How to Complete the CARES Act Application

Good afternoon, everyone, and thank you so much for joining us today, both those of you joining us live and those of you watching the video after the fact. Today is April 2nd, 2020, which is obviously important to note because the dynamics of the coronavirus updates that are coming out are changing by the day, if not by the hour, and we're gonna touch on some of the updates along with some things to look out for over the coming days on today's session. This is one of the more difficult topics we have had in a long time as small business owners, human resources leaders, and just community members in general. And as human beings in general, I would say, would probably be a fair statement. So we're going to talk today about the CARES Act, most— more particularly the Paycheck Protection Program of the CARES Act.. And we're going to give a couple of quick updates on the FF CRA as well. But before we get started, I'm just curious, how's that homeschooling going? How many of you can hear a child right now yelling in the background while you're watching this webinar and trying to focus on one thing while your kids are going bananas in the other room? I know this creates a whole new level of tension when you've got some folks running around your house and you're trying to focus on doing some work. Work while people are hanging from the ceiling fans, but fret not, it will help you to be calmer in the pocket down the road and be a better-rounded teammate in the long run. So I know this is a tense time for everyone. I'm hopeful that we can make this a bright spot in your day by providing you with some valuable insight as well as hopefully some opportunities to enjoy the content. We all have a vested interest in the success of our communities, and I believe the positivity Positive leadership will go a long way when it comes to the success of us and our organizations going forward. Today I am honored to be joined by a guest. For those of you that have been on the previous two sessions, this is our third session. We'll be doing these every week. It's been me up until this point sharing about the Families First Coronavirus Response Act, which distributed emergency paid sick leave and emergency FMLA for employees. Today we are going to get more into the other side of the stimulus package as it relates to employers and the CARES Act, which will provide information related to the Paycheck Protection Program. And I'm honored to be joined by Matt Morley, who is the co-founder and Chief Investment Offer— Officer of Pendleton Street Business Advisors. They are a firm help— focused on helping business owners successfully navigate the most important decisions of their careers. And I believe this is going to be one of them. Prior to co-founding Pendleton Street Business Advisors, Matt served as the Chief Investment Officer of WHM Capital Partners and is, you know, I simply put it out like this rather than reading Matt's really long bio and all these amazing things about him. Matt helps people create more value in their business. That's what Pendleton Street Business Advisors does. I've been through their programs before. I've done the founder planning program that they have. It was tremendously beneficial for ERG. We've probably tripled in growth since having gone through that program. And Matt is one of the smartest people I've ever met, and I'm honored to call him a friend. And I would not insult him by calling him a peer. So I am Matt Beatty, and the other half of Matt squared here, I'm the CEO of ERG Payroll and HR. We are a payroll and HR outsourcing services firm in Columbia, South Carolina. And our role in this whole thing is helping to distribute information to employers, really to help you to do the same thing we always want, and that's to maximize your number one asset, and that's your people, your human capital. And there's obviously a lot of challenging decisions that need to be made in a time like this, and we're doing our best to, to refine some of the information that's out there and give it to you in a consumable fashion to help you make those challenging decisions. So today on this conversation, we will not have time for open Q&A, so please take down these email addresses. We will distribute this deck after the fact as well. If you registered, we have your email, we will send you this deck along with some other resources we'll be referencing throughout. You'll hear me speak a lot about a Dropbox, which is a file sharing platform that I'm sure most of you are familiar with, of which we're uploading new information to consistently and will continue to be doing. It's sort of a dynamic way for us to file share— share files with anyone to just put out as much free support as we can. So take down our email addresses. I'm not very good at responding to the chat while we're doing this. So chat is probably not going to get answered. Emails, likely will. If you have emailed me in the past and I haven't answered, feel free to respond and make sure that I do. I think I've done a pretty good job keeping up with those, but over the next 2 days you'll see we're also going to be pretty busy putting together information for our clients related to the CARES Act. So you might expect a little bit of a lag into the weekend. So with all that said, our agenda for today is going to be to get into the CARES Act overview. What is it? How does it work? Who's eligible? How do I apply? I'm going to briefly touch on some updates for the Families First Coronavirus Response Act. Not a lot has changed. We just want to make sure that you are clear on what you're expected and required to do at this point. And then FAQs, I'm going to touch on some of them during those updates, and Matt will touch on some throughout the CARES Act overview as well. And we will be providing daily updates through the email support, and I apologize if it seems like a lot, but we just— there's a lot of information coming out every single day, so we are doing doing our best to keep up with all that as we try to keep you informed. So with all that said, I'm going to do my best to pull Matt off of mute here while I'm also talking and introduce him so he can share his portion of the session. So Matt, I believe you should be unmuted.

