Don’t Panic: The Small Business Guide to PPP Forgiveness Part 2

Webinar transcript Tuesday, June 30, 2020

Did you receive a PPP loan for your business?

Recent legislation impacts forgiveness and use of funds. In our second Don’t Panic webinar, learn from our panel of experts what you need to know now about PPP loan forgiveness and actions you can take to set yourself up successfully to navigate loan forgiveness.

Moderator: Nicola Corzine, Founding Executive Director, Nasdaq Entrepreneurial Center

Guests: Roxann Burns, Senior Vice President, Small & Medium Enterprise Business, Bank of the West

Tom West, Principal, KPMG US

Brady Berg, Partner, Wilson Sonsini

Nicola Corzine:

Well, good afternoon, everyone. Welcome to today's great session. My name is Nicola Corzine and I'm the Founding Executive Director of the Nasdaq Entrepreneurial Center. For those of you who may not know, the Nasdaq Center is a nonprofit dedicated to enabling entrepreneurs from all over the world to realize their maximum potential and grow.

Nicola Corzine:

Now, before we get started, we do recommend for the best user experience today, that we suggest clicking your view into gallery view. As a reminder, we are going to be opening up for Q&A at the end of today's panel so please do include your questions in the Q&A box that you'll see at the bottom of your screen.

Nicola Corzine:

Before we get going, none of this would be possible without recognizing the amazing support that we received from our partners who are represented on this webinar and more. We're truly humbled by their contributions and so grateful in all that they do in support of entrepreneurs worldwide.

Nicola Corzine:

Now, before we get going on today's panel, we are going to be polling on a few key areas that are critical to the center. The first is since the beginning of entering this pandemic, the center has been tracking the overall wellbeing and sentiment of our entrepreneurs in these very difficult times. So I'm going to be launching a poll here in just a moment to really ask how you are feeling. Honestly, just how are you doing in this time? This is going to enable us to really get a sense as to what is needed in support of our entrepreneurs. Basically we're going to ask you to complete whether or not you're feeling fearful, anxious, surviving, or optimistic. So let me launch that poll right now. If you could just take a moment to share how you're doing, that would be so greatly appreciated to date.

Nicola Corzine:

To date, we've had more than 2,500 responses to this poll and we've been able to offer some tremendous free programming for entrepreneurs around coaching, access to mentors, and we even are, I'm pleased to share on this session, going to be able to offer a complimentary wellbeing coaching from Deepak Chopra for several weeks coming up. So you'll all be receiving that information at the end of today's session.

Nicola Corzine:

Let me go ahead and end this poll and share the results. Right now we are finding that over 40% of our participants today are in surviving mode, which is completely understandable, equally balanced by a healthy dose of optimism, which we would certainly expect from our great entrepreneurs.

Nicola Corzine:

Now, the next poll that I'd like to take just a moment to understand, in support of our questions that we're going to be launching today, is who's actually joining us on today's session. So if you could share whether or not you are an entrepreneur, whether you aspire to be an entrepreneur, or whether you're one of our great service providers and supporters of the ecosystem overall, that would be great. Please, just say. Right now, we are definitely seeing over half of our respondents that are entrepreneurs and a healthy dose of other supporters of entrepreneurs. We appreciate all of you and recognize all that you contribute into the ecosystem at large.

Nicola Corzine:

And finally, for those of you who may not be aware, the center actually launches and supports agile programming for entrepreneurs based on the real time challenges that they're facing in market today. So your response to this question that's in front of you right now, what's keeping you up at night, is actually going to allow us to take this insight and produce programs, events, classes, learnings, webinars, access to mentors that can help you overcome these challenges. Right now, just so you know, we're seeing quite a few similarities to the last time that we launched this poll just a couple of days ago. Finance continues to be one of the top issue areas for entrepreneurs, as well as sales, and certainly just honestly, surviving, which we can fully appreciate.

Nicola Corzine:

So thank you so much for participating in these polls. I have just one more that we would like to ask you for. As you may be aware, this is our second part of the series around PPP loans and the forgiveness. And so in honor of that, we're actually asking right now if you could share with us, for the benefit of our great panelists and also for the center, how anxious you are around even qualifying for this PP Loan Forgiveness. So I'm going to launch that poll right now. And if you'll take just a moment to share your nervous level, and we're going to try to address all of those fears today. We definitely don't want anyone here leaving uncertain or worried in ways that they shouldn't be, but I would love to get just a moment to take a pulse and a read on how people are feeling. Slightly anxious tends to be the winner right now. So let me share those results. We've got about 35%, a little over a third of you, who understandably are joining us here today so that we can stop worrying and actually start getting very tactical and practical on how we're going to be able to address those concerns.

Nicola Corzine:

So now, without any further ado, let's meet the experts who are going to help us walk through and walk a little bit back from that line of fear. I'd love to invite now, Roxann Burns, Senior Vice President, and Small & Medium Enterprise, at Bank of the West. Tom West, Principal at KPMG, and Brady Berg, Partner at Wilson Sonsini to join us for this conversation.

Nicola Corzine:

Again, as a reminder, we're going to be taking questions at the end so please do make sure you use that Q&A function. And as you may already know, we've collected some great questions ahead of time that we're going to be starting our conversation with today. So let's get started.

Nicola Corzine:

Tom, there are a few things that have shifted since the last time we talked to you and the last time that memo came out on June 5th, maybe I can invite you to start our conversation today on perhaps highlighting three things that we really need to understand from those June 5th changes.

