Host Jeana Goosmann and Goosmann Law Firm Omaha Attorney Patrick McNamara talk about loan strategies for businesses through the Paycheck Protection Program (PPP) & SBA Disaster Loan during COVID-19. Jeana and Patrick clarify those questions you’ve been having surrounding these loans, your options, maintaining forgiveness eligibility, and future tax credits. During this episode you will learn:
Goosmann Law Firm: 0:01
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Jeana Goosmann: 0:30
Hello, I'm your host Jeana Goosmann, CEO, lawyer, author and business owner. I'm here to help navigate you through your life as a leader, business owner, and the law. And with me today, we are practicing some social distancing, I have attorney Patrick McNamara an Omaha lawyer on team Goosmann Law with me to talk about what's going on with regards to COVID-19 and the law and in specific for small businesses and what they can get with this PPP paycheck protection program and other loans and opportunities for them. Welcome, Patrick. Happy to have you on today's podcast.
Patrick McNamara: 1:09
Hi, Jeana. Thank you for having me today.
Jeana Goosmann: 1:11
Absolutely. And Patrick, you're part of the Goosmann Rapid Response Team. Let's tell everybody what that's all about.
Patrick McNamara: 1:18
Yeah, I appreciate it. So that was kind of something early on that we noticed that there was a lot of uncertainty as far as businesses go with compliance with the new rapidly changing legislation as well as the agreements and contracts that these businesses are in just in the normal, ordinary course of business. These businesses had a lot of questions with regard to what the change in legislation meant for them and what their obligations under their contracts required of them. So it was something that allowed us to rapidly respond to inquiries that businesses were having. We started to notice that a lot of people had the same kind of questions. So we've really been meeting to put our heads together about how to deal with common issues, what type of advice comes up, and then also what we can do for individual businesses with their own unique issues.
Jeana Goosmann: 2:10
Absolutely. So when the government's passing new laws, like the Cares Act and it's a 1200 page law, we kind of divide and conquer, don't we?
Patrick McNamara: 2:19
Yeah, that's right. And we rely on, reliable sources out there and experts and help delve through their opinions and their analysis as well as diving into the laws and legislation themselves to be really as efficient as possible and to give the best answers that we can with the time crunch we're under.
Jeana Goosmann: 2:41
Exactly. And, and by now a lot of small businesses which really aren't that small, I think it's important for us to clarify what is the definition of small business right now?
Patrick McNamara: 2:51
Well, so it depends. I mean, you could define it in any number of ways, but based on the legislation, there are certain obligations and requirements and benefits under the laws depending on if a business is smaller or larger than 50 employees or 500 employees. So it's very, the term is broad. It's more that rather than defining it as small businesses, we should just look at businesses as defined by their number of employees.
Jeana Goosmann: 3:21
You bet. So right now, one of the hot laws everybody's talking about is the PPP, your Paycheck Protection Program. And that one in particular defines them as 500 or less employees, right, Patrick?
Patrick McNamara: 3:32
That's right. Yes.
Jeana Goosmann: 3:33
Okay. So a lot of people think, Oh my gosh, they have 500 employees. That's, that's a big business, but it's not under this lot. 500 or less employees is what's going to count at this point in time?
Patrick McNamara: 3:44
Yeah, of course. And these laws and these stimulus programs are designed to help not only businesses weather the storm, but allow employees to weather the storm too. And for businesses to keep their employees and for employees to potentially stay on payroll and continue to conduct as much business as possible. So that at the end of this, we can come out and businesses still have their staff. They're still strong and ready to move forward. And that's really the goal is to make sure that businesses can stay as intact as possible.
Jeana Goosmann: 4:17
You bet. So let's talk a little bit about the Paycheck Protection Program. And when would a business want to use that program?
Patrick McNamara: 4:25
Well, any business who's affected by COVID-19 and is a business with employees less than 500 would be a business that really should, I, I can't see any reason that a business wouldn't want to apply for it if they have eligibility. Now what the goal of it is to make sure that businesses are able to pay their employees throughout this crisis we're in. I don't know if the PPP is going to be expanded, but right now loan amounts are calculated on you look at a prior year's average monthly payroll and their typical ending about two and a half times that. So if your business is the same size, it's really supposed to represent about two and a half months of a payroll for a business. Who knows if that'll be expanded. But right now it's designed to pay about two and a half months of average wages.
