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Specialist John Stanford breaks down deadlines, eligibility and more!
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00:00Thanks to Essence and the U.S. Black Chambers for convening such an important conversation today.
00:05My name is John Stanford, and I am the managing partner of PRISM Group, headquartered here in Washington, D.C.
00:11I also serve as executive director of Small Business Roundtable, and we have remained at the fore alongside your advocates here in Washington,
00:19fighting to make sure that small business owners of any kind, but in particular, Black-owned businesses,
00:25have the resources they need to survive and thrive both during and after.
00:30The coronavirus and the ensuing health care and economic crisis that we face.
00:35I'm here today to talk about the CARES Act and the relief for Black entrepreneurs and small businesses.
00:41We're going to talk about five important programs that you should be aware of, both for yourself and for your workers.
00:49I want to stress that it's really important in these times to stay as up to date on this information as possible.
00:55And I also want to say that this information is changing daily.
00:59We are in regular conversations with lending institutions, the Department of Treasury, the Small Business Administration,
01:06and many others who are helping bring these programs into being.
01:09But it's only been a week since they've been created, and the rules around these programs are changing regularly.
01:15So again, the best thing you can do as a business owner is stay informed, be joining conversations like the one we're having today,
01:22and stay up to date with Essence and the U.S. Black Chambers via their websites, their newsletters,
01:28and an open communication with business owners throughout your community.
01:32With that, I want to talk about the first of five different programs that we're going to look at today.
01:38And the first is the one that you have probably heard about the most out of the CARES Act.
01:44Now, CARES stands for the Coronavirus Aid, Relief, and Economic Security Act,
01:49and it was the third federal relief bill aimed at stimulating the American economy in response to coronavirus or the COVID-19 pandemic.
01:58The most key piece of this $2 trillion relief package for us here today is the relief it provides to small and mid-sized business owners
02:08through various lending programs, as well as a number of other vehicles available to your business.
02:18We're going to go through five programs today, as I said.
02:21The Payroll Protection Program.
02:23This is a loan program that most of you have probably heard about.
02:27It's certainly the largest of the programs, but we're also going to talk about Economic Injury Disaster Loans or EIDL loans,
02:34the newly implemented Midsize Loan Program, some payroll tax provisions that may benefit your business,
02:43and the Employee Retention Credit.
02:45Again, this is a starting point for your business to be informed about these programs,
02:51and I really hope you will stay engaged with our organization so that we can keep you up to date.
02:59Again, many of the rules around these programs are still changing as banks decide the best way in order to affect these lending programs.
03:10And so I really stress one more time, and I'll do it again,
03:13it is critically important that you continue listening and engaging as these rules change.
03:20So let's start with the Payroll Protection Program.
03:24This is a new loan program, unlike anything we've ever seen before at the Small Business Administration.
03:31Technically, it's part of the 7A lending program that some of you may be familiar with,
03:35but I think it's really best to think of this as an entirely new lending program,
03:40because at its very cornerstone, it is different because the loans provided to business owners have the opportunity to be forgiven in full.
03:50I'll say that again.
03:52These loans, if used correctly, can be forgiven in full, and the business owner might owe nothing on the loan.
04:00So let's take a deeper dive at the Paycheck Protection Program.
04:03This program is about $350 billion, so it is by far the largest focus of government support for small businesses.
04:17It aims to help businesses retain and pay workers during the pandemic.
04:22Small businesses with fewer than 500 employees are automatically eligible,
04:27and this includes the self-employed, which so often find themselves in a tricky situation of not knowing if they're eligible or not.
04:35And the goal of this program is to provide business owners with the capital needed to keep making payroll for the next eight weeks.
04:44That's really all there is to it.
04:46We're going to go into great detail about eligibility and how to make sure your loan is forgiven.
04:51But at the end of the day, different than other loan programs that you might use for working capital or significant manufacturing expenses,
05:01the point of this program is to keep your folks paid and keep them on payroll.
05:08And I would stress that the U.S. Black Chambers has a great guide that goes into a lot more detail about eligibility around this program.
05:15If you're larger than 500 employees, you may still qualify if your SBA size standard for your industry is larger than 500 employees.
05:26Again, I really encourage you to consult the guide.
05:29There's only so much we can cover here today, and there's a lot more detail provided both in the guide from U.S. Black Chambers,
05:36as well as on the Treasury Department and Small Business Administration homepages.
05:41Another rule about eligibility, you had to have been in operation on February 15th, 2020, or before in order to qualify.
05:53The reason for this is it was clear that some support was going to be needed,
05:59and the government doesn't want businesses that were created just for the purpose of taking advantage of this program.
