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Earlier in April, we hosted a webinar, Forgivable Loans for Agency Owners: Paycheck Protection Program (SBA Relief Loans) Overview, with insurance agent Brooks Baltich and entrepreneur Duane Zobrist. During the question and answer session, we received several excellent questions that we wanted to answer. Keep reading to find out Brooks' answers to 13 of the most pressing questions about the SBA's Paycheck Protection Program.
1. I saw media reports that the Paycheck Protection Program (PPP) has run out of funding – does that mean I’m out of luck if I haven’t yet applied? What if I have applied but haven’t received my confirmation?
Brooks Baltich: Some banks still appear to be lending within their limits. It does not appear that you are out of luck. And the good news is that on April 24, 2020 the next round of coronavirus relief legislation was signed by the US President, which provides an additional $321 billion in funding for the Paycheck Protection Plan. This time too it looks like small businesses may have a better chance at receiving funding, as the new bill provides $60 billion specifically set aside for small lenders.
2. Assuming that I’ve completed my application properly, how long after I’ve applied can I expect to be funded?
Brooks Baltich: Lenders are working to process loans as quickly as they are able. They have processed 14 years worth of loans in 14 days. Some lenders are dealing with lending caps, others are only lending to their current banking customers. Still others will need to wait until there is more funding allocated. That doesn’t mean that you should not still apply if your bank is accepting applications.
3. I’ve decided that I’m going to apply for funding through the Paycheck Protection Program. What sort of documentation will I need to give me my best chance for approval?
Brooks Baltich:
This will depend on a few things:
- Which bank do you choose to use?
- What relationship do you have with the bank?
- What is your operating structure meaning the type of entity is your business, e.g., S-Corp, LLC, Sole Proprietor?
It is important to note that these loans are not huge moneymakers for banks. Many are processing them out of loyalty and support for their business banking customers. Some businesses have found success in opening accounts at a new bank that caters to small businesses. They have found that many banks are offering to process Paycheck Protection Program loans with the aim of developing relationships with new business customers.
This is a general list of key documents that many banks are looking for (it is best to start preparing your documents early):
- Copy of your driver's license for all business owners
- Tax returns (2019 and 2018, whichever filed last). Depending on your bank and your organizational structure, 2019 may be required.
- IRS Form 941 Quarters 1-4 of 2019 and 1 Quarter of 2020 is ideal.
- 2019 IRS Form 1040-C (Schedule C)
- 2019 1099 Misc
- NAICS Code – Statistical classification code
- Business start date, incorporation date, or organization date
- NAICS code for the business applicant
- Your bank account info, routing number, statements, and void check
- Proof of business organization Articles of Incorporation or LLC Operating Agreement
- Documentation of expenses for benefits, e.g., retirement plans and health insurance.
4. How does the Paycheck Protection Program (PPP) work for agents who are sole proprietors?
Brooks Baltich: There is good news for business owners who are sole proprietors regarding for the qualification and use of PPP Funds the SBA uses the language “Replacement for your normal 1099-MISC or net self-employment income (capped at $100,000 on an annualized basis)”
5. How does the PPP work for those who are 1099 or who have employees who are 1099? Does each employee need to apply individually?
Brooks Baltich: I think that Inc. Magazine has the best answer on this topic. “One issue still lacking clarity is whether PPP loans received by 1099 workers can be forgiven. "For 1099s and independent contractors, your payroll is your net earnings from self-employment," said Keith Hall, president and CEO of the National Association for the Self-Employed. "It is my expectation, from a practical standpoint, that these PPP loans for 1099 people will be forgiven." If you have 1099 employees they will need to apply on their own.
6. As the owner of my agency, is my W2 paycheck from my own company covered by the PPP as well?
Brooks Baltich: W2 payroll for all W2 employees appears to be eligible. There is an income cap of $100,000 on an annualized basis per employee. You will need to document your payroll. In the event that you compensate yourself by splitting your income is between W2 and an owner’s draw, you will want to document everything meticulously. Disclose it to your lender on the front end because you will need to document it on the back end for loan forgiveness.
7. Should you apply to the PPP through multiple banks? If a bank runs out of funds or is taking an incredibly long time to turn the application around, would you advise applying with multiple banks?
