PPP Loan Application Process

All right, good afternoon everybody. This is Mikey Cannon from Club Capital. Welcome to our webinar specifically on the Payroll Protection Loan Program. A lot— most people that are on today were probably on our, our first webinar earlier this week, just 2 days ago, where we went over a couple of different things. One on the Families First Act in terms of emergency paid sick leave and emergency family medical leave of absence. And we covered a lot of items on the, on the CARES Act as well. So some additions to an expansion of the SBA loans as well as the Payroll Protection Loan Program, which really applies to really all of our clients at Club Capital, being insurance agency owners around the country. And we've had a lot of additional people that have been able to join, other insurance agency owners, and, and really the Payroll Protection Loan Program is, is a huge opportunity for the small business community across the country, especially all of our clients. And so we wanted to be able to double down on that today and dive into a little bit more. There's been kind of some changing parameters around the loan over the even just the past couple of days. And we are, we do have a guest with us today too. So let me just go over a couple of things for the webinar. We'll introduce our guests and then get into a little bit of the content here. So just again, some 101 on the webinar. We are recording the webinar and we'll be posting the recording of this and send it out to everybody that joined and that were, that signed up. After today's session. And please, encourage you to use the chat feature within Zoom for questions. We will be moderating that at the end. We do have a frequently asked questions section that we're going to go over. We've been getting a ton of questions over the past couple days. So we do have a slide for a lot of those that will probably address some of the key questions that we've been getting. But then definitely feel free to use the chat box, and we'll moderate that as well and get to those questions at the end. In terms of disclaimer, again, you know, really, we just need to make sure that this information, you know, does not, you know, is not construed to constitute legal advice. Instead, all information is for general informational purposes only. You know, please, you know, seek really individual guidance either with an attorney or with a CPA. Which could be Club Capital, but individually to make sure everything is— you're making the right decision specific to you and your business. And I do want to do a quick introduction here. We do have the— we have Brett Taxon on the line. He's the Executive Vice President of Blue Ridge Bank, and we'll talk a little bit more about the partnership between Club Capital and Blue Ridge Bank a little bit later on. As they're going to be able to help Club Capital be able to service clients in kind of expediting the loan process on our side so that we can work directly with the bank here. But Brett, thank you for being on the call today and being able to serve as a sounding board and give some expert advice on this straight from the source. So maybe just a quick intro on you and the bank.

Sure, thank you, Micah. So thank you guys for taking the time to chat. First and foremost, hope you guys are healthy and your loved ones are safe. Obviously not the easiest days for anybody, and, you know, hence I think, you know, we have the legislation that came through with the CARES Act and now doing our best to try to understand it and get going and get folks processed and dispersed funding. So, you know, clearly that's of interest to you guys here who are joining. You know, a little bit about Blue Ridge Bank. So the bank has been around for a little bit, dates back to the 19th century, based in Central Virginia. So really a traditional community bank has grown quite a bit in recent years, although, you know, compared to the money center institutions, you know, where or still quite small. We are an SBA-licensed lender. So the provision of the CARES Act where I think most of the conversation will focus on today is, of course, the PPP section. So yeah, I imagine there are going to be a number of questions, and we have a little more than 20 minutes. So happy to give more detail in terms of Blue Ridge Bank. And for many of you, Hopefully there are more conversations to be had. Of course, we are a national bank and always interested in new business, but first and foremost, I think whether it's with Blue Ridge Bank or another institution, you know, really focused on getting capital out to small businesses like yours. So with that, want to get into it.