Jeana Goosmann: 5:25
You bet. And a lot of the businesses that we work with have already gone through their process of applying and some are just waiting for the funding. If you've had their funding already issued. And let's get in and talk a little bit about what they should be spending this money on in order to potentially receive the forgiveness. Cause that's a key component to this isn't it, Patrick?
Patrick McNamara: 5:44
Sure. Yeah. So this is a loan, but if you comply with a number of key requirements that if you're carrying on your business in an ordinary course as you would the requirements aren't too difficult to hit. But yeah, it's designed that it basically turns into a grant rather than a loan. And the balance of the loan is forgiven if you're using the funds for allowable purposes the main one being payroll and payroll protection and paying your employees. There's also an allowance to be able to use these funds to pay for mortgages, business mortgages, rent and utilities as well. So those are really the types of expenses that are meant to be paid for with these. And if you, if you do pay those expenses it's very likely that the amounts that you spent will be forgiven. Now again, the goal is to make sure employees are able to be paid. So while you are able to pay your mortgage, rent, utilities, based on the design of the legislation and the amount of people that are likely applying for it, they're probably only gonna forgive about 25% of the funds that are spent on rent and utilities and mortgages. So you're gonna want to, at a minimum, use at least 75% of the funds that you receive in order to pay employees with.
Jeana Goosmann: 7:08
And when you pay your employees a what if you have some high earners, people that make over $100,000.
Speaker 4: 7:14
So this is capped at $100,000 per employee. Well, the average of $100,000 per employee, as we said, this has made up for about two and a half months of pay. So it would be, if we're talking about an employee who annually makes $100,000, it's capped at that. So that's the amount of wages that would be forgiven. You know, we'll, in our blog post that goes along with this, we'll clarify exactly what happens with any wages that are paid over for over a for an amount equal to an annual salary of equal to or over a hundred thousand dollars a year. Just because I don't want to give any incorrect advice but I do want to look at how the funds are treated. If it's for an employee who is paid annually over $100,000. That was a long way around to getting to that. But we'll, we'll provide a quick update. I just don't want to misspeak.
Jeana Goosmann: 8:07
You bet. And it's my understanding that similar to when you applied, you couldn't use those high earners, their full salary, but you had to back it down to the a hundred thousand dollar figure. So when you were calculating your average monthly payroll, and I think the same will happen when you're looking at the forgiveness is if you use these funds for people over a hundred thousand dollars, you'll have to back it down to what would the a hundred thousand dollar rate be and that would be the amount that would be forgiven. So there are a lot of nuances I think when you're looking at how much is going to be forgiven. And I know when we're giving advice to people are frequently working hand in hand with their accountant and we get the Excel spreadsheet go in and then we're able to run some math and give some more specific answers. So let's talk for a minute, Patrick, about what about making new purchases or refinancing? What should this loan not be used for? If you want to have it be forgiven?
Patrick McNamara: 8:57
Well that's a good point. And we keep coming back to the purpose of the loan being to weather this storm. Make sure employees are paid, make sure able to still be in business. the goal of this is not for you to go buy new computer equipment or new manufacturing equipment or put money in the bank. It's to spend money on your employees and spend money on your rent and payroll. So these loans, the forgiveness program doesn't apply if you're going to take the funds and use it to pay off debt or buy equipment or make capital improvements. So while those funds can be eligible for the loan and you can use the loan itself to save, to pay off debt for capital improvements any of those funds would not be forgiven.
Jeana Goosmann: 9:42
So when people go in, their businesses are going to be asking for the forgiveness, what type of documentation are they going to need to have and what are we recommending so that they can make sure that they have what they need when they're trying to get the maximum amount?
