Maximizing PPP Loan Forgiveness: The Next Steps after Loan Approval

what we want to go through on this Club Capital webinar is thinking about now maximizing the Payroll Protection Program loan forgiveness. So really what we've been able to see over the past 6 or so weeks, we've really been in the process of first understanding what the Payroll Protection Program is, understanding how it can help all small business owners across the country, specifically the insurance agencies that we at Club Capital specifically work with across the country. Um, and, uh, so we've seen the applications, uh, go through for that. And what most people are seeing, especially the, those that we were able to help, um, in the application process, is seeing all of those loans now being approved and funded by the SBA. Um, so with all of that coming to light, uh, we now want to be able to think about, okay, what does the management these loans actually look like? What is everything that we need to be able to do over the next— especially a lot of people are thinking about the 8-week period that we need to be able to manage these loans and what these loans were specifically designed for. What should we be thinking about? And if, you know, these loans can be forgiven, How should we be thinking about maximizing the loan forgiveness for what the plan was specifically designed for? So that is what we're going to be going over today. Forgiveness, and then talking a little bit about some of the strategies behind maximizing the loan forgiveness, as well as cash flow considerations for those that might be seeing a significant dip in revenue and what to kind of think about during that time period. So agenda for today. First of all, this is, uh, uh, me, Micah Cannon, one of the partners at Club Capital. Agenda for today: where to deposit your PPP loan. So I think one of the first things that we're seeing and hearing from some of our clients, uh, or some of the people that we were able to help out with is what should I be doing with, with this? Should this stay in a separate bank account? Do I need to access this or set up my payroll to go out of a separate bank account? So let's talk about that. Forgiveness eligibility. So one on eligibility and also expenses that might be ineligible to be a part of this program. We'll talk about the timeline for the Forgiveness expense tracking. And then talk about what we're calling reduction triggers. So there's actually 4 triggers that could reduce the amount of forgiveness for the loan, right? So the entire loan amount has been decided upon really in kind of an easy calculation, but looking at what can be forgiven is actually a little bit harder. So 4 triggers that could reduce the forgivable amount of the loan, and then the balance would then stay as a loan that would need to be repaid. We'll talk about what documentation needs to be provided, at least that, that we have guidance on right now. So when applying for forgiveness, what type of documentation needs to be done? What strategies can we use to look at loan maximization? Or loan forgiveness maximization. We'll do cash management, and then we'll do a Q&A. So we'll use the chat feature of Zoom here to manage all the questions that we have. We will be going through— I'm going to go through the entire presentation first and get to a Q&A. We have had a number of questions come through over the last, really, week specific to, okay, we've got the money. Now we've been approved for the loan, what do we do from it? So we've designed today's presentation really to go through a lot of those questions that we've seen. So I want to make sure that we get through all of that and then see what other questions that we have and try and address as many of them as we can on this presentation and then do some follow-up. So we will be sending out this webinar as well. We'll put it on a landing page and send out the link to the landing page after the presentation later today. For anybody that wants to go back and see what we talked about today, or for anybody that was not able to make it today and signed up for the, for the webinar, or feel free to forward that website link over to anybody else that might be able to get some value out of this. A quick disclaimer is that we are an accounting firm and CPA firm, and we are not attorneys. So the implementing guidance, a couple things here. So the implementing guidance has not fully been issued by the SBA yet. Some things are changing honestly day by day, which is what we saw on the front end for loan origination. A lot of things changing kind of rapidly. That's what's happening here as well. So we're going to be doing a number of webinars over the coming weeks and months to be able to stay on top of all of the new changing regulations and guidance from other bodies such as the AICPA. So this guidance is certainly going to change over time. This is not specific legal advice. This is some recommendations from our team on the accounting side, from everything that we're seeing and others that we are talking to. And then generally, this is for informational purpose only. If there is specific legal concern, especially around HR, we do recommend talking to an employment attorney. So please just keep that in mind. So first question is where to manage the loan. So you've received the loan. What a lot of banks are doing is two things, and especially with the bank that we had partnered with, two options here. Either the bank is going to, for, for kind of ease and quickness of making the PPP loan proceeds available is creating a bank account for you to, at that bank, to have access to loan funds, or they are providing an ACH option where you can ACH the money directly from that banking institution over to the bank account of your choice. So first thing to think about here is just directly deposit this into your operating account. That is our, our first recommendation here. This needs to come directly over into your business operating account or another business account that you may have. This is not something that needs to be fully managed in another institution. The management of this is going to be done through reporting. Okay, so that's going to be done through payroll reporting, through financial reporting, through supporting documents such as rent agreements or utility bills, things like that. So the, the reporting on this is not done necessarily through a bank statement. So that bank is not responsible for managing the funds. So they will be done based upon supporting documents that you have for the expenses, not necessarily on the actual cash flow of that specific account. So our recommendation here is simply to bring this over into your operating account. So you do not need to set up payroll over to another account or to be writing checks out of a new account for certain expenses. Our recommendation here, just bring it directly into your operating account. So timeline, two different timelines to think about here. One is the timeline for eligible expense tracking to calculate the loan forgiveness, right? So this is the primary 8-week timeline that we've been hearing about. So 8 weeks, right? 8 weeks. So the 8-week timeline starts on the, on the day that your funds were made available to you from the bank, right? So the, the process with the initial bank that was originating the loan is that they would submit your application to the SBA and get approved for that. It's not necessarily when you got approved, but it's when the funds truly went into either a bank account that was created for you by the bank, or the funds were ACH'd over to you, whichever one kind of came first. That is when the time starts. That's when the clock starts for the 8 weeks of expense tracking.