Fantastic. Thanks, Brett. So just quickly, agenda for today, we're going to give a quick quick recap for people that maybe weren't on, of just a refresher of what the legislation was behind the CARES Act, and then specifically for today's conversation, talk about the Paycheck Protection Program. Who can apply? Who's eligible for this? How do we calculate the loans? What are the interest rates? Can these be forgiven and how? Kind of what is, what is that process, or what do at least we know about it so far? and then specifically talking with Brett, I think, about some of the FAQs that really we have and that come through the chat today. So that's our main focus for today. So let's kind of get started. So CARES Act, Coronavirus Aid, Relief, and Economic Security Act. So this was what was just passed, probably everybody knows, just last Friday or signed into law last Friday. John, if you'll just go to the next slide here. So two primary things when it comes to the small business relief part of the Act, a ton in the Act itself outside of that, but specifically for small business is the expansion of the SBA's Economic Injury Disaster Loan Program and then the introduction of the Paycheck Protection Program. So going over things that we did on Wednesday, And really looking at our client base specifically, while there may be individual cases that might— where the expansion of the EIDL, SBA's EIDL program might be applicable to them, really for the market to which Club Capital works, in the insurance agency market, what we see, you know, the Paycheck Protection Program is the most applicable. So this program sets aside $350 billion in government-backed loans modeled after the SBA 7(a) loan. And offering forgivable loans up to $10 million for companies. This is actually— we'll dive into this, but into the specifics of each company's loan. And then again, small businesses, fewer than 500 employees. And, you know, as we see with, you know, with Brett being on the line today, this is being offered in partnership with SBA-licensed lenders, financial institutions, so outside of the SBA. So moving on to the next one, especially so the Payroll Protection Program applications begin being accepted April 3rd, so that's why we're having so many webinars and informational sessions on this this week. So in terms of timeliness, These begin being accepted tomorrow, which is why we want to cover as much as possible today. So as just some quick recap here, how does the Paycheck Protection Program work? So these are— the program creates a type of emergency loan that can be forgiven when used to maintain payroll through June 30th and expands the network beyond SBA so that other banks can actually issue these loans. And the purpose is to incentivize small business owners to not lay off workers and to rehire laid-off workers that lost jobs due to COVID-19. So I think a lot of the questions here are, you know, what is this really used for? How am I going to, you know, be able to use this for me? Do I— will this apply to me? I think a lot of the questions that came through will be based kind of along the— what the initial purpose of this is, is to incentivize small businesses to not lay off workers. It might not have happened to your business yet. I do think there's still a lot of uncertainty about what the next couple months hold too. The maximum loan amount here, so what is the maximum loan? The maximum loan is $10 million, but it's really based upon your average payroll of the last calendar year. So it's 2.5 times the average monthly payroll cost for the calendar year prior to the loan. And so your payroll costs here are determined by compensation, wages, cash tips, paid time off, pretty much your gross compensation for your, for your company's payroll over the last calendar year, including retirement and healthcare benefits provided by the company. And then the one kind of big caveat there is that any individual compensation that is over $100,000 for that calendar year could not be used in the calculation. So if somebody was paid $150,000, you know, on payroll in 2019, the total payroll figures for 2019 would need to be reduced by $50,000 because no individual can go over the $100,000 mark. Interest rates, so an update from Wednesday's presentation, the interest rates have now been capped by the SBA to a fixed 0.5%. There's no personal guarantee or collateral required, no upfront annual guarantee fees by the lender, and the lender must defer principal and interest for no less than 6 months. Interest will accrue during that period. And then the loans are 2-year loans that can be paid early with no prepayment penalties. So I know we have some frequently asked questions on this as well. But I will pause just for a sec for Brett, maybe to interject if there's anything, any updates here, or if I covered all that kind of correctly and some of the highlights.

That's right. I would say that the caveat is we're expecting additional guidance. So the guidance that we received and the information you're providing is fantastic and is up to date, but You know, for example, the rate of 0.5% is quite different than actually what was in the legislation of 4%. The term is different. So I think, you know, the features that you've laid out here are likely to be the features. But, you know, there are elements that could change. I'm sure we'll get into that in terms of, you know, some of the calculations, but more in terms of like how do you verify those calculations and what do you as an applicant have to provide. So just want to make it clear that I think, you know, there's a decent chance we get some additional guidance either today or tomorrow. So things are just a bit fluid and you want everybody just to take that into account.

