Life is Life!

#039: COVID-19 SBA Paycheck Protection Program Explained

April 09, 2020 Felipe Arevalo, Chase Peckham, Katie Utterback, Larry Campbell Season 2 Episode 13
Life is Life!
#039: COVID-19 SBA Paycheck Protection Program Explained
Show Notes Transcript

In a matter of weeks, the coronavirus oftentimes referred to as COVID-19, has dramatically changed life as we know it around the world. Large hotel chains and restaurants have laid off or furloughed hundreds of thousands of employees. For many small business owners, adjusting to "stay-at-home" mandates has dramatically hurt business and some fear they may never recover.

There is good news however. The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion in forgivable loans to help small businesses stay afloat during the COVID-19 crisis.

Larry Campbell, a CPA at the San Diego-based Lavine, Lofgren, Morris & Engelberg, LLP, joins the Talk Wealth To Me crew for an explanation on what exactly the PPP program is, who benefits from it, the conditions on the loans, and more.

WHO QUALIFIES?

  • Small businesses with 500 or fewer employees can apply for loans through the Paycheck Protection Program (PPP).
  • Small businesses in the hotel and food-service industries, including franchises, may qualify even if they have more than 500 employees.
  • One loan is granted per business. A taxpayer identification number is required.


HOW MUCH CAN I GET FROM THE PPP?

  • The maximum loan amount is $10 million under the PPP.
  • The amount of money a small business will be eligible for is dependent on how long they remained operable between February 15 – June 30, 2020, and how much they spend on payroll.
  • The maximum loan amount will be 250% of the average monthly payroll costs during that period.
  • Businesses that were not open or out of business after February 15 will receive a maximum loan amount 2.5 times their average monthly payroll expenses for both January and February.


WHAT ELSE SHOULD I KNOW ABOUT THE PPP?

  • All loans have a 1% fixed interest rate

 
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Intro:   0:09
Welcome to Talk wealth to Me, a safe space podcast where we chat about anything and everything related to personal finance.  

Felipe Arevalo:   0:19
The information contained in this podcast is for educational and entertainment purposes only. It does not constitute as accounting, legal, tax or other professional advice.  

Chase Peckham:   0:31
Hello and welcome to another edition of Talk Wealth To Me. I think we would all agree that small business is the backbone of the American economy. And quite frankly, it has been hit very, very hard by the Coronavirus pandemic, as we all have in this. What we, I guess, would consider our new normal. But today we have Larry Campbell, managing partner, and CPA at Levine, Lofgren, Morris and Engelberg, a CPA firm here in San Diego, California. And he goes over and discusses all of the different entities, including the federal government, state government ah, and different associations that are working diligently to discuss the Coronavirus. Small business stimulus.  

Chase Peckham:   1:22
Small business is the backbone of our country, and I think we all can agree on that. And in small businesses being affected the most here. If, as a whole, I don't want to generalize, can you gonna give us an idea in layman's terms of the impact that is having on your clients that you can speak to?

Larry Campbell:   1:45
Sure. I mean, it's pretty devastating. Unfortunately, I mean, you know, I think just like any any small business. Um, most of the time, they're running pretty lean. They don't have a ton of reserves, so to speak, So they're relying significantly on getting the consistent cashflow right, Every time you cut off that cash flow, that puts a significant financial strain on their situation. Um, and that's kind of where we're at. Um, you know, right now is people a day for a month, a month. They're expecting that revenue. Employees used to pay their rent, pay their health insurance and take care of all that. And, you know, most industries that revenue stream has been cut off. Um, you know, there are some. They're still kind of, uh, continue to go on. Or maybe they've got revenue streams that have lagged, you know, may be your last month's being paid this month and so forth. But I think you're gonna see a lot worse going on the next month of this thing, doesn't we don't start coming out of this. Um, if that's really what it's going to hit, you know, after that, kind of like kicks in. Um, obviously, in a big big clientele that I worked with his of hospitality and they were hit right away, right? Because I was just a complete shut off, right? The all of a sudden from 100% to 0, and ah, again, even more so on the same point of margins are really thin. So, uh, you know, having to cut back right away was a requirement for them to stay, stay open, or at least stay even existence through this thing.

Chase Peckham:   3:15
So what as far as hospitality? And let's speak of restaurants? Because we're seeing restaurants that can are preparing for takeout and those kinds of things. Can that can any, Even when they're doing that, Can restaurants sustain it just by doing the take out?