Brooks Baltich: It is a good idea to be in the queue with more than one bank. I was in line with two banks and one of the two funded my loan. It is hard to know which banks will fund your loan. Some banks only work with businesses that have their accounts with them. You will need to follow up on this with individual banks.
8. What if you use your personal checking account to pay your agency bills (for example a sole proprietor agency owner who pays expenses via a personal checking account)? Can you not apply if you don't have a “business” checking account?
Brooks Baltich: The easiest and cleanest way to document all business expenses is through a checking account that is allocated for business. Some business owners are choosing to open a special account in order to track PPP related expenses. (Tweet this!) Others are adjusting the journal entries in their accounting systems, so for example, instead of marking it “Payroll” it may be coded as “PPP Payroll.” You want to have everything set-up so that you can use this paper trail. Aside from the PPP I’d strongly recommend separating business and personal money accounting and tax purposes.
9. What if I have employees that I’ve had to lay off or furlough? Can I (and should I) use the loan proceeds to hire these employees back?
Brooks Baltich: This is really about stable employee headcount and payroll. This is also the most efficient way for the government to deliver the money. If these same funds are delivered through another type of government program (like unemployment insurance) it may cost three times as much.
10. What exactly do I need to do so that the PPP loan will be forgiven? I’ve heard different things from different sources about the requirements to have the loan forgiven.
Brooks Baltich: The lender is responsible for making a determination as to your eligibility for loan forgiveness. In order to be forgiven the money must be spent within the guidelines of the PPP. At least 75% of the money must be allocated to payroll and no more than 25% to the other approved expenses. Other expenses include interest on mortgage obligations, rent, and utilities for which agreements or service began before February 15, 2020. You will need to document the proper spending of the funds. You will need to show documentation of the number of employees and pay rates. You will also need to document payments on other approved expenditures.
11. What if I’m currently operating at a limited capacity (under-operating)? How will that impact my application and using the loan proceeds if my business is operating at 1/3rd capacity (for example)?
Brooks Baltich: This funding is less about your operating capacity and more about keeping people employed. The goal is to maintain stable employee headcount and payroll. It is important that these be similar in order to be forgiven. If you don’t feel that you are going to be able to keep the pace, you might apply for less money. Alternatively, you could return the unused funds with no prepayment penalty.
12. Where can I go to get more information or answers about the Paycheck Protection Program?
This guide from Harvard Business School may help answer any additional questions you might have. They have a nice Frequently Asked Questions (FAQs) section for the Payment Protection Program (PPP) loans (as well as the Economic Injury Disaster Loans (EIDL)). You can also email their team at smallbusinessFAQ@gmail.com with specific questions.
13. Are there any other programs aside from the Paycheck Protection Program for potential funding for small businesses impacted by COVID-19?
Aside from the Economic Injury Disaster Loan Emergency Advance (also administered through the SBA) – a loan advance will provide up to $10,000 of economic relief to businesses that are currently experiencing temporary difficulties – there are a number of state, local and private programs. Many states (and some cities) have set-up websites with information on financial relief programs available to businesses within that state (you can check our article Resources for Agents and Small Businesses During the COVID-19 Pandemic which links to state and local resource sites).
There are also a few private programs available. These include the Facebook Small Business Grants Program, which is making $100 million available to impacted businesses in the form of cash grants and ad credits. Up to 30,000 eligible small businesses (in more than 30 countries where Facebook operates) will be able to receive the grant. You must have between 2 and 50 employees, have been operating for over a year, and have experienced challenges from COVID-19. Facebook has partnered with Ureeka to administer the application process – you can check out their application guide here and visit https://www.facebook.com/business/boost/grants to apply.
In addition to Facebook, Amazon has also launched the Neighborhood Small Business Relief Fund. This program is specifically for businesses in the greater Seattle area (particularly those that rely on foot traffic). Small businesses in Bellevue, WA and the South Lake Union and Regrade neighborhoods of Seattle, WA can apply online for a grant from Amazon’s $5 million fund. Amazon will determine on a case-by-case basis the amount of the grant each business qualifies for. You can apply if you have 50 employees or less, or do less than $7 million in annual revenue. You can apply online here.