Tom West:

Yeah, I'd be very happy to, I'm happy to be back with this panel again and have another conversation.

Tom West:

As you said, there've been some pretty significant changes since the last time we all talked. Most significantly, we saw some new legislation called the Paycheck Protection Program Flexibility Act that was enacted on June 5th. And as a result of that new legislation, there's some really helpful changes to the PPP program and in particular, to forgiveness under the PPP program that we should all be aware of. I'm going to focus on the three things related to forgiveness. Hopefully, most of this audience, to the extent they're interested in a PPP loan, has already applied and even better, adopt those loans. If you haven't received a PPP loan or you haven't applied yet, hopefully you just pause this webcast, go finish your application, which is due today and come back and listen to the rest of it. But let me turn to three critical things that happened as a result of the Flexibility Act, as we tend to call it.

Tom West:

First of all, under the Flexibility Act, borrowers under the PPP program now have 24 weeks potentially rather than eight weeks to spend their loan proceeds and get loan forgiveness. That's what's called a covered period. Under the prior legislation, you had eight weeks to spend down those proceeds on qualified expenses. And if you did that, you could apply for forgiveness. Well, what the Flexibility Act recognized in several ways was that when the original CARES Act passed and the Paycheck Protection Program went into effect, all the way back in March, I think the lay of the land was a little bit different and Congress and others were hopeful that the economy and small businesses would be opening a little bit quicker than they have in many cases. And so they thought, "Well, the next eight weeks, we're going to get small businesses through those eight weeks. And after that, things will get back more to normal." Of course and unfortunately, that has not happened in many cases. And so the Flexibility Act said, "Okay, we're going to give 24 weeks for you to spend down this money." And I think for a lot of small businesses, those that I've talked to, that's going to be really important. They will in fact be able to spend all of the proceeds from their PPP loans during that period. So that's the first and probably the most important change.

Tom West:

A second important change was that under prior rules, borrowers had to spend at least 75% of their PPP loan proceeds on payroll costs in order to get forgiveness, and the Flexibility Act reduced that percentage from 75% to 60%. Critically, the treasury and SBA have confirmed that that 60% is a proportional rule. It's not a cliff rule. So what that means practically is that if you take out a PPP loan for $100,000, you spend at least $60,000 of that loan on payroll, then you've cleared the hurdle and you can get all of your loan forgiven. But let's say you only spent $50,000 of that $100,000 loan on qualifying payroll expenses, it doesn't mean that you don't get any forgiveness, it means you get the additional forgiveness, like up to 60% of 50... I'm sorry, 50,000 divided by 60%. That's how you calculate how much you would get potentially forgiven. So that's a helpful rule.

Tom West:

The last critical rule that I want to talk about is the rule related to rehiring employees. A lot of people have looked at the Paycheck Protection Program, one of the critical rules about forgiveness is that if you cut salaries of employees or you cut your number of employees as compared to the number of employees who had in prior periods, the prior measurement periods, if you didn't restore those payroll or those headcount cuts by June 30th of this year, then you would potentially lose part of your forgiveness. What the Flexibility Act said was not only did it extend that date for rehiring from June 30th of this year until December, the end of December this year, but it also provided a couple of important safe harbors that say, if you try to rehire people but you can't rehire people for the same position because of ongoing pandemic related reasons, for example, that's not going to be held against you. And also, because of restrictions placed on your business, you can't return to normal business activities because of CDC rules or HHS rules or OSHA rules, then you are not necessarily going to lose your ability to get the loan forgiven.

Tom West:

So that's going to require documentation and other things that we're going to talk about I suspect later in this discussion, but those I'd say are the three critical things people should be aware of coming out of the June 5th Flexibility Act.

Nicola Corzine:

Well, Tom, that's great. I'm remiss, I should've started our conversation by saying, obviously I'm privy these panelists have been here together, and those that have joined us know your background, but can I invite you to share just a moment or two about the work that you're doing at KPMG and your own background in this area too?

Tom West:

Sure. I'd be happy to. I'm a tax lawyer, so everybody always wants to hear about what I'm up to. I work with pass-through businesses, a lot at KPMG. And while I do focus on tax advice, prior to coming to KPMG last year, I spent five years at the Treasury Department writing rules and regulations. So after the CARES Act came out and all of the PPP related rules and regulations that we're all wrestling with now, it's a natural fit for my advisory role.

Nicola Corzine:

We're so grateful to have that expertise getting us through this conversation. Tom, thank you so much.

Nicola Corzine:

Brady, I'd love to shift gears over to you. I definitely want to hear a little bit about your background, if you'll lead with that, and then maybe shifting a little bit into the unknowns that a month ago were out there going, what is this even going to look like? And today some of those are actually knowns. So maybe you can walk us through your top three things that were unknown that we've now got solidified since the last time we all came together, after sharing your background, if you will.

Brady Berg:

Thank you, Nicola. Great to be back on this panel. Really, really wonderful group here. So I am a Corporate Partner at Wilson Sonsini and I primarily work with startups and investors in startups at all stages of growth. And obviously startups are significantly impacted by the pandemic. And a large part of our client base has been focused on these PPP lines. That's how I've been sort of thrust into this process. I also sandwich between some time at Wilson Sonsini where I've been for a number of years, also spent time with the general counsel of a cybersecurity software startup, sort of sat in the seat of the operator and have certainly an appreciation for what everybody on the line here is going through.