Okay.

And then the second timeline is when do we need to be submitting for loan forgiveness? Okay, so that starts, that timeline starts at the end of the 8-week period, and from what we've seen thus far, there will be a 90-day window to apply for loan forgiveness after the end of that 8-week period. Okay, so everything we're seeing right now, just like you went to the bank to submit, you have to go through a bank to submit to the SBA, the same process is going to happen here. So you're going to be submitting an application for loan forgiveness to the bank that you got the loan through for that forgiveness period. And there will be a 90-day window after the 8-week period there. So what's interesting here is that generally everybody's 8-week period is going to be unique to them. Your 8-week period might not be the exact same as somebody else's 8-week period depending on when you got the loan. Some people got the loan in the first round of funding, some people got it in the second, and based upon when it was deposited into your bank account, it's, it's kind of up to you. So For those that work with Club Capital today and for, for those that don't have payroll, we use Gusto for our payroll. We've already been in conversation with them that they are developing a specific report for this that you will allow— that will allow for each company to be able to put in their specific date that they received their loan so that Gusto knows when to pull that report from. I imagine other payroll vendors are doing the same. So forgiveness may be reduced, right? So the entire loan amount may not be eligible for forgiveness. So there are 4 triggers for this reduction, and before I go into that, let's remember how we got to that loan value. That loan value in a nutshell was developed by looking at your average monthly payroll cost and multiplying it by 2.5. Okay, so we didn't necessarily bring in other expenses into that calculation, such as rent or utilities, to get to that total loan value. That being said, when we think about the reduction— or excuse me, the forgiveness portion of this— we do need to start thinking about that. So it's possible that not everybody's total forgiveness amount will equal the total loan value, and so that's what we really want to go through today. So 4 triggers. First, the funds must be spent on eligible expenses. So we're going to use an example of a $40,000 loan, uh, uh, Payroll Protection Program loan. So if an agent received a $40,000 PPP loan but no funds, no, he had no expenses that fit into the category, there is no possibility for, for any type of forgiveness. So first, funds must be spent in the right eligible categories, and so we'll talk about what those eligible expenses are. Second is that we need to look at the percentage of those eligible expenses. The primary one that we need to look at is the percentage of salaries to operating costs, right? So the, the percentage of the overall loan that needs to be spent on payroll is 75%. So that is the biggest one to think about right away. So in that example, $30,000 would need to be spent on payroll costs out of the $40,000 loan to be eligible for forgiveness. Any less than the $30,000, not eligible for forgiveness. And then we can talk about maximizing that. The third is going to be employee headcount. So even if you spend $30,000 in that, and we have scenarios on that on the next page here, but even if you spend $30,000 on salary out of that $40,000 loan, if your headcount was reduced during that period, then the total forgiveness amount will be reduced as well. And then the same goes for compensation levels. This one's going to be a little bit trickier, and we'll dive into this, but for compensation levels, they really want to see that the percentage of employees' salaries is not being diminished too much. So there's a limit of 25% that allows— that they allow, but anything over 25%, so if employee compensation goes down by more than 25% during this 8-week period, from a comparable period, then dollar for dollar, the loan, the forgiveness amount will go down anywhere past that 25%. So a lot to think about here, which is why we have actually built in some scenarios in just a couple slides. So one, trigger one, the funds must be utilized. These are eligible expenses here. So let's think about what is eligible to be forgiven. So payroll expense up to $100,000 salary per employee. Anything outside of $100,000 salary would have to be removed from the calculation for that. This is the same that was in the, in the calculation for loan origination. Rent. So we can— the eligible expenses for forgiveness include rent, utilities, and interest. And then keep in mind here that these have to be for agreements that were signed in place or contracted with on the utility side prior to 2/15. Okay, so this can't be new lease agreements that were after this, this period. Ultimately though, up to 100% of the loan value can be forgiven. We just need to see what the percentages are going to be and how they might be unique into each individual. So we talked about eligible