Yep, I'm here now.

All right, great. Thank you so much, Matt. And Matt's going to walk us through the Paycheck Protection Program. And while you get started here, Matt, I'm going to move the controls over to you as well.

Okay. Well, Matt, thank you for your kind introduction. I'm going to do as much as possible to live up to that.

All right. Well, just let me know when you want me to push slides forward because I am not able to switch the mouse over as I had originally intended.

That's totally fine. You can move over to the next slide. So a few things up front I just wanted to let everybody know. The CARES Act, of which the Paycheck Protection Program is a part of, it's pretty complicated legislation and it's really long. So just understand this is an overview of that. And one of the things that goes along with that is that the actual implementation of the program is up to the SBA, Small Business Administration, and the lenders that are actually lending, dispersing the funds to business owners. And we, of course, we strongly recommend that you seek advice from licensed professionals. And the key here is that are familiar with your circumstances before you take any action based on this. And I say the key is that they need to be familiar with your circumstances because There are a lot of, there are a lot of very specific things about these, about this program that someone who knows your business well should be able to help you with. You can go ahead and move the next one. So the Paycheck Protection Program, what is it? So I already mentioned it's part of the CARES Act that was passed on the 27th of March, which is a much broader act about $2 trillion worth of spending to, as economic relief for businesses and employees. This, the PPP, or the Paycheck Protection Program, specifically funds $349 billion for small businesses in the form of forgivable loans. And the purpose of those loans is really to keep people employed. By funding businesses directly. So the idea is give businesses enough money to pay payroll and other essential expenses for an 8-week period. So who's eligible for the PPP? This one is really interesting. It's kind of unprecedented that eligible is for-profit and nonprofit, so 501 employers. Also, and we won't go into much of the specifics on the, on this part of it, but it's also available to self-employed individuals, whether you're operating as an independent contractor or a sole proprietorship. It's also open to them. So two keys to this: the businesses must have started operating before the 15th of February, and then you have to have less than 500 employees. But 500 employees means full-time, part-time, or as the bill says, or otherwise. I'm not sure what the otherwise would be though. So what do you have to do? So if you're eligible, that's one thing. And then you also must certify that— and this is summarizing what you'll actually have to certified, but the basics of it is you'll have to certify that the loan is necessary given current economic conditions, that you'll use it for the purpose that it was intended, and that you haven't applied or received loans for the same purpose since February 15th. There's one exception to this. We haven't seen whether it— what the details on it are yet, but one exception would be if you've already gotten disaster loan funding, you may be able to basically refinance that or fold that into your PPP loan. So when we're talking about loans, what are we actually talking about? And one of the things that's most important is how much— how much can you borrow? The way that we will figure that out, the way that every business will figure that out is to take your average monthly payroll costs over the last 12 months and multiply it by 2.5. And but there's a limit on it. It can be only be up to $10 million. But so you just basically take your average monthly payroll costs and multiply it by 2.5. And we'll get into more of the details around what is payroll costs and what are the kind of uncertainties around that. Right now. We can go ahead and move it. And then what are the terms of the loans? Well, it's got an interest rate of 0.5%, pretty low, and the payments are deferred for 6 to 12 months after origination. Mostly what I've been hearing is that the payments will be deferred for 6 months, and then to the third point on this slide, at that point is when you'll begin applying for forgiveness. On the loans. And forgiveness means just what it sounds like. The loans are totally forgiven. Not— so there are different conditions, and we'll go over some of the specifics of those later on too. But basically, one day you'll owe that bank— one day you'll owe money on that loan, and the next day you'll owe less, potentially even none. So a little bit about what counts as payroll costs. And there's a big list here, and I will try not to read it verbatim, but basically, in a nutshell, it's anything you pay your employees in terms of salary and wages, tips, sick pay, vacation, the allowance for dismissal or separation. So basically any salaries and wages or regular pay like that. And then any payment for healthcare benefits, including insurance premiums. And this is just talking about the portion of the insurance premiums that your company pays for your employees. As far as we understand it, it does not include the portion of health insurance premiums that comes out of your employees' pay, just the part that your, your company covers. And then payment of any retirement benefit. Similarly, this would be, you know, if it's a 401, probably the match portion of the 401, not the part that the employee contributes, because that's already part of that salaries and wages part of the calculation. And then payment of state or local tax assessed on the compensation of the employee. And Matt, correct me if I'm wrong, but as I understand it, because South Carolina, there's no payroll tax that the employer pays, then that, that wouldn't, that wouldn't matter for South Carolina, but it could be something to consider for other states.

