Banks are Kinda Taking Applications (The Feds and Banks are pleased to invite you to: Friends and Family)

Dear HL Clients,
 The banks casually flung open their doors today in the softest of openings knowing that they had impatient and ravenous customers lined up around the country waiting to file their loan applications.  Of course, they couldn’t handle the stampede of applicants, were completely overwhelmed and delivered a wholly underwhelming and crappy experience. 

The bank applications we have seen so far have been funky, bank staff has not been available to provide guidance and the online systems have been full of bugs. That said, we figured it out and filed a bunch of applications today. Here are some highlights from the shitshow:

Joey Regs says:

Now, onto an update on how things are going on day one of banks being able to accept PPP loan applications. THE BANKS WERE NOT, AND CONTINUE TO NOT BE PREPARED FOR THIS. And instead of just owning it, they are all just disseminating weird, vague, and sometimes downright misleading information.  Or just ghosting you entirely.  Here’s a highlight of what the banks did today…

Bank of America.  First ones ready to go.  They were up and running early this AM.  Their platform was a bit strange and a little clunky to use, BUT they were up and functioning.  Which is unfortunately more than we can say for many other household name banking institutions. Kudos to them.  BUT it was not all puppy dogs and rainbows here.  BoA did something sneaky, and it screwed a bunch of people. They deemed that it wasn’t enough for you to simply do your business banking with them (the standard widely used here).  They now require that you have CREDIT with them too – like you have gone through the process of applying for a line of credit previously or opened certain credit cards with them-in order to make your PPP loan application. Bankers… Am I right?

Signature Bank. Pretty good.  They opened today as well, and the system worked pretty nicely.  A few technical glitches here and there, but really not that bad.  We’ll see how phase one goes, as we’re currently underway with some applications.  Unfortunately, more people don’t use them.

Chase.  The big stinkers of the day.  And also the most popular bank amongst us!  Yesterday, they were rumored to be the only bank that would be ready to go today.  Then they had a webinar yesterday, which was supposed to be an hour long and was supposed to unveil their shiny new portal.  This webinar turned into a bullshit 15 minute generic and wholly unhelpful Q&A session, and they mentioned, in passing that they were unfortunately not going to be ready today.  THEN business bankers across the country called their business clients to tell them things like “You didn’t hear this from me, but we’re going to go live at noon today.”  Guess what happened at noon?  Nada!  Around 12:40 though, it did appear that Chase had finally done it and they were going to be ready to “Go live.”  A new splash page; a “Begin Application” button; this was it.  NOPE!  The “application” was nothing more than a quick-fill registration, to put you in line to have a banker contact you…when they’re ready.  Chase really blew this one.

TD Bank, Citizens Bank, Peoples Bank and M&T Bank are all apparently gearing up to launch Monday.  I suspect that a bunch of the other big banks will be ready to go next week as well, but they have mostly been super quiet.

Aaaand back to the NYC loan rumor mill.  The NYC Business Continuity Loan is still alive and kicking.  Despite the numerous rumors this week, and today, specifically, this loan is very much still available and we’re applying for it on behalf countless people at the moment, in a fast and furious (r.i.p. Paul Walker) fashion.

Here are some key changes (yes more changes) to the PPP application rules since the last HL Gazette:

Citizenship Requirement Gone?  The Good: The Department of Treasury decided to remove any trace of this from their guidance documents.  This shouldn’t have even been in the docs released earlier this week in the first place, so I’m happy that they thought better of it and ultimately removed it.

The Not-So-Good: APPARENTLY, the banks do have the discretion to add this requirement back in on their version of the application.  While we don’t expect it, 99.9% of the applications have not gone live yet, and we didn’t love the fact that the guidance left this door open.  We will obviously continue to update you on this point, as we know that it is a critical factor for many of you.

1099 Credit Gone too?  Yes.  Sadly, the Department of Treasury has decided that you CANNOT include 1099’s in your “payroll” calculation anymore.  Their inclusion was allowable yesterday; and many of you who were being diligent, and collected this info and made calculations based on their inclusion, must now head back to the drawing board.  The rationale, apparently, was that 1099’s would have alternative means of seeking relief under the CARES Act.  Stay tuned on that, because that whole area has been super fuzzy at best.