expenses. Let's talk about ineligible expenses. So obviously compensation in excess of $100,000 per employee, similar to loan origination, any compensation to employees with residence, uh, primary residence outside of the United States, prepayment for expenses. This one's big here. So we can't just prepay our rent for the entire year. And have that be a qualified expense. So we are only going to be looking at the specific time period. So rent that would apply to the 8-week period that we'll be looking at specific to, to your account. And then this last one here, emergency sick leave or extended FMLA under this— the FFCRA is the Families First Coronavirus Response Act. So Club Capital actually did a a webinar on this topic as well just before the, the Payroll Protection Program webinar series started, and this is in response to really a lot of payroll regulations for employees that need to be able to take some additional time either due to being directly impacted with coronavirus or having to take care of family members that either have it or are just out, have to be at home and cannot work, such as having a child to take care of and they cannot work, they can actually be put on extended family medical leave and have that reimbursed back to them through payroll taxes from the government. So since it's already going to be reimbursed back to them under this extended FMLA rule, then these, uh, they can't double dip in essence. So you can't include those in your payroll cost figures if you are providing this to an employee during this 8-week period. And just to keep in mind, so PPP funds, uh, will remain as a loan outside of the forgiveness guidelines, right? So if $35,000 ends up being eligible expenses out of a $40,000 loan, then the $35,000 can be forgiven and the $5,000 would remain a standard loan per the guidelines of this at 1% interest that would need to be paid back. So let's talk specifically about Trigger 2, the, the 75% payroll expense provision. So payroll must account for at least 75% of the loan to be forgiven. So let's remember what the overarching goal of this is, right? The goal is to quickly put money back into the economy. And to keep payroll levels really where they were prior to the crisis. So with that being the largest provision, we put together just a couple scenarios to be able to look at here. So we've got Scenario 1, where payroll matches the 75% of loan amount, right? So we'll go down through this table. The loan amount was $40,000 that the agency was approved for and funded. If we look at all of their eligible expenses over the 8-week period and we see that for payroll, rent, utilities, or any mortgage interest, that all of that added up to $40,000, that is their eligible expenses that were incurred. And then payroll cost, if we look at payroll costs specifically and we saw that payroll costs added up to $30,000, then the payroll cost over the loan amount would be 75%. So in this essence, the forgiveness would match the eligible expenses incurred of $40,000. So we'll look at Scenario 2. Scenario 2 is where you still use the exact same amount. So the eligible expenses of payroll, rent, utilities, and any mortgage interest match the $40,000. But the payroll costs happened to be 35%. This is one of the things that we're seeing a lot with our clients is that their payroll might be much more than the 75%. So payroll was larger than the 30— than the 75% threshold here with a payroll cost of $35,000. So their payroll cost to loan amount was 87.5%. In this situation, everything is fine. The forgiveness amount matches the loan amount. And matches the expenses incurred amount of $40,000. So in Scenario 3, we look at a scenario in which the eligible expenses of payroll, rent, utilities, and mortgage interest do not add up to the $30,000— to the $40,000. So if we add up all of that for this specific scenario, we get to $35,000. What we would still need to have here though is 75% payroll costs from the loan amount. It's not 75% of the eligible expenses incurred, but it's 75% of the total loan amount. So we see a payroll cost of $30,000. The remaining $5,000 of eligible expenses was rent, utilities, mortgage interest. In this situation, 100% of the eligible expenses would be forgiven. Okay, so I'm sure there's probably a couple other scenarios that I'm sure people are chatting in about already, so we'll get to those at the end. So trigger 2, and we're going to use some of the same numbers on the previous slide for this as well. So trigger 2 is headcount. So headcount is going to be, you know, again, one of the goals of this is to keep everybody, the workforce employed. So we want to be able to look at was the— did the headcount for the business or for the agency decrease during this 8-week period to a comparable base period. So one, we'll calculate the 8-week full-time equivalent hours of the 8-week period. And then step two will be the base period. So there are some options that they give. For choosing a base period from everything that we've seen in the guidelines so far. So in essence, whichever is the more beneficial