06:05And to that end, it's only available for folks who were in business before February 15th.
06:15An important number around all of this is $100,000.
06:19It's going to pop its head up in a lot of places.
06:22But the number one question we receive from business owners is,
06:27how large of a loan can I get, and how can that loan be forgiven?
06:30The loan size is equal to two and a half times, so 2.5 times, your average monthly payroll for 2019.
06:42There's been some back and forth about whether or not it's the rolling 12 months before you apply,
06:47or if it's calendar year 2019.
06:50We are seeing banks offer both, so you may want to see what's most advantageous for your business.
06:56But generally speaking, it'll be 2.5 times your average payroll.
07:02And payroll is going to include health insurance premiums, retirement benefits,
07:08and a number of other items that should be able to increase the amount you're able to borrow.
07:14But again, if we think about the program, the point is to provide eight weeks worth of support,
07:19as well as help pay interest on any mortgage, rent, or utilities.
07:24And so that's the reason why it's two and a half times payroll.
07:29It's capped at $10 million.
07:31But there's a lot of confusion that you can get $10 million.
07:36You can only get $10 million if you're a very, very large, small business.
07:42Most businesses, 95% of all businesses, will come nowhere close to getting the full $10 million.
07:50Because if payroll for your business is only $10,000 a month,
07:55you're only going to be able to borrow $25,000.
07:59That's that two and a half times $10,000.
08:01If your payroll is $100,000, you're only going to be able to get $250,000.
08:07So to be getting more than $10 million and have that cap come into play is really only going to be for the largest, excuse me, of small businesses.
08:19Now, another key caveat around this loan is that you can only take, for payroll, for calculating payroll,
08:31you can only count the first $100,000 of an employee's income.
08:36Again, the thought on Capitol Hill was that this is a short-term program to prop up businesses.
08:44It's not necessarily to match your payroll dollar for dollar.
08:48So for your employees earning over $100,000, both in calculating the size of the loan as well as for loan forgiveness,
08:57you're only credited up to $100,000, prorated for the eight weeks that you're paying.
09:04And for the average monthly payroll, you can only calculate up to the annualized salary of $100,000.
09:16This is a really important piece.
09:19And the new SBA regulations, as well as the U.S. Black Chamber's guide, have some good examples of how to calculate this.
09:27But again, you are effectively limiting the calculation to salaries up to $100,000.
09:34Now, if you have an employee who makes $150,000, or if you, the owner, which is included,
09:42if you, the owner, make $150,000 or an employee,
09:46that doesn't mean you totally ignore that employee for calculating payroll.
09:50You would just not get to count that extra $50,000.
09:53So on paper, that employee would only be worth $100,000 for calculating the payroll.
09:59I would work really closely with your accountant and your banker as you calculate these amounts.
10:06About the loan, the loan is a 1% two-year loan.
10:12But I really encourage folks to think of it to achieve maximum forgiveness.
10:18Everything you spend within eight weeks on qualified expenses will be forgiven.
10:23So if you take out of a loan of $1,000,000 for your business, and again, the loan size is capped at two and a half times payroll.
10:32But let's say that was $1,000,000.
10:36You should try to spend that full $1,000,000 in the eight weeks.
10:41And allowable expenses include making payroll, but again, you cannot pay anyone with the loan forgiven amount of more than $100,000 on a prorated basis for that eight weeks.
10:58And again, there are a lot of calculations online showing how you can use this.
11:02You can also use it to pay interest on a mortgage or pay rent or pay utilities as long as those were all in place before February 15th.
11:13So again, if we think of key principles here, everything should be in place for before February 15th.
11:20That's the magic date.
11:22$100,000 is a key threshold.
11:25Generally speaking, the government's not going to compensate you for more than $100,000 on a prorated basis.
11:33And third, another magic date is June 30th.
11:36That is when this program ends.
11:39Now that said, we strongly encourage you to be talking to your banker about this now because that $350,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000.
11:55If you are trying to apply in May or even later in April, you may find out that it is too late for you to qualify.
12:08The money may all be gone.
12:11So I strongly recommend you talk to your bank about whether or not they're participating in this program and pursue this loan.
12:18A lot more details on this loan are available in the guides provided by the U.S. Black Chambers.
12:25We're going to be having continued conversations about this with Essence.
12:29And of course, SBA and Treasury.gov have additional resources and additional details.
12:36There is a lot of confusion around this program.
12:40And that's because it's a brand new program.
12:42It's unprecedented in its size, and it has this new loan forgiveness that many folks are still trying to wrap their head around.