0.5% or 1%.  24 hours ago, the portion of the PPP loan that the bank chose not to completely forgive would have been capitalized as just a loan that you would have to pay back to the bank at an interest rate of .5%.  Today, that .5% has climbed to 1%.  It’s still obviously a very low rate, but I’m just wondering if this trend is going to continue.

We will continue updating the loan application rules and regs as they change.  Here is the very latest with all new/modified rules in italics

PAYCHECK PROTECTION PROGRAM (PPP)
AS OF APRIL 3, 2020
The Paycheck Protection Program provides small businesses with funds to cover payroll costs, interest on mortgage obligations, rent, insurance, and utilities incurred from February 15, 2020 to June 30, 2020. Borrowers may apply to have these loans forgiven, which means that you may not have to pay them back.

The SBA issued an Interim Final Rule on April 2 for the purposes of facilitating immediate implementation of the PPP – the guidance provided within the Interim Final Rule is to be effective immediately, but comments are being solicited from “interested members of the public” on all aspects of the interim final rule. Comments can be submitted via https://www.regulations.gov/ for the next 30 days and the SBA will consider them when determining whether there is a need for revision of the rules set forth within the Interim Final Rule.
 
Every applicant will be required to fill out SBA Form 2483, which the Department of Treasury has released as the Final Borrower Application Form. It is available here, but should also be provided to you by your lender. Each lender will be expected to rely on the borrower’s application itself (i.e., the certifications and supporting documents submitted) in order to determine an applicant’s qualifying loan amount and eligibility for loan forgiveness.

While each lender is required to obtain this information and documentation, the Interim Final Rule is silent on any kind of requirement for a lender to verify the information provided to it.

Who’s eligible?
Please note that the Final Borrower Application does not include any requirement for borrowing entities to be owned by US citizens or green card holders. The Interim Final Rules is silent on the issue, as is the CARES Act.

You will be eligible to apply for a PPP if you fall into one of the following categories:

• Businesses with 500 or fewer employees (whose principal place of resident is the US), provided that the business was operational as of February 15, 2020, such that the business either had employees (for whom it paid salaries and incurred payroll taxes) or it was paying independent contractors (the terms for which are documented via a 1099-MISC)
• Hospitality-based businesses with 500+ employees, provided that there are no more than 500 employees working at any one location
• Individuals who operate under a sole proprietorship or as an independent contractor, provided that the individual was operating as such as of February 15, 2020

Is there additional criteria for approval?
You must certify that a loan is necessary to support business operations and that any funds received will be used only to retain workers, maintain payroll, make mortgage and lease payments, and pay for utilities. You will also be required to certify that you have not applied or received funding for a “duplicative” loan in order to cover the same expenses and amounts.

You will affirmatively be required to submit documents necessary to establish eligibility – this may be in the form of payroll records, tax filings, and any 1099-MISC records (where applicable). Self-employed applicants will be required to provide documents proving income and expenses.

How much funding can I get?
You may receive up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10M.
The Interim Final Rule sets forth a calculation for purposes of determining your qualifying loan. Your maximum loan amount should be determined as follows:

1. Aggregate payroll costs from the last 12 months for employees who are US residents.
2. Subtract compensation in excess of an annual salary of $100,000.
3. Divide the total by 12 to determine average monthly payroll.
4. Multiply the average monthly payroll by 2.5.
5. Add the outstanding amount of any Economic Injury Disaster Loan made between January 31, 2020 and April 30, 2020, less the amount of any advance under an EIDL COVID-19 loan.

After reading the Interim Final Rule, it appears that average monthly payroll should be calculated using your costs from calendar year 2019. To err on the side of caution, you should plan to provide all 2019 and year-to-date 2020 payroll data.
 
What can be used to calculate my payroll costs?
According to the Interim Final Rule, independent contractors do not count as employees for the purposes of determining payroll costs used to calculate your total loan amount eligibility.

Otherwise, payroll costs can include ONLY the following:

• Salary, wages, commissions or similar compensation
• Cash tips or the equivalent – based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate
• Payments for vacation, parental, family, or sick leave
• Severance (or dismissal) payments
• Payment for employee benefits consisting of group health care coverage, including insurance premiums, and retirement benefits
• Payment of state and local taxes assessed for compensation

Your payroll costs cannot include compensation paid to non-US residents, any compensation paid in excess of $100,000, any payments made to employees for leave under the Families First Coronavirus Response Act. And as indicated for the first time in the Interim Final Rule, your payroll costs cannot include federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020. It’s our understanding that this means that only post-tax payments made to employees would be eligible for loan forgiveness, as opposed to the gross payroll costs paid by the employer.
 