That's correct.

So what doesn't count as payroll costs? And this is a big one, and you'll see this throughout the— throughout this part of the act if you read the bill, is that compensation of an employee in excess of $100,000 on an annual basis is not included. And what this is being interpreted as currently is that you— let's say you can count up to $100,000 of an employee's salary. Towards payroll costs, but anything above that does not count. So that would factor into how you— into your— the amount of loan that you can take out. And then payroll taxes and federal income taxes, they don't— you can't count those. If you have any employees who reside outside of the United States, they don't count. And then qualified sick leave wages that qualify for credit under the FFCRA don't count. And Matt can speak much more to this. I don't know, Matt, if you want to add anything now or you want to cover it later in terms of—

No, I think that's a— that's pretty straightforward from the perspective that it really— if you're going to be paying these wages in over the next 8 weeks, again, And, you know, you're going to be receiving a payroll tax credit for any wages you pay out for emergency paid sick leave. So you're not going to be able to double dip on that, right? You're not going to also get forgivable loan in addition to a tax credit reimbursement against that same amount. So pretty straightforward from that perspective in that you're not going to get double reimbursed on those funds. So when it does come time for forgiveness, you're going to need to be able to peel out those funds, which is why, you know, for example, in our payroll system, And we've added additional pay types to account for those, those pay types so that they can be peeled out of that number when it comes time to reconcile.

Thanks for adding that. Can you move to the next slide? So I think one of the main things that makes this program attractive is the forgiveness of the loan. So we wanted to talk a little bit about what expenses are eligible for forgiveness. So basically what the government wants to see is that you're tying the funds you receive to the purposes of the program. So for a period of 8 weeks after loan origination, uh, to the extent that you can connect, uh, the use of the funds to making payroll costs or paying interest on any, any debt that you currently have had outstanding prior to February 15th. So only the interest portion of that, not the principal portion. So let's say you have— you own your building that your business is in, you have a mortgage on it, there's— you make a monthly payment. Well, a portion of that payment is interest, a portion is principal. Only the interest would count towards loan forgiveness., and then rent on a lease agreement. It's pretty straightforward. Whatever rent you pay is eligible for loan forgiveness. And then payments on utilities, and I listed them out here just so that you can have a little bit more specificity around that in terms of what are they considering utilities. And then for borrowers with tipped employees, any additional wages you pay them since they won't be able to get much tips at this point. Those amounts should be forgiven. So again, some exceptions to this. Again, this, this $100,000 pay limit comes into play with this also. So you'll get forgiveness on payroll costs except to the extent that you're making payments that would be, you know, if you— let's say it's 8 weeks. If you take those 8 weeks of pay for any specific employee, and if you, you know, divide that by 2 and multiply it by 12 to get the annual number, if that annual number is over $100,000, the amount over $100,000 would, would be reduced from what you can have forgiven. And then there's also components of this about keeping your employment levels the same. So, so you can have it reduced based on reduction in— reductions in employee count. So let's say you start off, you have 50 employees. Well, you know, during this time you let 5 of them go, well, that might reduce the amount of loan forgiveness that you can have. And then if your pay is reduced by 25% or more for any employee, that can also impact it. There are specific formulas that go along with this, and if you have questions on it, I can send you a document that has examples of those specific formulas and how they would apply to this, and I'd be happy to send it to you. So the amount that's left over after forgiveness, and I think to be conservative, you should assume that you won't get 100% of it forgiven. Just so that you have that expectation going into it. It would be great if it was forgiven 100%, but I wouldn't necessarily expect it. So what are the terms on what's left over? Well, the bill says 10 years, but the guidance from the Treasury and the SBA says 2 years. So go ahead and assume that whatever's left over at the end of that first 6 months after you've applied for and gotten forgiveness, whatever's left over is going to be a note that is 2 years and has a half a percentage point interest rate on it. And then a big thing here, like Matt alluded to earlier on the credits, businesses that participate in this loan forgiveness, they're not eligible for deferral of payroll tax payments. So if you were thinking, you know, I'm going to defer my payroll tax payments, um, like other parts of the bill say that I can, well, if you're going to also participate in the PPP loan program, um, that won't be an option.