Yeah, I think it's a great point and just good point for everybody. You know, as much as Club Capital or Brett here is trying to answer as many questions as are fielded at them today, as well as what we've gotten over the past couple days. Sometimes it's the best information for that time, and then that information changes the next, the next day. So a lot that's happening before this gets officially kind of kicked off, and hopefully that is tomorrow that everybody's accepting applications here, but there are some things that are still getting worked out. So we'll answer to the best of our ability, certainly for today. Jumping into the next one here, so can these loans be forgiven, which is, you know, obviously one of the huge caveats here. And so the answer is yes, certainly with limitations here. So small businesses can take these— can take out these loans and can get all or a percentage of them forgiven. So generally speaking, as long as the employers maintain paying employees at normal levels by June 30th, really 8 weeks after the start of the loan, then the amount they spend on payroll costs, fully amount on payroll costs, can be forgiven. So this can go up to that 2.5 times because this can also include mortgage interest, rent payments, and utility payments, especially that last bullet here. So the government really, like, the, the criteria from what we've seen is that they're looking to have 75% of the funds that are, that are provided be used for payroll costs to have the full value of the loan provided be forgiven. Brett, and I'll just kind of pause on that, is that in line with, with the latest that you've been seeing as well?

That's right.

Okay, great. So then diving into the frequently asked questions, that's generally the, a quick high-level overview of what the loan, what the Payroll Protection Program intends to put in place. And so I'm a number of, you know, questions that have come through that I think we might just be able to kind of go down this list, I think, initially, because these have been a lot of the ones that have come in. And then we'll have John be able to read out and maybe moderate some of the questions that are coming through the chat today. So I'll just go down this list with you, Brett, if you don't mind, and then if there's anything additional that is kind of popping out to you. [FOREIGN LANGUAGE] Okay, so first one: as the owner of the business, is my W-2 paycheck from the company included in the PPP loan calculation?

So I'm going to answer that, but I'm also just want to reemphasize the disclaimer that you guys put up front. So, you know, for all these questions, you're going to want to check the guidance yourself or speak to your accountant or counselor or whoever that is. So, you know, this is me, you know, just trying to provide some context, you know, with, you know, us being probably more familiar than most, you know, being front and center in terms of being at a bank that's an SBA-licensed institution. But, you know, for some of these questions, just don't solely rely on me. So I just want to make sure that that's clear as an additional disclaimer as well. Beyond what was on the slide earlier. So yes, it's pretty clear from the statute, again with the same caveat that things could shift, right, if there's additional guidance. But it's pretty clear that you would be eligible as the owner of the business to be included in the payroll calculation.

Okay. And then this second one, I think I covered this earlier too, so I'll just reiterate this. So employees that made over $100,000 in W-2 salary, is the salary capped at $100,000, were fully excluded. And so what we've seen in the legislation is just capped, not excluded. So you'd run the full payroll report, see if anybody made over $100,000 for that year, and then back the anything out, the salaries out that were over $100,000 for that employee, which I think primarily in the businesses that we work in, this would primarily come into effect if the owner of the business on payroll themselves. Not a lot of the employees would necessarily be making that within the industry that we serve, but I think we really need to, and certainly Club Capital when looking at reports, really be looking at that for each person on payroll, but it'll specifically be probably the owner of the business that might exceed that. So just going to the next one. As a sole proprietor not on payroll of my business, are earnings from net income of the business able to be part of the PPP loan calculation? Is this something that you're aware about, Brit?

I have not seen that come up before. Certainly sole proprietors are eligible. 1099s are eligible, but I haven't seen in terms of the specific question, you know, with regard to the earnings from that income. I would think, right, again with the caveat I gave before, that that would be treated as payroll, but you're going to want to check with somebody, right? So payroll, at least in the statute, is broadly defined. My sense is I have not seen any particular guidance on that specific question, but, you know, so you're going to want to check, but my instinct is that that could be included.

Okay, yeah, I think we've seen a little bit that is shown that it will need to be put into calculation, so you will be able to, I believe, sole proprietors, so our sole providers that run businesses might not be on payroll, right? So then we need to be able to take their net income at the end of it, net income for the business at the end of the year. So I believe that that's how it might work from what we've been seeing so far. So for everybody on the line, we'll make sure to check on that afterwards and provide some guidance. And as for the last one, if I'm a new business that wasn't open in 2019, and I can just share some guidance here, right, that I saw earlier is Generally what they're looking for to be able to calculate the 2.5x average monthly payroll, if you were in business last year using 2019's total payroll and dividing by 12 and times it by 2.5. If you were not, we'd be looking at utilizing January through February, January through February reports of 2020.

