Business Bites Episode 115: Easy Guide to the Paycheck Protection Program

Easy guide to the Paycheck Protection Program

Episode 115 on the Business Bites Podcast

The Gist Of This Episode:  The Paycheck Protection Program is part of the CARES Act that was just passed into law.  Rachel invited Philip Taylor, founder of FinCon, to lay out what the program is, who it’s for, and how to use it.

 

What you will learn:

  • what the Paycheck Protection Program is and how to use it
  • why small business owners and independent contractors need to pay attention to it
  • what types of documents and information you may need to apply for it
  • things you can do to prevent having to rely on programs like this should another event like COVID-19 happen in the future
  • and more!

 

Expand To Read Episode Transcripts

Rachel Brenke:
Hey, y’all. Welcome back to the Business Bites Podcast. I am your host, Rachel Brenke. This is episode 115. Today I am joined by Philip Taylor who is the founder of FinCon, an awesome financial conference and the owner and founder of PTMoney.com. Just to let you guys know, we’re going to be talking about Paycheck Protection Program, which has to do with all this COVID-19 stuff going on, its craziness. We’re going to try to provide you guys a roadmap. However, just in FYI, today is April 1st when we are recording it, my goal is to push us out tonight or tomorrow, so understand if you’re listening to this in a couple of weeks, some things may have changed. What Philip and I plan to do is update the show notes page. It will be Rachelbrenke.com/epi115 and I also will be linking his blog, his website and his Twitter feed, which has a lot of great information. That’s where I got the idea for this podcast episode. So make sure you guys go to the show notes page, go follow all those resources. We’re going to keep you updated with that. So, Philip, welcome to the show.

Philip Taylor:
Rachel, thanks for having me on. This is an exciting topic. I think that can help a lot of side hustlers, small business owners, folks who are out there earning money and want to keep their teams and themselves working over these next few weeks. So I’m excited to talk about this program that came out. It came into law last Friday and it’s being rolled out this week. So yeah, excited to be on with you.

Rachel Brenke:
It’s a crazy time and you know what’s interesting? You probably, I don’t know if you saw it on my Twitter feed, I was starting to rant and rave about how these large companies are furloughing people, not paying staff. Well, I’m looking around and getting PMs and messages of small business owners who are like, “How do I take care of my own? How do I take care of my team?” And a couple of weeks ago didn’t really have an answer other than call your insurance and dig into your savings. But now we have this Paycheck Protection Program. So like, can you give a high level view of how that applies to the entrepreneurs listening and then we’ll just dig into the specifics of it.

Philip Taylor:
Sure. Absolutely. First, a couple of caveats, like you mentioned up front, this thing is sort of evolving and moving. So there’s a lot of gray areas right now with the law and the way the Treasury’s interpreting it. And then the way the banks are going to sort of apply it when they allow you to apply for the loans. And also wanted to state that I am a CPA. So this topic is geeky for me, and I enjoyed writing on this over at my site and I’m excited about what the Paycheck Protection Program does. And I’m a business owner myself. I have three businesses that I believe could apply for this. And so when I was looking at the Stimulus Package coming down, the CARES Act for the first time I thought, “Oh that’s just going to issue seamless checks like we did last time.”

But this included some really good things for small business owners. And this first thing, literally the first thing in the CARES Act is the Paycheck Protection Program. And so I think a lot of people, when they first saw it, the business owners especially, thought, “Oh, well that’s just a loan. I don’t like taking loans out for my business. I just like using my cash and moving forward.” But what this loan is, is actually comes with sort of embedded loan forgiveness in it. And in effect it becomes a grant for small business owners if they use it for qualifying expenses. So the Paycheck Protection Program, like I said, is part of the CARES Act and it is intended to help small business owners continue to pay their folks for this next few weeks while we’re dealing with this crisis. So, that’s the high level of how it works. So we can certainly dig into the details, if you want, of who’s eligible, how you calculate how much loan you can get, would you get a loan and things like that.

Rachel Brenke:
Well, let me ask you this. Many of the listeners are probably thinking, “Well, I don’t have any other employees besides myself.” On the only W-2ed. So can the Paycheck Protection Program count for yourself if you’re the only employee?