Brady Berg:

But yeah, as we look back, where we were about a month ago, when we all got together before the Paycheck Protection Program, Flexibility Act, we looked into the crystal ball and said, "What do we not know and what do we think might happen?" And I think one thing we all thought might happen would be we might get some relief as we saw the pandemic continuing to stretch out and the shelter in place orders... And as Tom just very capably summarized, that was born out was the Paycheck-

PART 1 OF 4 ENDS [00:16:04]

Brady Berg:

Summarized that was what was born out was the paycheck, the PPPFA, or the Paycheck Protection Program Flexibility Act that really did address, I think, a number of the pain points that people were feeling when we last got together. I think we also last time had a lot of questions about the timeline for applying for forgiveness. We did have an application. We're aware of the... We programmed, but we also were getting rumblings that there were going to be changes to the program. We really didn't know how long people were going to have to apply, if they could apply before the end of their covered period or not.

Brady Berg:

And that has been clarified in the most recent applications and instructions and the most recent rules. So importantly, as Tom pointed out, you now have two covered periods to select from, assuming you received your loan before June 5th. If you received your loan after June 5th, you only have the 24 week covered period. If it's before, you can pick between eight weeks or 24 weeks. And some people think that is a trick question, why would I pick eight when could have 24? There's a reason to think about it which we'll get into here, but it's now clear that you have 10 months after the end of whatever covered period you select to apply for forgiveness. So it's quite a long time for companies to get their records in order and get through the application. However, some companies are anxious to apply as soon as possible.

Brady Berg:

One thing the SBA has clarified in the most recent rules is that you can now apply before the end of the cupboard period ends, which wasn't the case before. So if you were to elect a 24-week period and you'd spent all of your funds, in 14 weeks, you could start the application process at the end of that 14th week. If you don't apply for forgiveness by the end of the 10 month period, you've missed the deadline to apply and the loan would then start to become due. Another important benefit of the PPPFA is that the interest and principal deferral, which previously were just a six month deferral now extends up until the time the end of this 10 month period, or whenever you apply and a decision is made.

Brady Berg:

So, it's basically an interest green loan up until that point in time, so a significant benefit there. I think another thing that a lot of people speculated about would be whether these records would become public and we've clarified that there will be a list of PPP loan recipients, at least those who received a loan above $150,000. The exact amount of the loan will not be published, but they will bucket them into buckets between 150K and 350,000, 350,000 to a million, a million to 2 million, above, I think it's two to three and above three.

Brady Berg:

So they will be publishing all of those names. And I think that's important to recognize. I think one thing we don't know yet is, one, when that list is going to come out. It's not out yet, we just know it's coming. We also don't really know the audit review process. We do know that in the application, there's check the box to indicate if the loan amount of the applicant is in excess of $2 million together with their affiliates. That was the same in the previous version of the application. And there is a safe harbor for anybody who's below the $2 million threshold on this all important necessity certification that was giving people angst in the application process.

Brady Berg:

They've also said that those below 2 million are less likely to be audited. There still is an open door for possible audits below 2 million, but I did look at the numbers and I think there's something like 30,000 loans out of the 8 million loans in number that were processed that are above two million, so there's a lot of work just to audit the category above 2 million, but exactly how that's going to work I think is unknown.

Nicola Corzine:

All righty, thank you. A lot of the unknowns that are now known, I've got one more question before I turn it over to Roxann, but I'm sure you're going to smile about, but any chances we're still going to see updates to the legislation from this point forward?

Brady Berg:

Never say never. We certainly keep our eye close on the SBA and treasury website to see new updates on the rulemaking, and I think we'll continue to see some targeted updates, but we've really received a fulsome set of updates in the last couple of weeks, so I think the bulk of the guidance is now out. I think quite a bit is known. For instance, I think the most recent clarification was around payroll expenses for employees of fishing boats. They're getting down to the granularity at that level. I'm not hearing that we're going to expect new legislation along the lines of the PPPFA or even another round of Paycheck Protection Program, at least I'm not hearing it at this point.

Nicola Corzine:

That's great. Well, hopefully that will move some of our business owners joining us today more from the anxious into the confident bucket and towards feeling that there's hope out there that we know what we need to know right now to make informed decisions. Speaking of which, Roxann, welcome back. It's great to have you. For those who may not know your background, I'd love to invite you to take a minute or two to share that as we get underway. But a question that is top of mind for us today is obviously you and Bank of the West have been really working through designing an amazing online forgiveness portal these last many months, as we were just sharing before the call. Could you, having gone through that process, maybe provide three or four top tips to our business owners joining today on what our audience might be thinking about for seeking forgiveness from any lender based on your experience of designing this portal.

Roxann Burns:

Yes. Thank you. I'm Roxann Burns and I work with Bank of the West. I am a credit manager and I oversee specialty businesses, but my biggest business division is SBA and I've spent pretty much the most of the last 30 years in SBA lending. So I come from that school of SBA lending. The four things that you should think about as you're getting ready for this PPP forgiveness process is that number one, the process is almost certainly to be digital, whether you bank with Bank of the West or another bank, it is probably not as likely that you're going to walk into a bank and give a piece of paper application and the stack of documents to a banker. That's probably not likely to happen. More likely is that you're going to be invited to come to some portal where you will enter data, upload document and go through some sort of process with that lender in a digital format.