Larry Campbell:   3:32
I don't think so. Not long term. I think the idea short term is they can, uh, pay the bills, pay the big, um, the ones that maybe keep the vision of the restaurant going forward. Maybe it's a chef or a war of managers of the employees there just is important. But, you know, when you come back out of this, you're probably gonna = have different employees that were working when we started. But, you know, having that chef be there and making sure that that person sticks around and doesn't go to another place, that would be more difficult. And so I think that's what these are kind of doing that There's two things I'm saying. One is, you know, the essential employees for a restaurant. Uh, just keep them employed to, um they're staying open to feed their actually employees that they've laid off for furloughed. I would say the majority of my restaurants are feeding their employees that they laid off on a daily basis. Um, so they're staying open for that as well. And yes, that once again, it gets us through the next days and weeks and months. Um, but they need to open for this To to, they won't exist. If we go in on another month of this, most of them will shut down and we'll see if they ever open back up. Uh, in the standpoint of, yes, they will open back up, probably under a different name or a different situation. Um, but I think you know, it's important to get him back up and running and getting that revenue streaming, homing, hiring those people. And that's kind of what this stimulus act is kind of trying to do.

Katie Utterback:   4:59
Let's just start right there, Larry, if you wouldn't mind. Just for those of us whose maybe have heard that there is this paycheck protection program, can you kind of help explain what that is?

Larry Campbell:   5:11
Sure, sure. Um, really. I think for me, it's the first step. And you know the shortest, quickest way of getting people money to get through the next month or two. Right? Um, you know, I think the plan is obviously get It seems to be with the the program to get us through June 30th or get people up and hiring people back up by June 30th. Seems to be their plan. So what? What it is is it's a, um It's a loan program. Through the SBA, a small business administration. Been around forever on, and typically with the S B A. You had to have an order qualify for loans, you would've had to have had the ability to pay it back, be profitable. There's help more to help you grow more than to keep you afloat. Right? And so the government kind of used that program and said, Here's a loan that can keep you afloat and keep you going whether you can pay it back or not. We're not worried about that today. We need to get money in your hands right now. Right? So it's the same process applying for a loan. Um, and the loan is based on the payroll that you had, uh, in a simple terms through the calendar of 19. Right. So we'll take your your average payroll costs for the year of 19 to take a monthly. So divide that by 12 and then you times it by 2.5, and that gets you what your loan amount could be, Um, that you could, uh, that's the max. You could, um, get from the SBA through this PPP program. Uh, real benefit of this program, right? Yes. Great. You get the money now what if I don't open up, but I don't get money how I pay it back. Right. So the biggest part of this PPP program that's beneficial is, if you spend it on payroll costs and rent, and utilities alone could be forgiven. In a sense, you don't have to pay it back. And that's the big key of here and why it's so important for especially hospitality and other people who are struggling. Industries that were reliant on this revenue, Um, is that, you know, it gets in that head, start hiring people back, getting up and running, and it gets them through this kind of, you know, run up till we get to full speed as an economy back again.

Katie Utterback:   7:17
Well, you can we talk about that part to my understanding, Larry, is that the SBA. That originally when this PPP program was being rolled out, that the hospitality industry was not part of this program, but that my understanding is that a decision was made later to include them because of the incredible ex harsh impact that they had to absorb from all of this. Are you seeing a lot of hospitality businesses take advantage of this program? Or, um, are you seeing our small business owners concerned that they won't be around to pay this back?

Larry Campbell:   7:57
I think everyone's taking advantage of it. I have not work. I have not seen anyone worried about not being able to pay it back. Um, I think what what the program did for hospitality, including restaurants, hotels, anything of that nature. What they did is it did and a special usually with the program um created is, if you had more than 500 employees, then you wouldn't qualify for the forgivable piece, right? And so if you have a restaurant that maybe has 10 restaurant group has 10 or 12 restaurants, and maybe in cumulative, they were over 500. Or if you're a hotel, you could easily be over 500 if you have a couple of hotels, right? All right. Normally you wouldn't qualify under the normal rules of SBA. Because you would aggregate all those together, you would be over. They carved out and said for hospitality, specifically that they would look at each restaurant individually for that 500, 500 employees determination. So most of them then typically don't have 500 employees for a restaurant or a hotel unless you're some behemoth, which I doubt, um so then most of them now qualify. So that was the big carve out of this program that they specifically gave to hospitality. Um,

Katie Utterback:   9:15
okay, You share some of the terms of the program and the interest rates Are these reasonable terms and interest rates?