Yeah, hey, Micah, you just want to point out that applicants have the choice of the period they want to use, right? So it's Q2, the average of Q2 2019, or the last 12 months. But then exactly what you specified, if you weren't open in, in during the period of Q2 2019, you would then use January and February of this year.

So it's either the average of Q2 or all of 2019. Is that just looking at kind of whatever benefits you most, or You can elect, yeah.

I think that's how people would think about it.

Okay.

But just to be clear, it's the average of the last 12 months from the point of application, not 2019.

Last 12 months, not— okay, from the start of the application. Got it. Okay, very good. And then I think some of these next two, two questions, Brett, I think go into a number of people seeing this as a tremendous opportunity, but with the pause of, you know, wait, what is this used for? What if I, you know, currently right now I haven't seen, you know, a dramatic loss of revenue in my business. Is this still something that I can apply for? And is this still something I can request really a grant to cover? So if I, if I don't, if I don't see perceived needing necessarily funds for this right now, should I be applying? And what's kind of the criteria for that? I think people are just a little bit wary of, you know, what should— what do I need to really meet to be able to do this? You know, we're not retail businesses, right? We're not necessarily shutting down right now, but should I be applying to this?

Yeah, so that's a great question. So At least what we— again, with the same caveat that it's a bit fluid in terms of, you know, where the guidance ultimately lands or potentially even evolves, right, after tomorrow, which can happen too, but I think you'd be grandfathered in if you applied before. You know, what we're expecting is essentially a self-certification that you've been adversely impacted by COVID-19, right? So it's not narrowly defined. It doesn't seem to require any documentation of that. But you are self-certifying, you're attesting to the fact that you've been essentially been adversely impacted. Um, you know, that's up to the discretion of the applicant what, what that means and, and if they wanted to move forward or not and, and if they think that the, uh, the program makes sense to them.

Right, absolutely. And then the last question here, um, is Any insight on loan forgiveness? So we've talked a lot about applying for the loan, and there's— I think that's probably the primary focus right now of just ironing that process out. But what can you tell us about, okay, you know, somebody, you know, our business owners are able to apply for this loan, they get the loan. What do we know anything about the process for applying and what criteria you have to be able to provide or any supporting documentation?

Again, it's a bit fluid. I think, you know, we've taken the approach at the bank of probably being overly conservative and, you know, basing expectations on the legacy SBA 7(a) loan processes and what's required for those. You know, when the guidance came out on Tuesday afternoon and the first sample application form was released, it is really streamlined, right? It is largely self-certification. All right, although there is going to be some verification requirement, we have not gotten certainty in terms of what actually that's going to entail on us as an institution to check, right, the inputs that an applicant is providing, nor is it fully clear what it will be, you know, 8 weeks after receiving the loans, which is when the calculation for loan forgiveness would occur. I think we have some sense of that, right? And we would think that you'd want to be prepared to be able to have documentation that shows your payroll and then also to subsegment, you know, those, those employees who are making more than $100,000. And then on the loan forgiveness piece, there is some, some language in the statute and the guidance that covers that, right? So 75% of the loan forgiveness is based on payroll, and then there's 25% that additionally can include, for example, rent or the interest on your mortgage or other debt obligations. Utility payments are included in that as well.

Got it, got it.

I would be prepared to be able to have those documents and to be able to share those with your lender. I think, again, we'll get some clarity in terms of what exactly is going to be expected. But it doesn't seem as though it would be an overly burdensome lift to have that documentation at hand and to be able to provide it, you know, at the point of 8 weeks following receipt of the funding.

Right, right. Okay. So looking at 8 weeks is when the timeline would be to be able to have supporting documents for that and requests for the loan forgiveness. At least that's what we're looking at right now.

That's what's in the statute. So we would expect that to be the case.

Yep. Got it. Okay. So I know we've only got a couple minutes left. John, can you maybe try and highlight some of the main questions that are coming through for us today?

Yeah, sure. We've got an agent that incorporated his agency on March 1st, 2020. Before that, he was a sole proprietor for a number of years. Do we know if that's an issue in qualifying for the SBA loan?

So, so the language says that an applicant would have had to be in business as of March 15th, so he would seem to be covered.

We've got an agent here that missed the first answer to the first bullet on on this frequently asked question page, Mike, if you wouldn't mind answering that again.

