Whether you like or loathe April Fools’ jokes,  given the seriousness of the health crisis gripping the world we think you’ll agree with us that today just isn’t the time for a good joke.

Instead, we’re posting  this Agitator Guide titled, The Skinny on What You Need to Get a Small Business (under 500 employees), Forgivable Loan. The post is directed to US nonprofits and for-profit entities serving our sector.

For those who saw this Guide in an email from us or on LinkedIn yesterday, please read through the “How To Apply Section” as it contains an important update as of 5pm Tuesday.   

Background

The Payroll Protection Act, which is part of the larger CARES Act is what we’ll be summarizing and surmising.

For reasons that are unimportant to this summary, Kevin has combed the 800+ pages  of this bill counting earlier drafts and final legislation at least 30 times and is an unintended and undesired “expert” on it.  This isn’t a brag or as his twenty something offspring would say, a “weird flex” (Google it), just an artifact of the crazy times we live in-

If you have specific questions for your charity that this doesn’t answer (and it won’t answer everything and everything isn’t even answerable as we write this) you can reach us at the emails below.

We hope this guide is helpful.  Equally, we hope you’ll share your experiences in seeking aid with us.

Roger Craver ( Roger@TheAgitator.net)

Kevin Schulman ( kschulman@thedonorvoice.com )

A Caveat

Reader beware.  This is our guidance that comes either directly from the law and our read of it or, in some cases, what we’re hearing and seeing.  The legislation is massive, there are some inconsistencies and oddities of language that will get cleared up over time.   You should be double checking with your lawyers, accountants and bankers every step of the way.

How to Apply for the Money

As of 5pm Tuesday, the Treasury Department posted an application that you will need to fill out that you can find here.   Bear in mind, this form requires two macro numbers – Average Monthly Payroll and Number of Jobs.  You can get necessary details on what these numbers represent, how to calculate them and the documentation we suggest you start compiling (and will need to arrive at your two macro numbers) within this post.

The form itself has a bit of “instruction” that is either completely unhelpful or misrepresentative of what you need to do per the law.  Leave it to the government…

Speaking of which, the Treasury also says these loans will be available starting April 3rd.  Recognize, this form is a starting point and you’ll need to do the underlying work to provide the two macro numbers and you’ll almost certainly need to supply lots of detail to the banks to substantiate those two macro numbers.  All that said, get the form filled out ASAP.

This form should be submitted to a commercial lender already setup to make SBA 7(a) loans, which are the traditional loans made by the SBA.  Having commercial lenders as the frontline financiers on this is a plus because it greatly mitigates the otherwise massive bottleneck of having to go directly through the SBA.  Just Google SBA lender or better yet, check to see if a bank where you have an existing relationship is already an SBA lender, chances are good they are.

We’ve heard that banks will prioritize their own customers so more reason to start with the ones that you know and that know you.  The SBA officially has 15 days to issue what is called “guidance”.  This is mostly code for a form, process and instructions to the commercial lenders.  These banks won’t piss with their pants on fire without a form and if you call them – we have – they will all tell you they can’t do anything until they get this guidance.   There is some very, very “light” guidance for the lenders on the same page we got the application.  One can imagine more guidance is necessary and if they are truly going to start processing loans on Friday that would seem to be the deadline.

There will be high demand for these loans.  Early bird gets the worm and all that.  

Key Points of this Loan/Grant Effort

• There are zero fees to your organization or business to get the loan
• No personal guarantees
• No collateral
• Portions of the “loan” money can be forgiven – i.e. it is a grant, not a loan at all.
• Any portion of the loan amount that stays as loan dollars has a maximum interest rate of 4% (your lender could lower this and it is worth negotiating a bit)
• There is a deferment of loan payments and interest for a minimum of 6 months and a max of 12 months

Determining Your Loan Amount:

• Less of – $10 million OR 2.5 times the average, monthly “Payroll Costs” for the 12 months prior to your loan date.
• Importantly, Payroll Cost has taken on a broad definition and includes the following:
  • W2 wages
  • 1099 compensation
  • Group health care benefits (i.e. monthly premiums paid by employer)
  • Retirement benefits
• What doesn’t count in Payroll cost:
  • Compensation in excess of 100k. This means any employee (or 1099) comp that exceeds 100k gets capped at $8,333 for each monthly tally.

Forgiveness

This is about converting your loan to a grant.  You have eight weeks (from the date of the loan) to spend the money and have it considered for forgiveness.

[Technically, we’ve seen language from the Senate subcommittee that suggests borrowers can pick any eight-week period between Feb 15, 2020 and June 30, 2020 to use to get loan dollars forgiven.  Some organizations/businesses may want or need to apply loans retroactively but likely most will use the eight weeks that start with loan funding date.]

Every dollar you spend during this eight-week period will be forgiven as long as it is a qualifying expense and you maintain certain FTE (and salary) requirements.

Qualifying Expenses

• Payroll Costs (as defined above) plus;
• Rent and utilities
• Mortgage interest and other interest on debt (if the debt existed before February 15, 2020)

Your FTE and Salary Requirement

FTE:  You need to calculate a ratio.

Numerator:  Your average number of FTEs per month for the eight week period you are spending the loan dollars

Denominator:  Your choice based on whichever yields a smaller number

• Average number of FTEs per month between February 15, 209 – June 30, 2019
• Average number of FTEs per month for January and February 2020

As long as your ratio is 1 (or higher, though you don’t benefit from it) then every dollar you spend on qualifying expenses is forgiven.   If your ratio is less than one than you only get your dollars times the ratio forgiven.  For example, if your ratio is 1/3, you only get $.33 of every dollar forgiven.

There is a similar reduction in your forgiveness if you reduce salary for any employee during the eight week period that is more than 25% of what they were earning total salary or wages of any employee during the covered period you selected for your denominator.

Rehire Caveat:  The FTE (and salary) pre/post loan described above applies to any nonprofit or business.  If you’ve already laid off folks and decide to now rehire them, the rehiring organization only has to show that by June 30, 2020, your FTE count matches your pre-loan FTE count but it doesn’t need to be a running average, you can hire those people theoretically on June 30 to get your numerator count up and it will qualify.

Next Steps

This is The Agitator list. No official list yet exists.   This is definitely a good start but add to it or delete as you see fit.

Loan Amount

• Excel of Monthly expenses for April 1, 2019 through April 1, 2020. Make the columns the months and the rows the expense items.  More rows is probably better.
  • W2 wages
  • 1099 wages
  • Paid time off for each employee
  • Health insurance premiums
  • 401k company expense
• Supporting documentation
• Do the flipping math for them by tallying each month, computing the average across the 12 months and multiplying by 2.5.  (Note: These are the two numbers that go into the application – average monthly and that numbers times 2.5).

FTE Count:

• Your average, FTE count from Feb 15, 2019 through June 30, 2019 or Jan/Feb 2020 (this is your denominator)
• You may have until the day/date that you are asking for forgiveness to calculate the numerator. However, it is possible, maybe even likely that the banks will be asking you to estimate your numerator because the legislation provides them opportunity to submit paperwork to the SBA that shows the anticipated (not actual) loan forgiveness amount and request to get paid for that amount ahead of time.
• Note: It is unclear what number should go in the “Number of Jobs” field on the application.  Again, leave it to the Government.   Your aim/need is a 1 to 1 ratio so, in theory, the numerator and denominator are the same.  If they aren’t the same, pick one.  You can explain what you put there and why when you get in front of (virtually or otherwise) the bank.  Just get the ball rolling. 

AND REMEMBER…..the early bird gets the worm.

Roger and Kevin