What can the funds be used for?
At least 75% of your PPP loan MUST be used on payroll costs, irrespective of whether or not the funds you plan to have your loans forgiven. This is a new – and VERY important – regulation that was included in the Interim Final Rule.

The proceeds from a PPP loan are to be used for the following purposes:

• Covering payroll costs (as described above)
• Continuation of group health care benefits
• Mortgage interest, but not pre-payments or payments on the principal
• Rent
• Refinancing an SBA EIDL loan made between 1/31/20 and 4/3/20

The Interim Final Rule states that PPP loans may be used for “interest payments on any other debt obligations that were incurred before 2/15/20” – apart from mortgages – but it is my interpretation that such amounts would not be eligible for forgiveness.
 
Any unauthorized use of PPP loan funds may result in additional liability, including federal charges of criminal fraud.  And if one of the borrower’s shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against that shareholder, member, or partner.

Can I apply for the PPP and the EIDL?
Despite some prior uncertainty on the issue, you can apply for both an EIDL loan and PPP loan. If an EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If an EIDL loan was used for payroll costs, your PPP loan MUST be used to refinance your EIDL. Any cash advance received from an EIDL loan will be deducted from your loan forgiveness amount (as described below).

For any portion of the funding that cannot be forgiven, what are the terms of the loan?
The interest rate on PPP loans will be 1%. This rate was increased from 0.5% to 1% – the SBA and the Treasury Department determined that this rate is appropriate for both lender and borrower.
 
The maturity date will be 2 years. Despite the fact that the CARES Act states that the maximum maturity may be up to 10 years from the date you apply for forgiveness, the SBA and the Treasury Department determined that the 2-year loan term is sufficient in light of the “temporary” nature of the “economic dislocations” caused by coronavirus.
 
Payments on PPP loans will be deferred for six months. Interest accrues on the loan during the 6-month payment deferral period.

FORGIVENESS
Specific guidance on the process and application for requesting loan forgiveness is forthcoming. Those applications will be submitted directly to your lender and will likely be due 8 weeks after you receive your loan proceeds. So, to the extent that this information has been made available otherwise, here’s what we know…

How does PPP loan forgiveness work?
You can obtain loan forgiveness equal to the amounts spent during the 8 weeks after the issuance of your loan, only as that spending relates to payroll costs, mortgage interest, rent, and utilities during that period will be eligible for forgiveness. PPP loans will NOT be eligible for forgiveness unless at least 75% of the loan amount is used towards payroll costs and payroll costs alone. And of course, the amount forgiven cannot exceed the original amount borrowed.

Then how is loan forgiveness being calculated?
As a threshold issue, your eligibility for forgiveness will be based ONLY on your spending during the 8 weeks following the issuance of your loan. Only the amounts spent on payroll costs, mortgage interest, rent, and utilities during that period will be eligible for forgiveness.

To avoid having to repay any of this loan, you must plan to normalize your payroll on or before June 30, 2020. The amount of forgiveness can be reduced under two circumstances: (1) if there your full-time equivalent (FTE) employee headcount is lower on June 30, 2020 than it was during 2019 at that time and (2) if, on June 30, 2020, your employee pay rates have been reduced by more than 25% from what they were during this period in 2019.

How do I apply for loan forgiveness?
Lenders will not forgive loan amounts without being provided documentation of your spending, so borrowers should maintain thorough recordkeeping practices and are encouraged to work with their professional advisors in doing so. Lenders are required to render decisions on loan forgiveness applications within 60 days after submission.

Loan Help and Questions

If you find that you would like help with your applications or want a loan strategy, we are here and ready.  Just email Lee Jacobs at: [email protected]

If you have general questions about the application process, you can submit them to: [email protected] and we will do our best to answer them.

He’s Gone – RIP Bill Withers. If you have never heard him sing Ain’t No Sunshine or even if you have,, find it and give a listen.  I think you’ll be happy you did. This man left behind some beautiful music.

Unless anything major breaks, we will see you again on Monday.  It is still the weekend after all, so as Jerry said ” nothin’ left to do but smile, smile, smile”.  

Good night and good weekend. 

David