Roxann Burns:

The second thing, number two, you need to do is gather new documents. So the documentation, I think about it in three bunches. You want to know where you were when you started, when you applied for your PPP loan, you want to know how many employees you had at that point in time when you applied. The second thing is you're going to want to look at how many employees you have today. You want to determine whether you're going to be A, if your loan was approved before June 5th, you have an option to have a 24-week cover period or the eight week cover period. So you can decide that you're going to collect your payroll documentation, you're going to evaluate your full time equivalent head count. And then the other thing you're going to do is pull together your eligible non-payroll expenses.

Roxann Burns:

And those will be your payment statements for your mortgage interest or copy of your lease, or a utility bills. But more importantly, you want to also look at any canceled checks or images of checks that you may have written to pay for those expenses and have them available. Number three, the treasury came out with an easy form and the easy form is easy in some ways, meaning there's not as many steps to it. You have to qualify, meet some criteria. But the key thing I want to leave with you about the easy form is that you still need to pull your documentation together. The easy form is like an easy tax form. You still are required to retain all of the documentation that you use to report on this form, you just may not have to give all of it to your lender.

Roxann Burns:

And then number four, it's the process. The lender has 60 days to review your documentation, your application. And then the SBA has 90 days to review that decision. I suspect it won't take lenders 60 days to complete the review of your application, depending on how complete it is. And we don't know how that SBA piece of review is going to look like because they haven't communicated that yet to lenders, but the regulations do say they have 90 days. And then one of the questions that I was asked to address is, what does that technology look like for Bank of the West? We spent time since the application process building out our technology for forgiveness. And when we launch, we will have a dashboard that you will be able to access, our borrowers will able to access, and that it will provide a much greater amount of transparency so that any point in this process, you will know where you are.

Roxann Burns:

You will know what you need to do to apply, we have a tool that you can use to lay out your information. You'll use that tool for sure. If you're not eligible for easy, it's option, if you are eligible for easy processing. But I think one of the most important takeaways that we learned is that you want to know where you are. And that's about easing that anxiety and being able to know is it being submitted to SBA? Is the bank still reviewing it? Am I missing a piece of paper? So those types of issues will be more available to you today in this forgiveness process.

Nicola Corzine:

That's fantastic. That transparency and visibility is going to give such great relief to so many business owners who are worried about so much on their plate every day. So thank you for building that in for sure. Now I'm going to pose to the panel because we've got a ton of great questions coming into our Q&A. And again, as a reminder, please do go ahead and put them in. We're going to be shifting over to Q&A live here in just a moment. I want the panelists to be able to come back to me in just a minute and share one piece of advice that if people have to drop off earlier than they hope, they're going to walk away with one extra piece of advice from our great panel joining us today.

Nicola Corzine:

And while they're thinking about that, I've got one more poll that I want to launch for our participants today. We polled this in our last session and basically asked, to the best of your understanding and thinking right now, when the economy and with the economy going through various forms of reopening, when do you think your revenue levels are likely to return to pre-pandemic levels? So I'm going to go ahead and launch that poll. I would love to be able to invite all of you to share your updated reflections on what your thinking is currently. And I will then go ahead and give that just a moment or two, and then we'll share those results and come back to our panel to give us one great salient piece of advice before we go into our Q&A section. We go ahead and end that now.

Nicola Corzine:

And interestingly, we're still seeing sentiment that reflects from the last time, so there's still a great deal of optimism that spring and summer of next year are really likely to be when we return back to pre-pandemic levels. Thank you for taking that moment or two to share that insights with us. Okay. Let me pick on Brady, to start with. Brady, one piece of advice. What do you want people to remember when they leave here today above all else? Brady, I think I might still have you... Yeah [crosstalk 00:14:05].

Brady Berg:

Yeah, I'm back. There we go. Sorry, [crosstalk 00:30:07] I muted myself.

Nicola Corzine:

[crosstalk 00:30:08] always happens in that end. Sorry, you were saying?

Brady Berg:

My advice was don't panic, consistent with the title. We have time, there's ample time to apply and there are very clear instructions in the applications, including the records that you need to submit with the application, good worksheets and records you need to maintain. So I guess my part B of that answer is maintain good records and try to run through some calculations beforehand to get familiar with the mechanics of the formulas, to see how things will play out, depending on different decisions you make during these periods.

Nicola Corzine:

Brady, thank you. Roxann, over to you. What's our piece of advice that you want to make sure our attendees have today?

Roxann Burns:

I would have two pieces of advice. First of all, visit your lender's website and find out what they're going to expect of you. I think that's really important whether you bank with Bank of the West or you bank with another financial institution, or you borrowed from another financial institution. And then the other thing I would say is that I see a lot of people trying to fit a round peg in a square hole. The eligible payroll expenses are pretty simple. There's not a lot of gray area there. And I think that's something that you just need to keep in mind, just find the things that fit in that slide.

Nicola Corzine:

Very good advice. Thank you. Tom [inaudible 00:15:44], what's our advice before we open up for our Q&A from our attendees today?