base period to look at, so that is either February 15th, 2019 to June 30th, 2019, or to use the first 2 months of this year. We'll give some more guidance on that specifically as we, we find out more. But in essence, what we want to be able to look at here, so in Scenario 1, just like previously, we used a total loan amount or forgivable amount of $40,000. And so we, what we want to look at here is the 8-week period. We had 10 full-time employees. In the base period, we had 10 full-time employees. So the percentage is 100%. There was no change in this. So of the eligible expenses incurred of $40,000, we— nothing changes. Headcount remains the same. So now we want to see what happens if the headcount drops, right? So if we were going to have eligible expenses from the previous slide of $40,000, but our headcount went down by 20%, in essence, right? So we're at 80% of our previous headcount, then our forgivable amount would actually be— go down by the exact same. So we met the 75% threshold, but our headcount went down. So our forgivable amount is going to go down by that same percentage. So this is a big deal. So a lot of people might be seeing, you know, people leave, or if people are leaving the firm, the agency, what is going to happen to that? The biggest thing that we can see here is we would probably want to rehire during this situation. If something like that is happening. So definitely a big part of the forgiveness here. And so let's just look at Scenario 3. So Scenario 3, if you remember from the previous slide, is where we looked at eligible expenses that were less than the total loan amount. So we had eligible expenses of payroll, rent, utilities, mortgage interest of $35,000, right? So $5,000 of that would then stay as standard loan. But then we look at the headcount here and it's gone down by 20%. So we're now looking at a loan or a forgivable amount of $28,000 of that total $40,000 loan amount. So definitely a lot to consider here and a number of different variables, and we're only through Trigger 3. So Trigger 4, level of compensation. This one's definitely going to be pretty tricky to look at, and we're looking at what some of the reports that the different payroll platforms will be able to help with here. But we really want to compare compensation levels between the loan disbursement and the base period. It's a similar base period, uh, comparison here, and we want to ensure compensation does not reduce more than 25%. So the way in which we're going to be looking at this is step one is to calculate the total wages for Q1. They're having it be based upon a quarter here. Total wages for Q1, and we'll calculate the 8-week kind of total and average for that, excluding $100,000 or more for an employee. And then we'll calculate the total compensation for the 8 weeks since the loan disbursement, and we'll do a comparison there. So determine if compensation for step 2 is more than 25% lower than step Step 1. So in a lot of cases, this is not going to happen, but if we're seeing less than a 25% drop in compensation, then it will be a dollar-for-dollar decrease for the forgiveness amount. So a lot of this is going to be case-by-case basis on this, and we'll have to be able to look at it specific to you and your situation, and we'll be looking to produce some sort of a a calculator of sorts for this that we can put out there to be able to understand, hey, are we going to need to— are we at risk for anything here? Has my compensation reduced based upon that base period? How do I find my base period? These are all things that we want to be able to help out with. So getting outside of that for a minute and how to actually look at and qualify for loan forgiveness. Um, let's just think about the next steps here. Documentation. Um, the SBA is 100% clear on this point that documentation has to be provided for all this. So things that we're looking at here are different payroll reports, especially specific tax filings related to payroll taxes, federal 941, state unemployment, as well as benefit costs, because those, uh, qualifying health and retirement benefits do go into the, the payroll cost, just like they went into the loan origination amount. And then documents to verify rent, utilities, and interest. So we're probably going to be looking at not only bank statements or check images for rent payments, but maybe the rental agreements as well. And then utilities should be able to have your bills either provided by each statements or direct paper statements that, that can be scanned in for your supporting documents. And then any interest on mortgage interest payments, so being able to get that from the bank. And then specific for sole proprietors, let's also remember that in terms of payroll for sole proprietors, sole proprietors are generally not on their payroll, and you do not need to be on your payroll because the calculation for the overall loan as well as for the forgiveness period for sole proprietors would include their net earnings from the business up to that $100,000 per employee threshold. So sole proprietors are