12:51But I encourage you to talk to your trusted advisors, talk to your fellow business owners, talk to as many folks as you can.
12:59You're going to hear a lot of misinformation.
13:01But as long as you stay on top of it, the most important person is your banker.
13:05And here's why.
13:07These loans do not come from the government.
13:10Again, these loans do not come from the government.
13:14Other programs that we're going to talk about do.
13:17But this program comes through a lending institution, most likely a bank.
13:23Banks do not have to participate in this program, but most of them are.
13:28And so I would talk to your existing banker about whether or not they're participating and the eligibility requirements for your business to participate.
13:37I will say we are hearing that some banks are participating while others are not, and that many banks are only focused on serving their existing customers.
13:47So we would recommend you start the conversation with your current bank.
13:52There are a lot of other details about the calculation of this loan and what can be included.
14:00For example, if you've already taken out an economic injury disaster loan, which we'll talk about here in a minute, you can refinance that through this loan program.
14:10In fact, that's exactly what SBA would like you to do.
14:14There are a lot more details, and we'll talk hopefully about a few of them during the Q&A portion.
14:21But there's a lot more to this program.
14:23So please be checking out the information available online.
14:27There's so much more to consider about this program.
14:30Switching from the PPP loan, which, again, allows you up to $10 million, but for most of us, it would be much, much less, will be forgiven if you spend it within eight weeks.
14:46We're now going to talk about the Economic Injury Disaster Loan, or EIDL loan, as folks have been calling it here in D.C.
14:54We never miss an opportunity to let an acronym go to waste.
14:57EIDL loans are not a new program.
15:01There is a new element to this program, which I'll talk about in a second.
15:05But the EIDL loan program has been around for a long time.
15:09And this is how the Small Business Administration lends to businesses impacted by any disaster.
15:16So if you've been hit by an earthquake, a hurricane, or a tornado, you may be very familiar with EIDL loans of the past.
15:23These are low-interest, 3.75% loans, up to $2 million.
15:29They do look much harder at the soundness of the business, and they will do a credit score check.
15:36The PPP loan does not do that.
15:40The PPP loan is not focused on whether or not your business is a sound investment.
15:45Instead, this is solely focused on helping you make payroll for the next eight weeks.
15:50So they're very different programs as we think about them.
15:55For the EIDL loan program, you apply from SBA, and you apply online at sba.gov.
16:03Now, what they've added and what's new to this loan program, why a lot of folks are now talking about it,
16:09you may have heard about this $10,000 grant.
16:12And it's absolutely true.
16:14You can apply for the loan and request an advance of $10,000 that should be provided to you within three days.
16:23Now, we are, as SBA stands up this program, many of you may have already done this and not received it.
16:29We are hearing that from a lot of people.
16:32SBA is taking some time to set this up.
16:35But when it is fully up and running, you will be able to get an advance of $10,000,
16:40even if your loan is denied.
16:43And if that is the case, you do not have to repay the $10,000.
16:49So it's really a band-aid for small businesses that are in desperate need of a small amount of capital, $10,000.
16:58But you can request up to $2 million.
17:00But you will need to justify, in many cases, the background to the business and demonstrate that you are going to survive
17:10and that the business will be able to repay this loan.
17:14Very different, again, than the PPP loan, where the focus is not, is the business going to make it?
17:20The focus is, keep getting folks paid.
17:23That's why it's the Paycheck Protection Program.
17:25The next program we're going to talk about is for some of those businesses that may be more than 500 employees
17:31and not eligible for either the EIDL or PPP loans.
17:36There is a new mid-size loan program that is for between 500 and 10,000 employees.
17:44And this is truly a pure lending program.
17:48There is no forgiveness.
17:49There is no advance.
17:50There is no grant.
17:51The focus of this program is to provide capital to businesses that are significant in size
17:58but may need to access additional lines of credit during these challenging times.
18:05Should you go for one of these loans, there are many requirements that are new to lending programs across the government.
18:13There are restrictions that you must maintain 90% of your workforce that you had before the crisis
18:22as well as limitations on executive compensation in particularly above $425,000.
18:29There are also a number of different requirements.
18:33The rules around this program are still largely being written.
18:37And so I strongly encourage if your business is following this, you have more than 500 employees,
18:44you're not eligible for the PPP program, you're not eligible for an EIDL loan,
18:49there'll be a lot more information coming out on this program and the manner in which you can access these funds.
18:55So we want you to know that they're out there, but they are not available yet as far as we know,
19:02and more additional detail will be coming.
19:04So that is the mid-size loan program.
19:09In addition to loan programs, the CARES Act had some tax provisions that may prove helpful.