I'm sorry, say that again, John.

We've got an agent that missed your answer to the first bullet here. As an owner of a business, is the owner's W-2 paycheck wages from the company included in the formula?

Yes, yes, that is. Yes, you, yep, you are an employee of the company. So at this point, yes. You know, the guidance is that your paycheck would be a part of it. So when we, You know, from— for all of our clients on the line, we use, you know, Gusto for payroll. But if you, you know, any payroll system that you're using, you're going to be really looking at a payroll journal report for the last 12 months and looking at that total gross salary that's there. A couple caveats with some additions there, but that's what Club Capital can help with.

So one agent asks, what documents do we need to apply for the loan?

So that's what I was getting at before. So there are going to be some form documents. You know, the SBA has already, has already listed what we anticipate to be the actual application document. You know, additionally, I think there'll be some final documentation that includes you know, potentially some additional self-certifications. And then, at least as we are preparing for right now, you know, essentially to include documentation that supports, say, the, the front-end calculation for the amount of funding to which you'd be entitled.

Yep. And so just to add to that, from what I've seen on the application too, if you are Also on either the owner or part of the management team in other businesses, I do believe you have to be able to state what those businesses are in an addendum. So something that we're working on and putting a template together for an addendum for that as well as— yeah, go ahead.

I was going to say, there's some nuance based upon the individual's particular circumstances, right? For example, there's affiliation rules, right, and ownership rules that may be tripped if, if the ownership is 20% or more in a business, right? So there's going to be some new, some added verification around, you know, issues that may or may not be applicable. But again, you're going to want to be able to think about it for your individual circumstances. You know, the answers I'm giving are, you know, intended to be broad in nature.

Right. Yep. And maybe we'll just grab maybe a couple more questions here, John.

Sure. One agent wants to know, are any personal guarantees required or any collateral required?

No collateral nor any personal guarantee.

Are there credit requirements for the loan?

Nope.

What else you guys got?

Come on.

I don't know if this is jumping the gun, Micah, but question about Club Capital helping out with the loan application process. Do you want to field that now?

Yeah, I mean, why don't you just pull up the next slide? I mean, what— or you want to talk about that?

Hey guys, I gotta hop in like in 2 minutes. I don't know if there are any questions for me additional, if there's anything else I can do to round out the conversation.

Yeah, any, I guess, just kind of final thoughts too, as in terms of, I guess, speediness of this. I mean, pretty much we're gonna have a host of, you know, the majority of small businesses around the country really probably looking at this and trying to apply for this. Any thoughts that you have in terms of what it looks like in terms of turnaround. You know, people are interested in this and trying to get their applications in as soon as they can. Any thoughts on turnaround for this?

Yeah, look, I think, you know, we've been as an institution, I think, you know, comparatively ahead of this, you know, probably for a variety of reasons. You know, one, we have the SBA license. You know, two, I think, you know, for a lot of our long-term customers, as is the their case everywhere. We want them to get some support and for that to happen yesterday. So, you know, we have built our processes in place that, you know, intend to be able to move as quickly as possible. So our application link is already up, and I know that David and Mike, you have that, and of course, you know, feel free to share that with others. You know, the one thing is like we can control what we can control, and there are certain elements here that we cannot, Right. So, um, you know, we're, we're waiting, um, what we think will be final guidance from, from the government. There's an element because this is an SBA loan and we didn't really go into the guarantee, but, but historically there's a robust secondary market for the guaranteed portions of SBA 7(a) lending. Um, so we actually have to certify every loan that's made and the government has to be able to track, um, you know, where that guarantee is going. In this case, it's 100% guarantee throughout. Which is why we don't have as stringent of underwriting requirements as is typical within the SBA lending program. So, you know, for that process, you know, we just want folks to keep in mind that, you know, that element is going through the government, right? That is— that has to happen for every financial institution that's participating in this program. You know, we've heard anecdotally there have been some issues with the disaster loan program, which you had mentioned at the outset in one of your first slides, you know, where that program is entirely run through the SBA, that they've had some issues with the site going down and with latency. You know, we've heard anecdotally that, at least as regards for what's called eTRAN, which is the certification I was referring to, that that's migrating to AWS, Amazon, so, you know, hopefully that could alleviate some of these concerns. This is just a long way of saying that we're trying to move as quickly as we can. We know for a lot of businesses, you know, time is of the essence. There isn't necessarily a ton of cash that's at hand. And, you know, strategic and employment decisions are being made in real time. So we are going to do the best we can and try to make it as quick a process as is possible. But there are just certain elements that are beyond our control.