Philip Taylor:
Yep. So the paycheck protection program includes folks who are small businesses and sole proprietors, but also independent contractors. So if you literally just have earnings from that business, it may qualify for this program. Check with the bank, check with the regulations the SBA is rolling out this week. But my interpretation is yes, any small business owner, whether that’s sort of a budding small business on the side where you’re just paying yourself, can potentially qualify for this. So I’m factoring that in. I’m considering that to be something that’s viable. And the fact that treasury has now come out and said there’s two separate dates for application. April 3rd is when small businesses can apply and April 10th is when independent contractors can apply. Clearly says to me that this program is for both types.

Rachel Brenke:
No, I agree. And so what documentation do small business owners and contractors need to think about being able to provide during the application process? Have they put out guidance about that yet?

Philip Taylor:
Yeah, guidance is slowly trickling out from the SBA, the treasury, and certainly the banks who are going to be the ones where you apply, SBA approved banks. So, that may be the business bank you’re already working with. You may have to find a SBA approved bank if your bank is not. But they’re basically saying, “Give us your payroll information, give us the date that you started your business, and also give us your income,” right? So, things like your profit and loss statement, any payroll statements that you have, if you have employees, the profit and loss statement, and then some kind of documentation showing when your business started. Because they don’t want to issue these loans to people who started a business last week. It’s anyone before, who started a business before February 15th, 2020.

Rachel Brenke:
And that’s an interesting thing that you just said, because I’ve had a couple of emails this morning alone asking about, “Well, what do I do if I was just setting up my business? I haven’t even made any money.” So they’ve expended in the last few months all these costs to set up but never really started making anything. They’re not going to qualify under this program then.

Philip Taylor:
Yep. That’s the way I certainly interpret it. Yep. Unfortunately.

Rachel Brenke:
That’s a bummer. A couple other things on this. As a side note, we’re only focusing this episode on the Paycheck Protection Program. There are other things available out there. I know this morning our local Chamber of Commerce sent out an email with a specific type of grant and a lot of the items that you were just listing and what you would need to apply for the Paycheck Protection Program is also what was needed on the application for that grant program. Some other additional items were how many full time employees do you have? How many have you hired in the last 30 days? How many have you had to lay off since all this started? And it even went into asking about what would I spend the money on? And how many weeks that my business could survive without that grant? Obviously that’s a grant, different program than what we’re talking about here. But I can anticipate some of the same questions being in the PPP application.

Philip Taylor:
Yep. Good point. And there’s a lot in this CARES Act. And like I said, the Paycheck Protection Program is one of the first things mentioned in there. And that’s the one I’m most excited about because if you are someone who has multiple employers or employees, this could be a large loan amount, because the loan is calculated based on how much payroll you have and so … because this could be a big loan for people that ultimately is forgivable. But yes, there’s lots of other programs. There’s the EIDL, the Economic Injury Disaster Loan that’s out there. And there was, I know, an upfront grant attached to that. There may be some other grants and certainly unemployment benefits in this program as well. So there’s a lot in it. It’s going to keep CPAs and folks who are the financial professionals in your life very busy over the next few weeks trying to interpret it and apply it to the right people.

Rachel Brenke:
So, let me ask you this. Let’s say you have an entrepreneur listening to this and they’re like, “Oh, hey, great, good to know if I need PPP.” At what point should they pull the trigger on doing the application? Maybe they’re not feeling so hurt right now. Things seem to be okay. They haven’t felt a crunch or slow in sales or revenue yet. I mean, is there like a drop dead date of when no longer you can apply for this program or is it just kind of open until whenever?

Philip Taylor:
Yeah. So the program runs through June 30th, 2020. I believe that’s the date here, let’s see, I don’t know. Yeah, June 30th, 2020. You have until then to apply. But it’s also first come first serve. So in my opinion, you need to jump on this as quick as possible. You need to get up to speed about what your bank is doing, what the SBA is saying. And if this is something that appeals to you, I would apply as soon as possible and go ahead and get in line. And you have an eight-week period to use these funds for them to be eligible for forgiveness.