Tom West:

Sure. I think those were great pieces of wisdom and I'd echo the two of them. And I'd say, be aware that you have time now. I think when the program first rolled out, there was-

PART 2 OF 4 ENDS [00:32:04]

Tom West:

I think the program first rolled out, there was a lot of concern about getting in getting your application in. Are they going to run out of money? And I think SBA, and treasury were frankly putting out some fairly contrary rules that lenders and borrowers were frankly, having a hard time with. I think the trajectory now has been borrower friendly rules have been rolling out. And if you fit, as Rox said, if you fit into a category where you have plenty of payroll costs, I think you're going to be fine. All of the payroll costs are forgivable. And so if you can wait the 24 week period and have all payroll costs and use all of your proceeds on that, that's going to make it very easy for you, as a borrower and even for your lender to get it through. But if you're in a more complicated situation, and I know in particular, a lot of owner operators are in more complicated scenarios. I think there's still some holes to be filled in the legends in the regulations. So, don't be afraid to wait to see how some of those issues resolve.

Nicola Corzine:

Fantastic. All right, well, we have a ton of questions. And so speaking of borrower friendly, I'm going to try to see how many of these we can get through really, to ease those anxiety levels that may be out there right now. Again, obvious rules apply. This advice is simply that. This is advice today, and we're really trying to lean on experience and what we're seeing in market to guide and inform and share to the best of the support that's needed for our business owners. So again, thank you for allowing us to have that kind of exposure and understanding today. So let me kick it off actually by a question that came in, live on the chat, and that is around that easy, perhaps not quite so easy form, questions wondering what is that last question talking about on that easy form?

Nicola Corzine:

So if anyone happens to have access to either knowing it Roxann, I don't know if you know it off the top of your head, or if someone might be able to pull it up and take a peek while we chat through this, that would be super helpful because we've seen a couple of questions on that one coming through, what is it asking and what is actually expected to be filled in on that last question on the easy form. And while that one is coming up and Roxann is looking at that just to, to be mindful of time, a very simple question on how has the PPP loan forgiveness different for our S corp owners out there, if at all, anyone want to kind of take that one and address that one straight off the hat would be appreciated?

Tom West:

Yeah, I think that's actually a fairly complicated question, unfortunately. No, in my previous answer, I suggested that owner operators have a little bit more to navigate here. And that's certainly true in the context of S corporations, I think because of the healthcare costs, and retirement costs and the way they flow through to S Corp owners as compensation, I think there's just different rules that they have to navigate here. And they don't necessarily under the current rules, I'd be interested to see what radium rocks think. But I think under the current rules, S corp owners are just a little bit disadvantaged, frankly, in the way that they can potentially get forgiveness just for the amounts they're paying themselves. So, if they can wait and pay employees, I think that's going to be much easier for them. But obviously in all cases, that's not possible, but [crosstalk 00:35:41].

Brady Berg:

I think, to your point, Tom, I [inaudible 00:35:46] owner applicants are explicitly capped on the 24 week period anyway, where if you just took 24, 50 seconds of a hundred thousand dollars, that's theoretically your maximum payroll costs, not just based on salary, but for owner applicants, I believe it's just two and a half times 1/12th or two and a half times, which is based on the application amount. So owner applicants are capped at just a little over $20,000, so yeah.

Tom West:

As opposed to employees who can get up to $46,000 of forgiveness per employee.

Brady Berg:

Yeah. So I think that's an important one to point out.

Nicola Corzine:

Thanks for clarifying [crosstalk 00:36:33] Yeah, much appreciated. And Roxann, did you have a chance to discover that easy form question by chance?

Roxann Burns:

Yeah. So I think there's three questions on the easy form. One of the three that you have to meet. And the last question is, did the borrower reduce annual salaries, or hourly wages of any employee by more than 25%? Sorry. Sorry, they did not, so you didn't decrease the borrower salary and you were unable to bring back, this is the safe harbor. You were unable to bring back all the employees, the same amount of employees because of the level of business active activity, based on the restrictions for operation by the health department, the Health and Human Services, Center for Disease Control, and Prevention, Occupational Safety and Health Administration, OSHA, and related to the maintenance of standards and sanitation, social distancing, and that kind of thing.

Roxann Burns:

So, basically what they're saying, they're acknowledging that you might not have been able to open your business fully or at all, or you only had to bring back a smaller number of employees because of social distancing or improvements to allow more people to be in the same space. So, that's what that third question is. It says you didn't reduce salaries, but you did reduce employees under the shelter in place and social distancing conditions.

Nicola Corzine:

Perfect. Really helpful. Thanks for clarifying that [crosstalk 00:38:19]

Brady Berg:

...great, great answer, but a couple of points just to make on that. One is that there's these two application forms and the easy form, which is supposed to be simpler than the longer form. They're both complicated. I think really what the easy form leaves out is the lever for reducing, and then increasing back to the maximum amount these levers. So, you first determined your maximum amount that you're eligible for forgiveness. Then that amount can be reduced if you either reduce wages below more than 25% of those who make less than a hundred thousand or new in 2020, or you reduce FTEs. And then there are some safe harbors that allow you to get back to full forgiveness. So, this easy form really just identifies. If you're, by definition, not subject to those mechanisms, there's a simpler, shorter application, so you don't have to run through all of that to it.

Brady Berg:

Two, one thing that was super important to clarify for people is that the safe harbor for being unable to return to business levels, pre-pandemic business levels based on guidance from different federal agencies, CDC, OSHA, Department of Health, and Human Services, the SBA is explicitly clarified in their rules and guidance that it's direct or indirect. And it includes sort of broad categories of other restrictions on either employees or customers. So, I would think broadly, in with respect to that particular safe harbor, because there are people whose customers, for instance, their business has been decimated because our customers have been impacted and can't come. If you can't go to a certain place or something like that, or a state government has responded to these federal guidelines and has enacted at a state or local restriction on a business that has impacted them. So that would be an indirect impact from these other guidelines. So, anyway [crosstalk 00:40:25] I just wanted to make that point.