Larry Campbell:   9:24
Um, extremely. I think the program, it can be extremely helpful. Um uh, currently, right now so that the idea of the program is if you, uh if the portion of the proceeds doesn't qualify to be forgiven, that automatically converts to a normal S B A loan, Um, that is the current, it  keeps changing, but as of today, the current program is it's a two year loan at 1% interest, so obviously very low interest. Uh, and then you get the 1st 6 months of payments deferred so you wouldn't need to make any payments for another six months. Um, after that piece. So you're looking at not having to make a payment until probably 2021. Right would be the way this program is setup.  

Felipe Arevalo:   10:07
All right, that's great. I've heard also that I've seen online it there must be because it's such a great opportunity, A backlog and applications or is it something where people are getting through their banks and getting them processed relatively quickly.

Larry Campbell:   10:26
Yeah, my experience unfortunately has not been that great. I would agree with, uh, what's been posted online. Um, that probably inconsistent of Some people got in depending on the bank. It's really been really been bank centric. Um, B of A was first open on. So they got applications quick and process them quick. Some other banks are a little more conservative, and they're taking longer to review the applications. Um, so maybe a longer period of time. And so, uh, that's being a delayed. Um, I have yet to hear anyone actually get a loan funded yet, but that doesn't that. I mean, it hasn't happened. I just haven't seen I haven't heard of anyone locally that's actually received the funds yet. Um, so, yeah, there's gonna be a delay. The other issue I've seen is a lot of the larger banks, especially They kind of focused on people who had current debt with them and gave them the opportunities first. And so let's say you have a small business owner doesn't have a loan because they can't afford to have alone or they don't couldn't wouldn't qualify. Now, all of a sudden, they're not even qualifying for this either. So I definitely think there's some changes that need to be making. Maybe that's the the second round of stimulus they're talking about. Um, you know, his first round kind of gets bigger, Uh, maybe some big pieces. And then maybe the second round will give some of the smaller businesses a better opportunity.

Katie Utterback:   11:49
Well, and I want to ask you to about that. The second round of possibly another round of a stimulus package for small businesses. Do you think that a second round is enough? And, um, I was reading a report this afternoon, and it said that about one-quarter of our economy just completely disappeared. So far, I'm wondering what kind of ripple effect do you see on small businesses as suppliers and vendors are maybe no longer in business are available?

Larry Campbell:   12:20
Yeah. I mean, um, I think there's gonna be some type of at least I wouldn't know if I call around two stimulus, or at least maybe in addition to what they're adding in clarification of who qualifies. Um, I definitely think there needs to be something figured out, you know? Have Ah, I was just talking to a dentist client today. He's, you know, one person shop has five employees, doesn't have any bank loans, and he can't get the bank to even talk to him. And, you know, he's trying and he doesn't have any patients, right? I mean, his clientele are older people. That's what he specializes in. So no one can come in at this point so he's making nothing, Um, and doesn't have the option to really get that ppp loan as of today. Maybe tomorrow, maybe next week, maybe the week after. Um, So I think, though that is a good example, where I think the next level could be limited down. Say, you know, under 10 employees or something a little smaller or or get rid of the limit of having, you know, force the banks to give up some of these restrictions, you know, because they're worried that they're gonna be stuck. But the government's gonna they're gonna do is loans. And the government's gonna kind of give leave them holding the bag. So they're being a little little conservative. I think right now it may be it may be a year or two before back 100% to what we were at, you know, before this started because I agree with you, everything is gonna be lagged production. Everything's going to start back up again. And so everything is gonna take longer no matter what industry you're in. Um, you know, some will come back quicker than others, but yeah, I mean, this is gonna blag on for least the rest of the year. In my opinion, as far as before, we kind of start pulling ourselves strongly out of this. But we've got to get back running as soon as possible. The longer it is, the it, the worse it is. And, um, no, that's an easy thing to to go through right now, and this should make that decision. But we just have to at least start giving that that process moving sooner than later.