Totally understandable. Well, Brett, I appreciate your time today. Thank you for joining us. I'll give some overviews of, of how we're going to be able to work together to help streamline this later in the presentation here for everybody, but I appreciate you being on.

Well, thank you guys for having me. Again, you know, hopefully everybody is healthy and staying safe, and look forward to working with some of you. Thank you.

All right, thanks, Brett.

Yep, take care.

All right, John, if you'll move to the next slide, just for everybody that's still here, really to answer the question of how we intend to be able to help with this. So first of all, you can work with, you know, any bank that is SBA approved and that is offering these. They will have the application there. It's generally a standard application process. The fees should be There are standard, pretty much no fees for anybody across the country for this to any applicant. So how can Club Capital help? What we want to be able to do for first and foremost for all of our clients and then for anybody else that needs some help here is to help streamline the process. So what we've done is partnered with Blue Ridge Bank to streamline the process for as many agents as we can. So we're going to help fill out the loan application for all of our clients. This will be, you know, incredibly easy on our side because we have probably 98% of the information that we need for that. Provide the supporting documentation, that's everything that we need. Answer any questions that you have about this, and then we can submit the application directly to Blue Ridge Bank on your behalf. So some process there that we'll be putting together and working with you. But this is fully complimentary from Club Capital. So in terms of how we can help, this is what we intend to be able to do for everybody. If any, if, you know, there are people that are not our clients that need some help, we are certainly willing to help. There's going to be some more information that we need from you on that side because we don't have your payroll reports or things like that. But any of our clients that do want to go to their, their own bank and get this done, you're more than welcome. I think the biggest thing right now is that all banks across the country are going to be incredibly overloaded with the amount of work that's coming their way, with the amount of small businesses that are looking to, to get some financial assistance through these times. So that is our kind of promise to you. And then, John, we'll just kind of end on some next steps here. So just after this presentation, we will send an online signup form that allows you to sign up to have Club Capital performing services for you. So if you want us to help you, just— you'll just need to sign up so that we have you on our list. If you have any questions, support@clubcapital is always there for you. But we just need to pretty much get a list of who wants us to be able to help them, and we will go from there. We'll get to you as soon as we can, schedule some time to talk, go over the application, make sure that we have things right, and then be able to help just streamline this for you. Okay, so in terms of documents that you need, for most of our clients, we have really most of what we need. The only thing that we would say here is that if Gusto is not managing your benefits for 2019, or just in general if they have not been, we need to know the full amounts of employer-sponsored health and retirement benefits. So we just want to make sure that we can put that into the calculation, you know, if you want to apply. And then for— there'll be kind of a longer list for anybody that is not a current client of ours that we don't have information for. And so we'll reach out specifically with some additional requests there for certain types of reports. We are past time today. I will try and get to as many of the questions as possible. We're going to sift through the questions afterwards and get some responses to those in the frequently asked questions page. We did send out the landing page with the webinar the other day that has frequently asked questions on it. We're going to keep updating that as well, and you should be able to directly on our website on club.capital There is a banner at the top for our COVID-19 Resource Center that has access to that webinar page from the other day. So that's where you can try and go to, to find out more information, and then we'll be putting the signup form there as well, but we'll send the signup form out via email too. I want to thank everybody for tuning in again today to learn a little bit more. I know there are a ton of questions. I'm glad we were able to get to as many of them as we could today. I know there are a lot more. I would just ask to certainly bear with us over the next couple of days and weeks, probably, as we try and work with everybody. But you should be able to get a response from us relatively quickly that we will be working with you, and here's a couple things that we need, and just have some time with us. All right, everybody. Well, thank you again for joining, and more to hear from us later today. And if there's any additional kind of massive changes that we need to go over, we'll either send out some notifications via email, social media, or look to host another webinar should we need to. All right, thanks everybody. Have a great rest of your day.