19:17We'll cover two of them here.
19:19The first one is a payroll tax provision that authorizes folks to not pay their employer side of the payroll tax.
19:29So these are your FICA taxes that can be as high as about 7%.
19:33You have the opportunity to not pay those for the rest of 2020,
19:41and you'll make payments on them in 2021 and 2022.
19:46So this isn't a cancellation, as we've seen in previous years, of payroll taxes.
19:52It's a deferment of these payroll taxes in order to put a little more capital in the business owner's pocket.
19:58But eventually, you will owe these.
20:02Now, most importantly, if you do this payroll deferment, you are not eligible for a PPP loan.
20:09And probably a better way to think of it is if you take a PPP loan, you are not eligible for this payroll tax deferment.
20:16Again, I'll say that again.
20:17If you take the PPP loan, you are not eligible for the payroll tax deferment.
20:24The other item is the employee retention tax credit.
20:28Again, this is not available to businesses that take the PPP loan program.
20:34But for some folks, that loan program may not be a fit.
20:37If that's the case, this is a tax credit that's designed to do the same thing.
20:43Keep your employees on payroll.
20:45You are only eligible for this if you have experienced a 50% drop in gross receipts in the first quarter of 2020 compared to the first quarter of 2019,
20:56or if you have been shut down and ordered to be shut down as a business.
21:03Notably, the self-employed are not eligible for this program.
21:06The process of the employee retention tax credit is a refundable tax credit for 50% of the wages paid by a small business up to $10,000 per employee.
21:18And that includes health plan expenses.
21:21You may begin claiming it for wages paid after March 12, 2020 and before January 1, 2021.
21:28So for much of the rest of the year, you'll be able to take advantage of this tax credit.
21:34And again, this is where figuring out what's right for you as a business owner is going to come into play.
21:39Now, small businesses are eligible to receive both tax credits for the qualified leave under earlier legislation.
21:50Now, some of you may already be claiming this, although I'd say it's pretty rare that folks are already claiming this.
21:56This is required sick leave, a tax credit to help people pay for that in beginning of March.
22:03You can also take this employee retention credit, but you can't take it for sick leave and paid leave.
22:12And that's a theme through all of these programs is the government is trying to prevent double dipping.
22:19You cannot double dip.
22:20So if you're going to take one program to make a payroll, you can't take another tax credit or another loan to make a payroll.
22:27But I want to stress that EIDL and PPP, this is one of the biggest questions we get.
22:35You can take both an EIDL loan and a PPP loan, but two things to remember.
22:41One is that $10,000 grant is going to get subtracted from your PPP loan forgiveness.
22:47And two, you cannot use them to make this pay the same expenses.
22:52The government's going to be very strict on this, and you could be putting your forgiveness of the PPP loan at risk if you are not very diligent about showing how you used which funds.
23:04So if you're going to use an EIDL loan to pay rent and you're going to use a PPP loan to make payroll, that's okay.
23:10But you're going to need to be able to show that that's the case.
23:13These are five different ways the CARES Act is out there for small business owners, including Black-owned business community.
23:24What's right for your business is going to be up to you, and you'll need to probably consult with your banker and your trusted advisors and your employee base about what's right for the entirety of the organization.
23:38We here, both at PRISM Group, the U.S. Black Chambers, and Essence, will be partnering in order to bring as much updated content as we can so that you can make the right decision for your business.
23:52To sum up, the PPP loan program is probably the best fit for most businesses.
23:59It will allow you to make eight weeks of payroll, rent, mortgage interest, and utilities, and be forgiven the amount you borrowed from the government if you use it for those expenses.
24:13The EIDL loan program is separate, but its special feature is you can get $10,000 within three days.
24:21But they're very different programs.
24:23For those larger than 500 employees, the mid-size loan program may be best for you.
24:30And for those who are looking to use the tax code to support their businesses in this tough time, there is both the payroll tax deferment for the rest of 2020, as well as the employee retention tax credit.
24:46So that's five different options.
24:48You can't take all five, so you should be thinking about what's best for you.
24:53I'll close before we go to Q&A and turning this back over by saying on the PPP loan, this money is going to go fast.
25:03The documentation you need is probably your payroll taxes, your Form 941.
25:10Get to your bank or a bank that is offering this loan or a lending institution that's not a bank as fast as you can so that we make sure that this community doesn't miss out on the benefits from the CARES Act.
25:23Thank you for your time today.
25:24Good luck during these trying times, and please stay tuned to more from Essence and the U.S. Black Chambers as they do their best to support Black entrepreneurs in these challenging times.
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