Chase Peckham:   14:14
And do you see the hospitality industry as they were probably hurt the quickest. Do you see them, bouncing back faster as well just because of the cash flow and how fast that consumers can get to the restaurant business? Or are they worried about how soon people will be willing to leave their houses and do businesses or live life is normal?

Larry Campbell:   14:40
Yeah, I think it's a combination. So I think it's a little bit of I think there'll be a big chunk of swinging back. People were gonna go Sooners have a chance. I'm gonna go out, right? They've been stuck in their houses. Um, and so they're gonna want to get out. There's two issues with that one. Um, you know, most those people they laid off are still probably gonna be on unemployment for the rest of the year. And so are they gonna be ableto have people to hire back? Because, you know, I think the mentality of some of those people think, Well, I could make the same and be not working and still collect unemployment. So, um, I think there's gonna be a little bit of that. So finding the talent is going to be difficult. Short term, you know that probably the next quarter or so after they opened back up. Um, you know, and then then there's gonna be the lack of getting the product or getting whatever they need, just like we talked about before. So I think the demand will be there, but I'm not sure. Be that they're gonna be able to service everyone right away. And so it will take some time for that to work as well.

Chase Peckham:   15:40
So bottom line, when once these businesses start getting funded, is it? Then what do I do with the money Until people get out of their houses?  

Larry Campbell:   15:52
Yeah, that's it.  That's been part of the conversation for sure of these PPP programs, because in the way it's set up is they've got to get kind of back up and running by June 30th is the way the program works. So they've gotta have hired back 75% of their, uh, you know, staff base in order to qualify for this loan to be forgiven. So they're they're definitely making that balance. And how are we gonna get there? And you know, some people are even thinking about delaying when they get the money. Um, so they have a little bit longer to decide on when to  to bait us out,

Chase Peckham:   16:25
and they could do that. They can document it and say we didn't start this process till this date, giving them that ample timeto get flush again, so to speak.

Larry Campbell:   16:35
It gives him a little extra time. I think the majority of them, though, are need the money now and whether it's forgiven or not, a 1% loan for two years is still a great deal. And that keeps things going. So I think that forgiveness part is a bonus, Um, and something they would like to do. But most of them, you know, they need it to even just keep the doors open over the next, uh, you know, next couple months or six months.

Chase Peckham:   17:00
And this is an actual loan, right? So, yeah, wasn't there also tax incentives that were once discussed and did not actually go through?

Larry Campbell:   17:09
Idea of the loan program is that's to get you the money in the pocket right now. Right? Um, the next step of the of the statements act, that is, they did make some tax law changes to help put money in your pocket. Maybe later. Numbness to say right away. Um, maybe right away. But it's gonna take longer for that to happen in my you know, um, they retroactively changed, uh, some appreciation rules to allow you to have, um, quicker write-offs, especially on leasehold improvements. Uh, you can have it back to 2018. So you can write off more of, um, more of the improvements that had made to your rental space. Ah, you could write those off it, starting in 18 so you could go back and amend your returns. Take that deduction. Um, which will create a maybe a potential loss, or maybe reduce your income in that year and get you a refund. Um, the biggest change they The other tax change that they added, is they used to be with the new tax act of  2018. They put a limit on your net losses from a business at $500,000. So if you were married, so if you lost a $1,000,000 from your business, you could only deduct $500,000 in a given year. Um, and the rest carried forward. Um, the new tax law change got rid of that provision completely. So now you could have losses up to millions of dollars. Uh, and those losses would be allowed, and once again, would free up, um, offset your income would free up, uh, some refunds to be be taken. Um, the other thing. They added, on top of that is, they allowed you to carry that loss. Now that we've created a lot, let's say in a year you lost money. You created what we call it a net operating loss, that net operating loss before used to only carry forward, and you could take 80% of it in a given year going forward. They now allow you to carry back five years now so you could carry back back to 2013 or 14 when maybe you had income and offset that income at year and again, request a refund and get some of that cash in your pocket as well.

Chase Peckham:   19:18
So that could really help. But that's not gonna help right away that there's gonna be a delayed satisfaction to that.