And so the quicker you get that going, the quicker you can sort of start that eight-week time period. So, if you started June 15th, you would just have 15 days to spend all the loan imbalance there. After that June 30th date, you can no longer apply for this program and you can no longer then submit … therefore, you wouldn’t be able to submit expenses after that point. And so it would just convert into a regular loan at that point. It’s a good loan, it’s two years at half a percentage point, 0.5%, but the forgiveness part would go away after that June 30th, 2020 date.

Rachel Brenke:
And when do you have to start making payments on it? Is there guidance there?

Philip Taylor:
Yep. It is deferred for the first six months. So as soon as you take it out, you have a six month timeframe where you don’t have to make payments. And now keep in mind you can make payments if you want. There is no prepayment penalty. And also if you use these funds for the right purposes, the qualifying expenses, which include payroll, rent, utilities, then those elements are forgivable. So if you take the loan out and you spend them all on eligible expenses, then you don’t have a loan at the end of this. You’ve used all those funds and so it wipes the loan out.

Rachel Brenke:
Good to know. And do you have to, you mentioned a couple times submitting the expenses. So you do the application, you get the funds and then you have to submit evidence of where you paid those funds out and to what you paid them to?

Philip Taylor:
That’s right. That’s exactly right. And you’ll work with your bank to do that. So the bank that ultimately lends you these dollars will be the one to also collect that information, to evidence that you’ve used it on qualifying expenses. Because the government wants to, to your larger point earlier about do I need this? The government is saying that they want you to continue employing people, to continue hiring people, to continue working business as normal and to not shut things down. That’s the purpose of this. And so they’re trying to inject cash in our economy. So help them out, use these funds to inject some money into the economy to give you confidence that regardless of what other dominoes are going to fall here, because who knows, we haven’t even reached the peak yet of this virus, and take this money and put it to use and then work with your bank and go ahead and start getting this thing going.

Rachel Brenke:
Well that’s what I was thinking. We’re not even, I guess I was reading reports this morning and we don’t need to get all into the epidemiology of it, but we haven’t even seen the worst necessarily yet for the virus itself. So I would imagine we haven’t even seen the worst economic impact of this. Is there potential for them to move the dates and prolong the application and use period? And are these just dates right now as guidance today? Or I mean, I guess my question-

Philip Taylor:
Absolutely. Yeah.

Rachel Brenke:
… is there potential for it to move? Okay.

Philip Taylor:
I would not doubt if funding for this gets increased at some point and dates get extended. Absolutely. This will be sort of an ongoing evaluation that the treasury is going to make, not just a one time shot and they’re going to have to clean a lot of things up with this massive bill that they just dumped on us without reading how they typically do it. But the regulators will clean it up and make it tight and help us to understand how to apply it and make the most out of it. And then, yes, it’ll keep evolving to respond to the situation that’s going on. Because the government in this, there’s no bad actors here, you know? The government is just trying to help us recover from a self-inflicted wound that they created. Right? They’re telling us to shut down and that’s having effects across all of our businesses. And so this is their way of rectifying that edict.

Rachel Brenke:
Well, and actually looking at the precarious position that our economy is in, it makes me apprehensive to recommend a loan program. I’m a big proponent on if you can build a business and run your business debt free as possible, do it. But then when you’re talking a bit about the forgiveness aspect of this, I feel a little better, but I get, I don’t know, I just feel a little uneasy thinking they’re calling it a loan, potentially forgivable. What if I get stuck in not being forgiven?

Philip Taylor:
Yeah, that’s a good point. And I have the same sentiment. I am completely anti-debt, certainly with starting a business. I’m a bootstrapper by nature. So I appreciate that. And when I first saw this, I was not interested. But when I saw that forgiveness factor, which to me effectively makes it a grant. And understand their intent with this, they want you to keep paying employees and keep injecting cash into the economy. And so for me, that sort of set my mind at ease that this is a program that I can work with and have confidence in that won’t bite me. And again, the way the calculations work is, you take your average monthly payroll over the past 12 months and multiply that or divide that by 12 to get your monthly average and then multiply that by 2.5 to get the maximum loan amount you could take out.

