” Who knows? So for those employees collecting unemployment I know I wouldn't urge them to go off unemployment because that's what they need to live. Obviously, that creates a problem in getting the forgivable part of the PPP loan. And that becomes the financial choice, do I up my compensation? And again I suspect this is not a unique problem, and this may be addressed by the government as we go forward.
I worked just one day a week and have been unable to work for six weeks due to the shelter in place orders. Do I qualify for some kind of relief? And if so, how do I get it?
Yeah, that's a huge problem if you're telling businesses “hire your people,” but the people don't qualify as essential. I’m not essential, you know, how do I bring them back to work? And ideally, you should have them work remotely. That's what I've been doing.
I think I would err on getting cash in people's hands.
I own a small catering company, have received the $10,000 SBA disaster loan. Does this come with guidelines and restrictions for usage?
I'll be honest, I'm not sure, beyond the types of things I said. I would suspect you can't use it for vacation (laughs) not that that’s something we do these day.
I would use it for business related expenses. I would check the SBA website.
If my business is deemed essential, but I've still seen a large drop in business. Am I still a candidate for funding under the PPP?
For sole proprietorships, is the owners net income for the eight weeks after loan origination date also forgivable? That is, are items that were included in the calculation of payroll cost to determine loan amount, the same items used for the payroll in the forgivable amount.
I believe that's correct again, again that's one of the details that I think that the lending bank would be a good source on.
I keep hearing advice to go to a smaller bank, but then I have to start a whole new relationship. Is that a good idea right now, or should I just persevere with my original bank?
There are a couple of aspects to that question. First, since this has been moving so quickly, banks were oversubscribed. And they've admitted they give preference to existing customers because they had their information already and they were able to process the application much more quickly.
The twist that really applies today: the bill that President Trump signed on Friday to expand the funding included $60 billion set aside for minority and community borrowers to try to specifically address the perception that the little guy didn't have a chance the first time around. If someone were to search online for community based lenders, minority lenders, if your business qualifies you as such a borrower, you that you may have a better shot at the funds that became available a couple of hours ago.
I'm a one man band, but I am a corporation. Last year took a salary of only $25,000 but had retained earnings of $135,000. Does that make me eligible for only $5,000 based on my personal pay, or more based on my total earnings?
I don’t know the answer to that one. Again ask your bank and particularly your accountant.
I've seen that accountants are really the key in implementing all this because the application, while it's not a complex one, is very much a financial document. In fact, I’ve seen some commentary that accountants should consider waiving their fees or reducing their fees because the only way for anyone to get into this source of funding was through a very accounting-driven application. And it would be a shame if a huge chunk of the funding went to the accounts. In fact, there were fees to the lenders and there's been a lot of pushback that this shouldn't be a feast for the Chase Manhattans JP Morgan's to take fees on these loans.
Okay, well, that runs down the list of questions we had. Anything you want to offer in closing here to small businesses or the people who work for them or on them?
First, thank you. You are a much bigger part of the economy.
Hang in there, you know, pay attention. Read the newspaper, read what's coming out of Washington because as I said, a lot of this is developing on the fly. And I think the situation is so bad, it's not inconceivable - as strange as that may seem after trillions of dollars of funding - that we will be going through this a couple more times.