Patrick McNamara: 9:56
Sure. Of course. And, and we should mention here Goosmann's COVID-19 toolbox has talked about this in the past, but, these loans are, while they're backed by the small business association they're given out and they're managed by businesses' individual, banking institution, just a regular bank. And in order to apply for them, you need to certify that your business has been affected by COVID-19. But then at the end of this period when we're going to back to the banks in order to hopefully have these loan amounts forgiven you need to certify number one that they were used for a purpose related an eligible purpose, like paying payroll, paying for rent and utilities, and then you need to back it up. So you need a bank statement. Well, I would just, I would say for a payroll, you need pay stubs for the employee show when you paid them. And then with regard to any rent, utilities or mortgage payments, I would include both the statements or invoices, with those charges as well as proof of payments. So, back checks or since you're applying your own individual banking institution, they obviously have your bank statements and they can see your banking activity, but it would be good to keep copies of those as well. Just organized by month and purpose just so that you have everything in place when you need it.
Jeana Goosmann: 11:23
All right. One of the things I personally plan to do and that I've been recommending to clients as well as to put these funds in a separate bank account and actually not co-mingle the fines with your general operating account. And I think that way it will keep it really clean when you're just spending on what are allowed expenses and if you're not co-mingling, it also doesn't give the government full access to everything in your operating account and really just will help you streamline those records. What do you think of that, Patrick?
Patrick McNamara: 11:50
Yeah, well I think you said it best. You know, it provides for number one, easy and clean accounting and easy and clean proof to show where the funds were spent. Rather than having put, turning over our bank statement with 500 transactions on it, you can just turn it over the statements themselves that relate specifically to the funds that were lent to you and how they were spent. So yeah, you're streamlining the process and you're protecting your business with privacy as well.
Jeana Goosmann: 12:14
Now, what about the amounts that aren't forgiven or a business that maybe isn't looking for the forgiveness aspect? Is this still a loan that they might want to utilize?
Patrick McNamara: 12:22
Sure. So this loan in addition to the the small business disaster recovery loan can be used for non forgivable purposes. You can use it to pay off debts and pay for equipment improvements. But those funds will not be forgiven. But the fund, the loan itself it's a, it's a pretty good loan. It's a two year pay off. Payments are deferred for six months and interest begins running away right away, but it's only at a 1% interest rate. Also in a practical sense, businesses that maybe don't have the best credit, wouldn't ordinarily be able to qualify for an SBA loan. Might have better luck right now. So those are all benefits that even if a business is not going to use it for forgivable purpose, it still might be wise to look into it.
Jeana Goosmann: 13:15
You bet. And you mentioned another kind of alone that's SBA has right now Disaster Recovery Loan.
Patrick McNamara: 13:20
Sure. So we thought that a lot of these were going to get paid out by now. I don't know if they have, there was a federal disaster recovery loan upfront for a lending somewhere between 10 and $25,000, depending on the size of the business. That we're supposed to act as a quick cash injection. These amounts were forgivable pretty much for any reason or no reason at all. It was really basically just an application to receive $10,000. Again, you'd have to certify that your business was affected by COVID-19. But looking into those and how they affects the payroll protection loan. If you're using the funds from the disaster recovery loan for forgivable purpose, it's going to be forgiven in the same way that the PPP loan the payroll protection loan is forgiven.
Jeana Goosmann: 14:11
Now, if there's a business that hasn't applied or didn't receive the PPP for whatever reason what other benefits are out there and under the cares act and some of these different laws that we're seeing issued right now due to COVID.
Patrick McNamara: 14:25
Sure. Now I want to begin by saying this isn't tax advice and all businesses should consult their, financial professionals and accountants. But, if an eligible business decides that it doesn't need the payroll protection program or disaster recovery loans, the failure or choice not to take those loans out and apply for those loans, can allow for some tax credits down the road that businesses who do take advantage of the payroll protection loan individ disaster recovery loan won't be eligible for. Now, I don't know exactly the extent of those tax credits, but they do. The government will make up for it on the back end. If a business decides it can, it can weather the storm without the this emergency funding.
Jeana Goosmann: 15:12
Great. Well thank you so much Patrick for being on today's Law Talk with the Flock and I want to remind everyone that we do have the COVID-19 tool box on the Goosmann homepage. It's right at the very top and easy to find it. That'd be www.goosmannlaw.com and I really appreciate you being on today's podcast, Patrick.
Patrick McNamara: 15:31
Great Jeana, thanks very much.
Jeana Goosmann: 15:33
Thank you everyone for joining in and stay safe, be healthy, and go make it worth it.
Goosmann Law Firm: 15:39
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