being included in the entire calculation for the loan as well as the forgiveness based upon the net earnings of the business. So a lot of what we see, the two primary items that we see or entity types that we see in the insurance agency world are sole proprietors and S corps. So on the S corp side, we're primarily using the payroll reports, where on the sole proprietor side, we're not only using the payroll reports, but we're also looking at the net earnings of the business. So the way in which we'll do this is either, If we're looking at last year, we'll probably look to provide a Schedule C, or if not available, look at the total net earnings of the business through specific financial reports. Specifically, if we're doing this year, there won't be a Schedule C for 2020 financials, so we'll be looking at the income statement to determine net earnings for the business. So what a lot of people are thinking right now is [Speaker:JAMES_WILSON] Okay, I think probably a lot of people are doing the equations in their head right now of what was my loan value, what is my average payroll, where am I going to be at the end of an 8-week period where typically in an 8-week period we have 4 payrolls. So looking at 2 months of payroll here, are you going to be at that 75% threshold? Are you going to be below? Are you going to be over it? How do I look at maximizing my loan value? So just a couple things to think about here, right, is there could be the ability to increase compensation for specific employees. Really, what we want to look at here is increasing either commissions or incentives based upon specific work, right? We want it to be based on something, especially a recommendation for everybody is to not just increase to increase, but increase to benefit the agency. Hiring, bringing on new people, whether that's the opportunity to grow the agency or to be replacing employees that may have left the agency recently. Advanced benefits, so something here is thinking about if there are already benefits or bonuses that are built into compensation plans with employees that might hit at a specific point throughout the year. It's possible to advance those, right? Bring those into this 8-week period to increase the compensation for an employee based upon that, and then that's something down the line that, that is already compensated for. And then just put this on here as well. Should the owner be on payroll? This is for a lot of our sole providers asking, okay, if we're being based off of payroll, what do we need to Should I put myself on payroll? And again, based upon entity type, this is typical for sole proprietors not to be on payroll. No need to add yourself to payroll. Just like loan origination was based upon a combination of payroll reports and net earnings to the business, the same is going to be the case for forgiveness when looking at the calculations of payroll. So it will be pay for a sole proprietor. The calculation is just a little bit different. It'll be payroll plus the net earnings of the business during this time period. And— oops, let me go back here, of course. So a couple areas to focus on here in terms of cash management, and then we'll get to some, some Q&A. So one, is thinking about cash forecasting. What does that mean? How should you be planning for this? How can you do this on a more rigorous basis than you've done in the past? And two is thinking about your vendor relationships and banking relationships as well. Proactively managing your liquidity and any debt that you have. So let's talk about what that means a little bit. One, cash flow forecasting. Forecasting week by week, especially during this period, could be incredibly helpful. Understanding really what is happening to your cash flow, which is truly managing the actual balances that are in your accounts, specifically in your operating account. So what a lot of— and we talk about this a lot of our clients in just general financial growth calls. Is to understand— not just understanding the, the profit and loss statement, but truly understanding the cash flow statement, because not everything goes into the profit and loss statement, the income statement for the business. But understanding the true cash flow of the business, that could include debt payments, so payments to liabilities, whether that's vehicles or loans or lines of credit. Understanding what the true cash flow of the businesses, especially when thinking about what maybe reductions to revenue might be happening over the coming weeks. Okay, so one of the things that we have built is a cash flow tool in Excel that we will be able to make available to everybody to use. Very straightforward with pretty much minimal input on your side, and we roll it up to to the 8 primary categories of expenses for you as well, and then break down areas for either contributions to the business as well as draws. So we're going to send this out and we might do maybe just a quick webinar tutorial on how to use the tool next week, but want to make this available to everybody right now. Utilize the financial reports you have