All right? So you can do that number in your head. I Also have a calculator on my website, on the article I wrote about this. You can check out to get that number. But that’s the maximum you can take out. So if you’re uncomfortable with that number and you look ahead over the next eight weeks and you say, “You know what? There’s no way I could spend that on qualifying expenses. Then maybe I’ll dial that back and maybe I’ll take half, half of that now. Or maybe I’ll take the whole thing. And if I don’t end up spending any of that on qualifying expenses, I just pay it all back.” So consider it almost like a line of credit that you’re getting to hedge your bets against the next 8 weeks of uncertainty in our economy. So, that’s the way I’ve tried to explain it to people. It’s sort of an interesting line of credit that pays for itself ultimately if you end up using it.

Rachel Brenke:
Interesting. And just to be clear on this, it’s called the Paycheck Protection, but we’re looking at payroll costs including benefits, interest on mortgage obligations, rent under leasing agreements and all of this had to be enforced before February 15th, utilities for service that began before February 15th and I’m pulling this directly from the Treasury guidance that I’ll link for you guys. But under payroll costs, and this is what I found interesting, it also includes state and local taxes that are assessed on compensation.

Philip Taylor:
Yep, that’s right. The only thing they’re not really including there, if you sort of add all that up, is federal taxes and payroll taxes. And the reason they’re not including that is because there’s also in the CARES Act a deferment for the next year and a half or two years almost for your payroll taxes. So that’s something else that’s going to make for another whole topic. Should you defer your payroll taxes for the next year and a half?

Rachel Brenke:
Love to have you come back [crosstalk 00:16:28].

Philip Taylor:
So that’s why they’re not including in the calculation. But yeah. So just to get it clear in everyone’s head, there’s two components to this. There’s sort of the calculating your loan amount part, and that includes just payroll costs. And then when it comes to qualifying expenses, what you can actually use this money for, it’s expanded a little bit to include those things you shared, mortgage, rent and a couple other items.

Rachel Brenke:
That’s really nice. Because I know some places, landlords are offering for free rents. Mine has yet to do it, although he did reach out to check on me. Ours has yet to for our commercial space. So in just an FYI for you guys, Philip has said it a couple of times, all of this, you’re not going to be going through the Treasury or SBA, you’re going to be going through a SBA, what did you call it earlier? Like an SBA certified bank?

Philip Taylor:
Bank. Yeah. Approved bank or institution. Yeah. Some institutions, financial institutions will be able to do it as well. But yeah, yeah. Your Chase banks, your Wells Fargos your US Bank. I mean those, the big players in the SBA lending space can certainly do it. But your local small business bank may be able to do that as well.

Rachel Brenke:
Mm-hmm (affirmative). And maybe some people are listening and thinking, “Okay, it’s under loan, may potential forgiveness, but I don’t have good credit.” Should they still apply?

Philip Taylor:
That’s a great question. So this has nothing, no credit component. You’re not making a personal guarantee. And there’s no collateral involved. So they’re just looking at the employees that you’re employing, the people on your team and how much you’re paying in salaries to establish the need here.

Rachel Brenke:
Does that also, we mentioned earlier independent contractors, does that also include me as an employer who has contractors that work for me or is that just as a contractor can pull this?

Philip Taylor:
That’s a good question and that’s sort of a gray area right now. The way I interpreted the law initially was that me as an employer could also include my independent contractors in my payroll calculations. But if you think about it, if they’re also allowing that independent contractor to also submit for a PPP, they’re including their earnings. And so there would be a double dip going on there. And so I think what the Treasury has done is it brought clarity to the law, and I’m waiting for further clarification on this, but it looks like at this point I would just be able to include folks that I have an actual payroll for if I’m a small business and not my independent contractors. Not people like 1099 or pay through PayPal. Because theoretically those people could then go apply for this PPP themself. Yep.

Rachel Brenke:
Okay, good to know. And then if we see any changes on that, y’all, I will update that on the show notes page as well for you. Because it would be nice, I have a lot of virtual independent contractors that work for me, but if they’re going to pull it themselves, that makes sense.