But Matt, it sounds like you're saying that I might not get a bunch of money for free and never have to worry about it again. Is that true?

Well, I mean, that would be great if that were the case. I mean, this is something that I think we wanted to get into a little bit later too, but just, this is all, this is everything that we've learned over the past 3 weeks about what this program is and all the different components of it. What we're learning about now as the Treasury's issued guidance last Friday. The SBA issued guidance last Friday to banks and to borrowers. What we're getting into now is, as the rubber meets the road, how do you actually do these things? And so we can get into some of that on, on the— when we go through the sample application in a little bit. But I do think it's, it's wise to go into this with some healthy skepticism about making sure that at least you go into it with your eyes wide open in terms of it might be onerous to get the forgiveness on the loans. And there's just still some uncertainty around how banks are going to implement all of this. Does that answer your question?

It does. I was just really hoping that I would just get a lot of free money and have to never worry about it again, but it sounds like you're advising me otherwise. So, so I'll put myself back on mute and listen So far, okay.

All right, so, and that gets to the, to the next slide, really. This is a good lead-in. So what are we waiting on? What are we waiting on with all of this? So what we've heard from the Treasury and the SBA is that applications start on April 3rd. What this means is, and the way that this program works, is that it's an SBA program, and I don't know, some of you, some of the people on this probably have gone through the SBA for a, what's called a 7 loan before. They're usually used to fund things like equipment purchases. You can acquire, you can fund business acquisitions with an SBA 7 loan. There are some working capital lines of credit that are available, but this is According to the Act, this is supposed to go through the 7, the SBA 7 loan program, which means that in this case, so for disaster loans, you're going directly to the SBA to get that loan. With this program, you're actually going to be going to a bank to get this loan. And in talking with some lenders over the past few days, what we've learned is it has to be banks are being required to only work with customers that have deposit accounts at their bank. So what this means is if I bank with my business at Bank of America, but I go to Wells Fargo to ask them about PPP loans, Wells Fargo is probably going to say, well, thanks for contacting us, but we can't work with you because you don't have a deposit account with us. Who do you have a deposit account with? I say Bank of America. They say, okay, call Bank of America. So that's how we've seen that played out over the past few days as our clients have called different banks and as we've inquired with different banks about their process for doing this. That's one thing that's become clear. Now, one exception to this is that online banks such as There's a bank called Live Oak Bank, and understand I'm not advising anybody to go this route. I'm just talking about what we've heard from lenders and from other people looking into this. There's a bank called Live Oak Bank, Fountainhead Bank, but they're online lenders. They don't take deposits. So they are free to lend to any business owner. So that's another option is either go to the bank that you have customer deposits with or go to one of these online lenders that I just mentioned. One thing to keep in mind with this is you cannot have— you can't get two of these loans. So when you certify, one of the things you have to certify is you're not getting a loan for the same purpose. And you definitely can't get a loan from the same program. You can't get more than one loan from the same program. I asked this question specifically to a couple of lenders this morning is, well, can we submit more than one application to more than one lender and then go with the, you know, then we can choose which one we're going to go with when they either approve or disapprove. I think that adds some— I think that's in the gray area in terms of what the Act says. So I think that's really a decision up to the person or the company that's borrowing. But I think, you know, if my company goes through this process, we're probably going to stick with one lender just to avoid being in that gray area at all. Yep, Matt, you can go ahead. All right, so in terms of unemployment insurance provisions, and I'm gonna give a huge caveat on this one, and that I'm not, I'm not knowledgeable on the unemployment program. In fact, I've just had to really research it over the past few weeks. But Matt, do you want to go over this anything on this slide?