available to you to stay on top of your financials, but then Sometimes you need to plan much more short-term, where we're thinking week by week of cash flow, especially if certain things are going to be changing, maybe drastically on the revenue side. So want to make sure that everybody is staying on top of this as much as possible, and if you have questions, certainly our team is here to help. The other thing just to remind people of is thinking about your banking relationships, both banking and vendor relationships, and if we're thinking specifically on the cash flow side, are there certain payments that could be deferred or put in forbearance? Similar to how we've seen student loans get put off for about, I believe most student loans across the country have been put on forbearance for about 6 months or so. We know a lot of banks or putting off, or putting in forbearance mortgage payments. So these are conversations to at least be having with your banking institution. Don't be afraid to ask, right? These are conversations that are happening already. A lot of people are already having these conversations with their bank. It's not just you or your agency. So know what's available to you. No, this is really the time to be using lines of credit as well, if needed, or be talking with your bank or other banking institutions about opening lines of credit. These are really the times when cash, cash might be short, to be leveraging those types of, those types of banking relationships. And then how can Club Capital help during this? So obviously staying on top of legislation, legislation and industry guidance and doing more webinars like this, right? So we want to stay on top of this as much as possible so that we are always kind of a go-to resource for you here. And we want to provide tools, checklists that we can make available to you to help manage your expenses and cash flow. Again, webinars that we're going to be having, we're going to try and do as many as we can. Once we find that something might have changed, we will definitely try and get a webinar out and be available. And then on the loan application side, we were immensely happy to be a part of the, the loan origination process and were able to assist 100% of the clients and some non-clients that had us help them in their application process, and I believe we're at 99% of the ones that we were able to help submit have been fully funded by this point, and some that we weren't able to submit by certain deadlines have been submitted elsewhere to other lending institutions. That being the case, there is a, a mountain of follow-up and next steps on some of these. So we will be putting together some packages for being able to manage the Forgiveness application. So we'll be able to help all along the way, but if anybody wants to engage us specifically on, on managing the Forgiveness application with the lending institution, we'll put together a package based upon the entity type. To be able to really be able to take the reins of that application for you. So more details to come there, but just wanted to let you know that we're going to be available for really guidance through this entire process. And if you want to have us manage the entire application process for forgiveness, we can do that as well. So just a quick recap before some questions here, and I'll go a little bit rapid fire. So deposit the balance of your loan into your agency's operating account. The expense tracking for the loan forgiveness is an 8-week period, and it begins on the day that your loan was funded by the bank. You have 90 days after that 8-week period to be able to submit your application. So this is going to be a much more manageable process, hopefully, than the whole first-come, first-served initial loan origination process. There's going to be two primary factors for qualifying for loan forgiveness. One, has to be spent on eligible expenses, and two, that 75% of the total loan value must be on qualifying payroll expenses. And then forgiveness can be reduced by a couple of items here. So it can be reduced by the total sum of eligible expenses, right? If you only add up your total expenses to 95% of what the loan value is, then that's the only— that's the max value that could be forgiven. Reduction in staff and reduction in compensation to staff past that 25% threshold. If current projections for payroll percent of loan value are less than 75%, some strategies there: hire new employees, expand the responsibilities of your current employees, your current your current service staff, or possibly look at any advanced benefits that were agreed upon for employees that could be brought into this period. Okay. Monitoring cash flow during uncertain times is a must. And again, we've developed a really cool tool to be able to share with everybody to help with that. And lastly, we're always here to help. So I want to open it up now to some Q&A. I think our— team member Devin or Chris might be on the line and might be able to help me manage some of the questions that have come through so far. What have we seen?