Tom West:

Sorry, Brady, I think a lot of businesses are going to fall into this category and want to take advantage of the safe harbor. And this is, Rox already said it there's different kinds of documentation. I think of it as the kind you're going to submit and the kind that they want you to keep just in case, in case there's an audit. Now I don't expect, as we've said, a ton of audits of businesses that received smaller, relatively smaller loans, but to the extent you're relying on that safe harbor to say that you couldn't return to normal activity, you should have contemporary documentation of that and keep that in a file and be doing that now.

Nicola Corzine:

Yeah. Really great suggestions and feedback there. Thank you. There've been a ton of questions that have been coming in right now around the levers to use that word again, sort of the do I wait eight weeks? Do I wait 24 weeks? Is this really a trick question as referenced earlier? Can we just address that right now from the panelist perspectives of, is it better for people to wait the full 24 weeks to file? Or should they actually be thinking about filing sooner if they feel confident on the forgiveness aspect of this?

Brady Berg:

I can start the ball rolling on this one. So, I think, initially before the SBA clarified that you could apply before the end of this covered period, that was probably the one thing that gave people pause. So, if you were steering your business and you'd received this loan and you were expending the funds thinking it was an eight week covered period, right? And you were basically kind of ready to go to file. I think that's why they gave people the option to use the eight week period so that they wouldn't be penalized by having this new longer period and having to wait for the application process. They've also now since clarified, you don't have to wait just you can apply during that 24 week period. If you select it, as long as you've spent all the funds, you can't apply for forgiveness, prospectively, you have to have spent the funds.

Brady Berg:

You will, so for those that have reduced salaries, and if you elect the eight week and the 24 week covered period. So an example would be if an average salary of the employee was say a thousand dollars a month and you had reduced it to $700 a month. So it's 30% less. So it was below that the, the 25% amount that's permitted you have to deduct $50 or $25 is permitted. You're not penalized for that. The difference between $250 and $300 of that reduction gets reduced during the entire period, unless you restore salaries by the end of, by the time you apply. So, if somebody has reduced salaries and is subject to that reduction, you're going to be subject to for the entire period. Even if you apply on week 14, you have to calculate it for the full 24 unless you restore salaries or wages by the time you apply. I know that's complicated, but that would be part of the one corner case that might cause somebody to think about eight versus 24.

Tom West:

And the one question I'd ask of a borrower is, how is this impacting cash flow? I wouldn't think that this would be impacting your cash flow. As Brady said, there's a long deferral period. You're not to have to be paying this loan for a long time. So it's absolutely fine to apply if you're ready to apply, if you have your paperwork in order, if you know, but I also don't see the harm necessarily in waiting. If you think you're going to get more and better payroll results in a few months.

Nicola Corzine:

Great perspectives. And speaking of good perspectives, there's been a question that's raised. And I think this is a fair one. Roxann, maybe you can try to address this for our borrowers today. Is there actually a worksheet that can help us figure out how we calculate our PPP loan forgiveness? Is there any tools out there that you're pointing people towards to really go through at a granular level and know how much they're qualifying for that forgiveness at this stage?

Roxann Burns:

Yeah, I mean, it, again, depends on your financial institution, Bank of the West. We are not open, we're not taking applications yet, but we are very close to doing this. We're testing some applications through this week, but we have developed a tool that is very granular, like a spreadsheet that you can basically put each employee in there, one by one. And if you do the full process, if you're not easy, you must do that because of will force you to think through each employee. So it's a very detailed way to do it, but I do believe that most lenders will have something out there. And I will also tell you this app. I was looking at the app when I was looking at the applications, there is a worksheet within the long form application that you can use to help you think through this process. And like, pre-calculate, even though you're not going to walk into the bank with this form, you can still use the schedule, and the regular loan forgiveness application to help you calculate what that would be.

Nicola Corzine:

Perfect. Thank you for that guidance. [crosstalk 00:45:51]

Brady Berg:

What I probably would also give a shout out to the AICP, the American Institute of Certified Public Accountants. There is a good worksheet that's detailed. It's a spreadsheet, but that's something people could download now and start to apply work through the calculations as well as the application. So there are some good materials out there.

Nicola Corzine:

Very cool. Thank you guys. Now we've heard that there may still be some undistributed funds. An optimistic business owner has asked the question, can we apply for more money? Any thinking on whether or not there's still access to additional capital at the state for our businesses that have been so very much impacted in this time?

Brady Berg:

Can't apply for more so you can only apply once if you, if you've already applied. If you haven't applied, as Tom mentioned earlier, hurry, get off the call now [inaudible 00:46:48] [crosstalk 00:46:48]

Nicola Corzine:

...we'll send you the recording.

Brady Berg:

Yeah. Today is the deadline for new loans, to apply for new loans

Nicola Corzine:

Perfect. Perfect.

Roxann Burns:

I know [crosstalk 00:47:00] Go ahead.

Tom West:

Sorry. [crosstalk 00:47:02].