Sure, yeah, especially since Matt's being polite in, in that I just threw this slide in on him, uh, and it wasn't in his original presentation. I was wondering what he was going to do. So yes, the unemployment insurance provisions. So I will also give the caveat in that this is something that is still a little bit unclear on the actual administration of how this is going to occur, but Individuals will be eligible for a weekly amount determined under state law. So your normal, whatever state you're in, I know we've got folks from all over the country on the line and people from all over the country will be watching the video. You know, in South Carolina, I believe it's up to 50% of your wages, up to $328 in state unemployment you can receive per week, something along those lines. So they'll be able, they'll be eligible for that plus an additional $600 from the Fed. For a, for a brief period of time. So regular state laws are still going to apply. However, they're going to relax a little bit on what actively seeking work looks like in the respect that obviously people aren't out banging on doors looking for jobs right now because we're all under quarantine. So it certainly is going to limit our options if I go on unemployment right now. And as an example, I'm a dental hygienist, and every dental office in South Carolina has been advised to to close except for emergency services. So actively seeking work will be loosened a little bit. But, you know, the obvious and interesting thing to know here is that we've seen a record number of unemployment claims just in the last week alone, 3.3 million. And this will continue to be a dynamic situation as we look at how the federal application of unemployment is going to occur for those individuals. And And my first understanding is that as they're approved and as you are approved for the state unemployment, that, that will serve as the first sort of hurdle, if you will, to just being applicable towards this federal component. So we're going to distribute more as it relates to the federal unemployment piece as we know it, but definitely wanted to put this in as we see, you know, this can mean a lot for your folks. So particularly some of you out there are making hard decisions about whether or not to lay people off. And this certainly can, can be a factor when you're making that determination based on what's best for the business, what's best for the individual. I think one of the things that we've had to advise people a lot is people are doing everything they can to keep employees on board right now, which is noble and honorable and makes a lot of sense. However, if it's going to impede the long-term viability of your business and it's not what is best for that employee to take severely reduced hours or reduced hours or reduced pay, you need to make sure you're to understand all of the options available to you. So if you're considering unemployment, I would make sure, first of all, you go back to some of the prior videos that we've released, webinars 1 and 2. We talk a lot more about state unemployment, particularly in South Carolina, in webinar number 2, probably about halfway through that video. I know it's an hour, so you can, you can chunk through there and find it. But yeah, so that's my piece on that component right there, Matt. Now I'm looking forward.

Matt, I'm so glad that you, that you took that one over. So Payroll Paycheck Protection Program, what are some useful links? What we've got here is links to a sample PPP loan application that the SBA provided. There's a PPP loan guidance and checklist from the US Chamber of Commerce. It is, that's the document actually that I was mentioning that has the example of the formulas for, you know, if you had to reduce the loan forgiveness for either cutting employees or reducing, reducing wages by more than 25%. And then there's a U.S. Treasury borrower guidance. For us during this time, what's been most helpful is to get the information that's closest to the source of regulations. So first it was reading the bill, second it was trying to understand it, and then third is getting an interpretation of what's in that bill from the Treasury, which the SBA is under, and then getting it from the SBA. And next will be getting it more from the banks. And then my firm, Pendle Street Business Advisors, we have a resource page for this and for other topics of interest, and those are all linked in this deck.

Yeah, we'll also put these links directly in the Dropbox that I'll be referencing over and over again as well, as well as this deck. Okay, so Matt, I'm going to let you dive into this here in just a second, but we're going to take a walkthrough, and I know you're getting ready to give give the same disclaimer that we're both going to give several times through this. You'll see that we've used the sample application because even any application that your banker is forwarding you right now is likely not the final application, and they still have room. This thing doesn't go live until tomorrow, and there's still a lot of, a lot of moving parts. And so just understand that as we do this, it could still potentially change, even that one that your banker is forwarding you. Still potentially could change between now and even if they're lucky enough to bring it live tomorrow, or we're lucky enough for them to bring it live tomorrow. Many banks are not committing to anything related to the Friday kickoff date. So sorry, Matt, I know I took the words right out of your mouth there, but I was off mute, so I figured I would jump in and give that caveat before you dive into the sample application.