Larry Campbell:   19:24
Yeah, yeah. I mean, right now, they haven't even written software to make these changes, right? So I'm a tax preparer and I don't even have the ability even file these amended returns and get the money back. That'll hopefully by the end of this month will be ready to go, and we'll be able to have that, Um, but then it might take anywhere between 3 to 6 months to amend and get that money so again, as I said before, it's it's it's maybe the the next step of getting money in people's pockets. I'm after this. The loan program, Um, you know. But you know, obviously I think that that I don't think that helps small business as much. It's probably more helps, maybe a small to medium-sized businesses, and hopefully that gives him cash a little higher. Their employees back would be the idea there, um, or least get through this next step and continue to keep their employees. Um, during this gives him a little extra cash flow and then some support. Um, you know, I'm not sure there's many clients that make a couple 100 grand a year that would be generating losses from this and help them out that much. You know, it's probably more of, ah, real estate driven. Um, uh, someone who's more on real estate would be generating these large losses. Or maybe, you know, I do have a hospitality client that maybe has, you know, they open to new restaurants, and maybe they've got a couple $1,000,000 off these improvements that they have generated, that they're not gonna be able to write off in one year and maybe carry those back when they were profitable.

Chase Peckham:   20:48
Businesses that let's say you're paying rents in office parks, those kinds of things. What about the people that are owning that own that real estate? Are they given those companies a little bit of a break? Um, and I know you can't talk about all of them, but have you personally seen, for instance, a couple of your restaurant clients or other clients who have got these specific prints? Are those landlords giving them a break?

Larry Campbell:   21:16
Um, I think it's it's yes. Yes and no, uh, depends on the landlord. Depends on the course. Yeah, so I think, you know, I think the idea is is people are having those discussions. Right? Um, a lot of these clients again, I remember that landlords have invested a lot of money and a pretty assisting them to make these improvements to the building. So the landlord just isn't invested in making sure that this least works as well. So a lot of them are, you know, being helpful at least having that conversation. Um, what I've seen, at least locally, um, is, you know, the ability to maybe just defer. Not necessarily, um, you know, say that they don't have to pay rent, but maybe. All right, pay half now and then we'll pay the other half over the next six months. Right? So you kind of deferring it Unnecessary for giving it, Um, I'm seeing a lot more of that type of things, allowing you just re negotiate or delay making payments. Um, and I think that will continue. It seems like in the beginning, landlords were really like no, you know, figure it out. And then I think that this thing has continued. They're being a little more open-minded about it and realizing they can't afford to be that rigid. So I think they're being smart and at least have a discussion.

Chase Peckham:   22:33
Well, I would imagine, since there isn't anybody else that's gonna be taking that space since everyone is in that same boat.

Larry Campbell:   22:41
Exactly. Yeah. I mean, half is better than none, right? At least right now, um, you know, But, you know, they are business owners, and they're gonna make decisions we think is best for their property. Um, and, uh, and each one is gonna be in a different situation to be able to to either allow for that delay or or or be stronger and say, You know what? I I can hold this. I can hold off not having any rents and get a better tenant But, um, restaurant, specifically, I think that's a difficult situation. Um, and I think I think I'll be a lot more flexible in a restaurant side and then a normal business under because of the high intensity its hard to flip over a restaurant to be a new concept. The cost of money to do that would be significant for anyone

Chase Peckham:   23:29
as far as hotels and those kinds of things. I mean, when we're talking locally here in San Diego, which relies so heavily on tourism, is there anything that local government or or I guess chamber of commerce like that can do to help kind of bridge that gap until people are, you know, flying to our sunny coast again.  

Larry Campbell:   23:53
I mean, yeah, there's a lot of things they're looking into. I know San Diego City of San Diego has as a loan program that they've got available. I don't know the specific details of it. Um, you've got to be registered in the city. So there's person programs out there. Um, I know the CRA kept California Restaurant Association and a lot of the hotel. That's where you're getting a lot of the assistance, Um, you outside of the government to these associations that helped them globally, you know, whether it's lobbying for them in Congress or, um, you know, helping locally with the government's to to open up more opportunities to mentally stay afloat.

Chase Peckham:   24:32
Larry, thank you so much for joining us today.

Larry Campbell:   24:35
My pleasure. Glad I could help out, and, uh, hopefully, people, you know, have a chance to learn from it and obviously share the share the knowledge, then we'll be better off the end of it.  

Chase Peckham:   24:45
We'll have you come on again when this changes in the next 15 and 20 days.  

Larry Campbell:   24:51
Sounds good to me.  

Chase Peckham:   24:52
Thanks again, Larry. All right. Thank you.