Roxann Burns:

Okay. Then we know that there is always conversation going on in Congress about whether it's the house or the Senate about looking at another type of stimulus package, which could include funding. We did not expend all the PPP money and there's other programs out there of main street. So, it's possible that they could do another round. I think in the comments I've been able to say, one of the important things for me is around this issue of increasing your loan, because a lot of guidance didn't come out until most people had already applied and got their loan. And so you have this double whammy where you can't increase your loan if the lenders already reported it to SBA, but neither can you apply for another one. And we don't know if they-

PART 3 OF 4 ENDS [00:48:04]

Roxann Burns:

... And so, we don't know if they open it up again, will we get any flexibility there? But I know that just in working with customers at the bank, that is the number one question I get is, increasing or a second one. So, we don't know.

Brady Berg:

Yeah.

Nicola Corzine:

Fair point. That goes into the unknown's for today, for sure. We'll have to address that one next time we all get together. So getting a ton of questions in, not surprisingly, around payroll, and head count, and FTE. So forgive, we're going to go through rapid fire on a few of those types of questions. Starting with this one, can PTO, can paid time off actually that payout, is it forgiven? Can it be forgiven?

Brady Berg:

Yeah.

Tom West:

Yes.

Nicola Corzine:

Great. Temporary workers through staffing agencies. Are they excluded or included in payroll costs and calculations?

Brady Berg:

Well, independent contractors who otherwise, who are applying for themselves, aren't included. But if it's a true independent, if it's a true consultant who isn't independently applying for the same PPP loan for the same purpose to cover their salary both ways, I think could qualify.

Tom West:

Yeah.

Nicola Corzine:

Okay, perfect. This is a bit of a trickier one, and I imagine it's going to come down a little bit to documentation, but let me not suggest the answer, I'm not knowing this at all. How do you handle part-time employees that aren't laid off, but that simply have not been available for taking up the shifts that have been offered to them, or the type of work that's been available? Recommendations on that side of the house?

Tom West:

I think you're right to [crosstalk 00:49:43] go first to documentation, because there are safe harbors that would say, to the extent, you have employees who you're offering to bring them in, but they don't want to come in or they don't want to be hired. So, yes, document.

Brady Berg:

Yeah, so you're not penalized, in other words, in the FTE count for people who voluntarily resign, or where you've offered hours back and they've declined, or they don't want shifts. Even terminations for cause, there's a number of exceptions to the employee head count, as well as the safe harbors.

Nicola Corzine:

Perfect. Some confusion, understandably, on how documentation or the process works for those employees that may earn over $100,000. What should go into, again, both documentation or calculation on that $100,000 threshold level that was out at the start of this?

Brady Berg:

I'll start the ball rolling. So just cap folks at 100,000. So if anybody who makes over 100,000 for purposes of calculating payroll, just treat them as if they only made 100,000. So in that example, where we said the maximum amount of salary payroll you could count was, I think it's 40, roughly $46,000, is based on that $100,000 limit. Even if somebody makes 200,000. Another one that we keep in mind for this, because there's two levers. I'm going to use that word again, but the wage or salary reduction and the FTE headcount, you don't count salary reductions of more than 25% for anybody who makes over 100,000. So, that's an important one to keep in mind. So that group of people you can reduce hours and not be penalized.

Tom West:

And when you're counting your 100,000 per employee, you include basically think of cash type compensation, cash bonuses, tips, those kinds of things. That all counts toward the 100,000. Now, what doesn't count and what still can go into your payroll cost calculation, is other benefits, other non-compensatory benefits that you pay to them, whether it's sick leave, or healthcare, or retirement benefits. That can count toward payroll costs, and it doesn't count against the 100,000 per employee limit.

Nicola Corzine:

Perfect. Weeks eight and 24, and a shift in head count. Does it actually impact forgiveness if it goes down, if you apply it in week eight, and then all of a sudden things shift between weeks eight and 24? Does it have an impact on the loan forgiveness?

Brady Berg:

Well if you selected the eight week period, because assuming you're somebody who received a loan before June 5th, so you can both pick an eight week and 24 week period. You can also apply what's called a traditional covered period, or an alternative payroll covered period, where you can start your eight week or your 24 week on the first payroll cycle, just to line it up with payroll. But once you selected that cycle and you've applied, I don't think subsequent changes would ripple through the formula.

Nicola Corzine:

Okay, perfect. I got one last [crosstalk 00:05:03].

Brady Berg:

Does the panel agree? I think that's my reading [crosstalk 00:53:05].

Roxann Burns:

I was going to just add to that, because I think there's this, a question I get a lot too. And that is, that covered period, it's what you're looking at is the money that you spent within that timeframe. So if you spend all, you're able to spend all your money for a 60% or more payroll in that time period, that's the ... When you provide evidence or save your documentation, canceled checks, et cetera, payroll documents. You're looking for that specific timeframe, and I think that's what's important to keep in mind. It doesn't matter when you apply for forgiveness. It matters if you decide that you're going to provide receipts and documentation over either that eight week period, or the 24 week period. And it's hard.

Nicola Corzine:

That's a really good reframe. Thank you for that reminder, Rox. That's exactly what we need to hear on today's chat. And speaking of what you just ... Just one other clarifying question before we move on, around over time for people that may have been seeing a reduction, understandably, in overtime hours. Will that be calculated in the PPP forgiveness if they use that as part of the baseline of salary count to start with? Any insight or guidance on overtime rules and regulations in this?

Brady Berg:

I think it would count. You'd use the first quarter of 2020 as the baseline for wages. So if somebody was receiving, that employee, part of their average received regular hours and overtime hours, I think that would become part of their baseline. So I think it would impact, if otherwise normal hours are the same, but over time it'd come down. I think it potentially could impact the hourly calculation.