Philip Taylor:
Yep.

Rachel Brenke:
Oh my goodness. All right. So this is a lot of information. We’re going to link all of this for you. Before I let you go, Philip. I know your time is super precious right now with all this going on. Do you have any tips though for entrepreneurs to maybe jot down so they don’t get in a position like this in the future? I mean, could we have really predicted a pandemic? No. But what are some things they could do so they’re not scrambling to have to rely on PPP and other programs?

Philip Taylor:
Yeah, good question. So, something that’s worked for me and it’s straight up just a resource is the Profit First materials that Mike Michalowicz puts out and he really helps you to pay yourself first when it comes to your business. So a lot of people think about paying themselves first or automating their savings when it comes to their personal finances. And I really try to do the same with my business. And the Profit First system by Mike to me is the best out there to help you set that up to where you’re taking care of these important needs first, you’re paying yourself, making sure you’re getting paid, but you’re setting money aside for taxes and for emergencies like this so that you’re ready. But also just staying lean and mean and taking that bootstrapper approach where you’re not overextending yourself, you’re not taking unnecessary debt on, you’re slowly building with team members that can help you to grow in a more reasonable fashion.

But it’s challenging, as a business owner, when something like this happens and it’s just no fault of your own here. And so have … The questions I’ve been asking myself lately are, are there other streams of income that I could have been creating alongside what our core business is? Right? Or there are other different ways to think about how we deliver our services? And can we, for instance, I run an event, FinCon, you mentioned it upfront. We are certainly still planning to have that event this year. But I’ve told my team we’re also going to be executing a virtual event at the same time, just in case it doesn’t happen, just in case … we just need to be in a position to where we’re delivering both products. And so, that’s something I wish I would have done a long time ago. We could have been delivering both for years now, but we sort of hesitated because we have always just been able to have the real event in person. But so think about that in terms of how you can deliver something in a different way and then check out Profit First.

Rachel Brenke:
Definitely, and it’s, I’ve probably been a bit more of an optimistic than most during this process, because I’m seeing exactly what you just talked about. Business owners are having to go, “Oh my gosh, I haven’t been listening when Rachel’s told me to have a savings and this and that. So I’m not going to get it in an order. And on the flip side, what else can I do? What other income streams?” So I’m seeing this growth potential and the light bulbs going off on people’s heads and I’m excited for it because I feel if you take this, listen to these podcasts, go to PTMoney.com, follow us on social media. There’s a lot of great information, there’s a lot of information right now because everyone’s home tweeting and blogging. But there’s a lot of great information to do exactly what you just talked about. And so I’m really, it can sound weird, I’m excited to see what can come out of this crisis that we’re going through and how it can improve people’s lives. Yeah.

Philip Taylor:
I am too. I am too. We’ll be forced to innovate, think differently about things and it’ll stretch us, stretch our entrepreneurial brains to do things differently. So I’m excited too.

Rachel Brenke:
Me too. Well, thank you so much for all this information on PPP. FYI guys, don’t forget, all the show notes are going to be Rachelbrenke.com/epi115. I will be updating this as much as possible and we also will have a thread in The Business Bites Facebook group. Other people asking questions, interactions with other entrepreneurs, make sure you dig into that. I’ll be putting all of Philip’s stuff on the webpage as well as link to some of the Treasury information, going to try to keep that as updated as possible for you, but don’t be afraid to reach out and good luck.

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Featured Guest & Resources

Philip Taylor, aka “PT”, is a CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of the personal finance industry conference and trade show, FinCon.

He created Part-Time Money® back in 2007 to share his advice on money, hold himself accountable (while paying off over $75k in debt), and to meet others passionate about moving toward financial independence..

You can find Philip here:
Website
Facebook
Instagram
Twitter
Pinterest

About the author

Rachel Brenke is a lawyer, author and business consultant. She is currently helping professionals all over the world initiate, strategize and implement strategic business and marketing plans through various mediums of consulting resources and legal direction.

Hi, I’m Rachel Brenke

Rachel Brenke

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