Yes, a lot of questions just on the headcount and, you know, certain changes that might happen. I think one of the questions that's been asked a couple times is, what if someone leaves on their own accord? And how will that forget?

Right. I think— no, I think that's a great question. If people are leaving or quitting, does that go directly into the calculation for this? Our first inclination from everything that we've seen is yes, it does go into the calculation. This is not, you know, did you fire somebody or did you not? How is the headcount different? I think we need to go back to the purpose of— to the purpose of the loan is to keep the workforce employed. And if we want to do that, we need to look at what the comparison period is, that base period, and say, do we need to increase our employment levels to where the base period was? So, yes, I mean, the first thing there is what I would think of is, okay, we need to hire. And so that's our initial take on it. What else, Devin?

A couple questions as well in regards to how the PPP loan forgiveness plays in with the EIDL. If it looks like some of the folks on the line were, uh, potentially received some funding from from that program as well?

Yeah, so at the beginning of the loan application process, there is the ability for, for you to add in a portion of the EIDL into the Payroll Protection Program. So I think we might need to take that on a case-by-case basis of was that included in your total loan value, because that will change the I believe the percentage that we're actually looking at. But yes, agents and small business owners were technically eligible to apply for both. Whether they got it or not, we don't know. But if you ended up getting both the EIDL as well as the Payroll Protection Program, I would really think about, you know, we need to be thinking about the actual loan value that corresponds to payroll expenses times 2.5 to where we look at the forgiveness portion of this. But good question. It might be something to focus on or do a follow-up on to make sure that we have all the right answers there.

So next question is a little specific to sole proprietors. um, sole proprietors that calculated the loan amount without their net incomes as self-employment, when they go to put together the substantiating documents for the forgiveness, can they then include the net income over that 8-week period of self-employment and include it in the payroll portion if they didn't on the front end when they calculated the loan amount?

Yeah, very, uh, my first inclination is likely yes. It might take communication with the banking institution to double-check that they are comfortable with that as well. So that's some of the conversation that would go into the loan forgiveness application process is to show that. Everything that we've seen would support being able to do that because that is specifically within within the rules that are available. So if it did not go in on the front, and it certainly can, I would imagine, on the, on the 8-week side as well, and could certainly bolster that amount to get you certainly higher than that 75%.

Okay, so next question, and I'm seeing a good amount in here, is how are part-time employees included all in all of this, uh, and how's that kind of bounce off the full-time employees that they have as well?

Yeah, good question. So it will be done based upon hours, um, and looking at how many hours, uh, are worked so that we can find the full-time equivalent So we will need to be able to add up all hours worked and divide by 40, in essence, to determine the number of full-time equivalent employees that have worked at the agency. Yeah, good question. They actually changed the way— two different sides of it. On the front end, it was just total employees because this was based at— this was initially really designed for all employees or all companies with 500 employees or fewer, and they just counted each part-time employee as one for that eligibility requirement. But on this side of the equation for loan forgiveness, it is looking at the full-time equivalents, so adding up the hours and dividing by, by 40. Excellent.

So a follow-up from the potential of losing an employee: How quickly does one need to rehire to make up for any lost employees in order for the loan to be forgiven?

I think a lot of that goes into, uh, one, understanding your base period, right? Make sure you know what your base period is. So that you know what, you know, what number you're trying to compare against. And two, you know, our first inclination would be soon, right? Because it's going to be based upon an average, right? If we're using number of hours, it's going to be based on an average number of employees during this 8-week period. So we need to, you know, the sooner hours are being worked, the higher the average is. Okay.

So the next question is in regards to health insurance premiums included in income. Is that considered in the payroll cost? And then there are also some questions on the taxes as well.

Sure. So both health and retirement— so both health and retirement would be able to be included, as well as state taxes. So generally the same items that went into the loan origination, which were salaries, any state taxes provided, as well as any health or retirement benefits, all of those would be in payroll costs. And then you said question on taxes?

Yeah, as well, just what's included, like which taxes will be included when taking a look at payroll forgiveness?

Yeah, generally it is going to be— we'll follow up on this, I believe, in our email after this. I believe in the original calculation it was just state taxes, so not the federal taxes, but it will be the same as what went into the loan origination amount.

So kind of similar question, but more so for our S-Corp clients, just clarification on how they are included in the payroll since they're not reporting net income.

So for most S corporation clients, they— for generally all S corporation clients, the owner should be on payroll as you need to have two forms of income. So you are a part of the payroll reports. So just the difference in the way in which the legislation is looking at coming up with the total loan value was specifically based upon that. So we've heard some people say, well, that's not— that shouldn't be applicable, that's not fair for one versus the other. Regardless, that is the way in which everything is being calculated. So for sole proprietors, generally not on payroll, but we're using net earnings. For S corporations, not using net earnings and only looking at payroll reports.