Nicola Corzine:

So let's shift to the important topic that we talked about to no end last time, documentation, documentation, documentation. Now that time has passed a little bit and we're getting ready to all start completing these online portals, any insights or thoughts on what kind of supporting documentation may actually be recommended, suggested for our business owners?

Tom West:

I think there's some good lists of documentation, if you look at the actual easy form instructions, and the other [crosstalk 00:55:34] instructions. And they list what has to be included, things like bank statements, canceled checks, tax forms, things like that. And then, as I said, there's another category of things that if you are making certain certifications, you want to have that documentation available, but you don't need to submit it. But, Roxanne, I would defer to your expertise on this, I think.

Roxann Burns:

No, I'm just, I think that this is one of the advantages that we have in forgiveness, that we didn't have it at origination, is that the application document is very specific. So again, I think that this is an area where you don't want to try to make it harder than it is. It's pretty straightforward what you have to do to document the request.

Nicola Corzine:

Something that may be a little harder, and I appreciate this question being raised by people. Somebody has shared that they were actually overfunded, and looking for advice on what should they do. Should they spend up to the correct calculation? Give back the excess? And will they actually be able to-

Roxann Burns:

Oh, I can tell you that answer.

Nicola Corzine:

Okay, great [inaudible 00:56:50] Rox [crosstalk 00:08:51].

Roxann Burns:

This is a government program. If your bank, okay, if your bank overfunded you and SBA has a lower number in their system, you will not get forgiven for that bigger number. Okay? So, just keep that in mind. And I would tell you, you want to work that out with your bank. I mean, we were all doing a lot of work very quickly, so things may have happened, but I would tell you the other thing is, is that between bank auditors, and the SBA looking at whether or not borrowers, if you got two PPP loans because one lender inputted your tax ID number incorrectly, or they input it in a social security format. SBA has been really working with lenders to do the research, and call out borrowers on that. So I would also just tell you this, if you did get two PPP loans, one with this bank and one with that, you really should think long and hard before you commit that fraud, because that's how they'll look at it.

Nicola Corzine:

Thank you [crosstalk 00:10:08],

Roxann Burns:

Brady's nodding his head.

Brady Berg:

Yes [crosstalk 00:58:11] I think those are the types of, where they left open the door for potential audits. So $2 million, I think there are going to be some easy red flags that will be identified in this process. So yeah, I wouldn't ... And look, the certifications and the penalties are severe. So, these are our government loans and I wouldn't treat it as found money. Right? I'd take it very seriously.

Nicola Corzine:

Speaking of not finding money, question coming in on whether or not if a PPP loan is forgiven, could it be, will it be taxed as income? Any thoughts on that side of the house?

Brady Berg:

Under the CARES Act it won't be. Once it's forgiven, it's not treated as income.

Tom West:

Yeah. There are tax issues associated with PPP loans, in terms of the deductibility of the expenses. But, there should be no COD income when you get your loan forgiven, that's clear.

Roxann Burns:

But Tom, is it correct to think of it like this? You can deduct, or you can get forgiven. You can't get both.

Tom West:

It's a [crosstalk 00:59:22] under the current IRS interpretation, that's a fair statement. I think the IRS is very wrong in that interpretation, and Congress has said the IRS is wrong. It's just a matter [crosstalk 00:59:34] of when they're going to change their position.

Roxann Burns:

Fix it. Yeah. [crosstalk 00:59:40] thank you.

Nicola Corzine:

Well unfortunately, as we know, we're not going to have time for every question as much as we might like to, and the same commitment and promise as last time. We're going to continue to monitor and make sure that we have available great experts, like our panelists were today, on trying to field and answer some of your concerns on this topic, both in this session, the next one to come, and online and offline as we can. And with that, let me queue one last question before thanking everyone for their time today. And that is dealing with our loss of income for our poor sole proprietors, and independent contractors out there. How should they be really dealing with loan forgiveness that does basically deal with that side of the house for our LLCs, and again, for our sole proprietors owned LLCs? Any thoughts or considerations on what they can do for their PPP forgiveness side?

Brady Berg:

They should be eligible for the easy form, first of all, because they don't have the maintenance requirement. They are going to be limited, however, in the amount of forgiveness, based on those limits we discussed earlier.

Tom West:

Yeah.

Nicola Corzine:

Perfect. Well, again, Tom, Brady, Roxanne, it's been an absolute privilege to have you back joining us today. Thank you so much for your insights, for your thoughts, for your confidence in helping our business owners through this very difficult and challenging time. We really appreciate it, and all of them do too, tremendously. We want to hear from all of our business owners. As a reminder, we get smarter when you tell us what you need, and what you are struggling with, and what your challenges are. So we're going to drop a link into that chat box, asking you to take just a moment or two to complete the feedback that we need to help us deliver the programs of impact for you.

Nicola Corzine:

And if you haven't already seen, we've got a great program coming up on Thursday, July 9th, around product market fit and growth for our business owners impacted in the stage. And this is with a tremendous advocate for entrepreneurs worldwide, Arjita Sethi. She is a great entrepreneur herself, and has been there through this journey, and this struggle many times. Again, thank you so much for joining us today. It truly has been great to host this session again, and we look forward to seeing you at upcoming programs. Thank you so much.

Tom West:

Thank you.

Brady Berg:

Bye everyone.

Roxann Burns:

Thank you.

Brady Berg:

Bye. Thank you.