And so what would— one of the questions is, what would the suggestion be for any sole proprietors who included their net earnings into the loan amount but now over this next week period are forecasting decrease in revenues where they might not be able to make up that same amount that they included in the original loan amount. Any guidance on what they can kind of do to supplant and make up for that difference that they might experience over the next 8-week period?

I think that's a really good question. You know, the, the, the goal on the front side is to maximize loan loan amount for loan assistance, right? So the whole aspect of this program is to provide direct assistance for a very under-market loan that can help bring you through this period. So I think it's, it's twofold. One is this loan is there to help get through this period. If revenue is going to be down, You have a, first of all, without even thinking about forgiveness, you have a loan at 1% that you don't even need to start paying loan payments on for 6 months. So that's the benefit of this program to begin with. So that's just a huge win to begin with, kind of right out of the gate to help get through this period. If we want to focus on the forgiveness side of it, then we need to say, okay, what can we do to maximize this? And it's possible, you know, we've talked about some of the strategies here already, but we talked about, or excuse me, we've talked about some of the strategies to increase payroll. But at the end of the day, you know, it could be something that doesn't get us to 100% of the loan value as eligible expenses for forgiveness. So we might just be looking at, you know, a small delta there that would remain as, a 1% standard loan.

I know, I think another topic that would be good to cover is, should in this 8-week period any of their employees fall ill to COVID-19 and they're tracking that sick time separately, and how would that time, you know, sick time off affect loan forgiveness, if at all?

Yeah, so I think definitely a very, very good question. Probably one that I don't have, I don't have a direct answer to it right now. As I think through it, there is going to be a difference between sick time off. Certainly sick time will be able to, that will count for regular hours because that's just paid time off. It gets probably a little tricky if we look into the emergency or extended FMLA rules because that is not able to be calculated in this just because you get compensated on the back end for that as well. So that's probably a very specific case that we'd want to be able to help, help with individually. To look at what we, you know, what would the calculation look like for employees on that, or specifically what it could look like on salary. Again, we need to think, are they continuing to receive a salary? Are they still an employee? Then with those two things being yes, I don't see anything changing on that end unless one of those fell off, right? Are they not being compensated? And are they no longer being counted as an employee. Excellent.

And then see a couple agents here looking for a little clarity on where the interest of the loan might play into factor based on like the 6 months that's been floated out there, or kind of when does that start and how's that kind of come into play?

Yeah, I believe the— I believe that interest probably starts from, from day one of loan origination, just like any other loan. There's just no requirement to have any payment on the loan for 6 months. So I would— it likely starts right then. Yeah, that's everything that we've seen. Anything else, Devin? I know we're coming up. We've got probably time for one or two more questions here. Hopefully we've been able to cover quite a bit for everybody. If not, we certainly want to, and we'll look through the questions— excuse me— afterwards and try and, try and answer them in the email that we send out later today. Any other final questions? Yeah, maybe one more.

Is there any thought on kind of what is included in utilities? Has there been any guidelines from the SBA on, on what business owners can include under the umbrella of utilities?

Good question. Nothing that we've specifically looked at or that has jumped out to us. The things that we're expecting to see there are your typical utility payments from— and it could vary depending on the type of office you have— but anywhere from water, sewer, electric, and then even getting into utility payments such as telephone and internet services. So we need to look specifically into that, but I think that's a great question to clarify. Yep.

Yeah, so there were a lot of questions. I think we got through a good amount of them. We are coming up on time, so I think what we'll be able to do is take a screenshot of the questions. I'll download them now, and if there are any glaring ones that we want to follow up with our email that's going to go out later on today, we can certainly answer them there and maybe like an FAQ section. And then I'd encourage, you know, current clients of ours at Club Capital as well as maybe anybody on the line that's not a current client but that we assisted with the PPP loan if they have questions, to reach out to us. And then really for anybody else as well, if you were on this webinar or previous webinars, thank you for joining us. And I think, you know, if you have any questions, feel free to reach out. We'd obviously love to support you, um, and would also love to earn your business as well as a Club Capital client.

All right, well, thank you, Devin, and thank you everybody for joining today. Um, uh, like Devin said, we'll try and get to as many of these questions as possible, put them in the email that will go out to everybody here, as well as we will be posting a video recording of this webinar to our website later today. Thank you all for joining. Please stay safe out there, and we'll talk soon.