No, that's great. And I just will add to that, you know, I've talked— I've had two conversations just this morning with two different banks. One is a local smaller community bank with branches in two states. Another one is a larger regional bank. And I heard much the same thing from both bankers, which is that the banking industry as a whole is, is not happy with this how it is. They really need more specific guidance and more assurances from the SBA and from regulators that basically they're being required by this act to lend to companies without any proof that the company can repay. And so it's very important for them to, to have confidence that when that the that the guarantee that the federal government has said it will put on all of these loans, that that 100% guarantee is in fact guaranteed. Because the last thing that they want is to lend out money without really knowing whether a company can pay it back, go to the government to— for them to make good on that guarantee if they need it, and then find out that, you know, the government has— can interpret the law differently and say, okay, we're actually not going to— we're not going to pay you back for the loan that you've forgiven. So I think that's really where they are right now. So those changes to the application that Matt was talking about as possible, I think those are really going to come in in the areas of what documentation you need to provide, and then are there any other assurances that you're going to have to provide the bank before they, they lend you money. But we won't know more about that until it actually happens. And I'm sure you'll hear from, you know, Matt, and also we'll be putting on our website if we hear any definitive changes, changes for this. So if we just start at the top of this, a lot of this is information that you should have at your fingertips. What kind of company are you? What's your legal name? What's your address? Do you have a DBA? You know, your EIN number, phone number, all that. And then it has this box down here that starts with average monthly payroll, and that's where you would put that dollar amount that we had talked about earlier. And if you're lucky enough to, you know, I'm not trying to I don't want to be patronistic here at all, but if you're lucky enough to work with a company like ERG, they should be able to provide you most of the information like this that you need to put that number in that box and provide the documentation that banks are likely to ask for when you fill this out. So putting that number in that box and then, you know, get out a calculator, a piece of paper, multiply it by 2.5, and then put whatever that number is in there. And then that number of jobs box right there, that's saying what number of jobs do you have right now. Don't, don't say what number of jobs did we have on an average, on a monthly basis for the past 12 months. This is talking about right now, how many jobs do you have. And this is what's going to be used as the basis for when you ask for loan forgiveness, how many employees you have at that point. If it's less than that number that you put in this box on the application, then that factors into what your loan forgiveness amount is going to be. And then what is your— what's the purpose of your loan? You can check as many of those boxes as you'd like to. Let's see, the— there's 3 boxes there. I don't know. I think it might be smart to not check the other box since the purpose of the loan and the only things that can be forgiven are payroll, rent, or utilities. So then this is important. Any applicant, any, any owner in your business that owns more than or greater than 20%, greater than or equal to 20%, and I would say if they own 20%, you would still put them on here. They need to say what, put their name, the title, ownership, and then Below that, just basic questions. So what— it's interesting, it says if questions 1 or 2 below are answered yes, the loan will not be approved. If you're answering yes to either of those questions, I guess you might not as well— you might as well just not even send in your application. But, and you can read all of this, is the owner suspended, debarred, proposed per debarment, declared ineligible, voluntarily excluded from participation in this transaction by any federal department or agency, or are you presently involved in any bankruptcy? So I would think that if you've already filed for Chapter 11 or 7 bankruptcy, then you can't apply for this loan. Have you ever obtained credit from the SBA? SBA or any federal agency that's currently delinquent. So this is not saying, have you ever borrowed from the SBA before or from an SBA program? It's saying, have you ever taken out a loan with the SBA or any federal agency and then not paid on it? If the answer to that, or not ever, the last 7 years. So I guess if you did it more than 7 years ago, you're okay. But if you've done it within the last 7 years, then you're not eligible. Eligible for this. Number 3, is the business or any owner have common management with any other business? If yes, attach a listing of the affiliates and describe the ownership as Addendum A. This is part of a bigger question about this bill, which is this idea of affiliation. You might have seen in the news some articles about these startups that are funded by venture capital firms. They're not sure if they qualify for this because they have less than 500 employees. But if they're considered affiliates of the fund, of the VC fund that they belong in, there's— then it could be that the overall entity has more than 500 employees and thus is excluded from the PPP loan program. So that's something to keep in mind. Consideration is, are you part of a— if you're owned by private equity, you know, or you have your own affiliates, is that— does that exclude you from this? Another exception to this though is if you— so they're for like, let's take chain restaurants for example, or companies in the hospitality or food services industry, industries, your overall organization or the franchise might have more than 500 employees, but for this, for purposes of this, they're talking about for the location that you own. So if you are a franchisee and you own a location, you can still qualify even though the overall organization, let's just say maybe it's Papa John's or something like that. They of course have more than 500 employees in total, but if your location has less than 500 employees, you can still qualify for this. Has your business received an SBA Economic Injury Disaster Loan between January 31st and April 3rd of 2020? You can— like, we talked about this a little bit earlier, and there's still some uncertainty around this. You can— it doesn't mean just because you have applied for and even gotten a disaster loan between then that you don't qualify for this. It's just going to play into what happens with your disaster loan if you are approved for the PPP loan and how they treat it and how much you're eligible for in additional funds from the PPP loan. So if you, if you are one of the owners of your company that has more than 20%, you have to answer these questions. And it says very specifically what the answers need to be. So if you find that your answer is different then you don't qualify. It's definitely a good idea. The only good thing would be to answer truthfully on this. But basically the first one is, are you a criminal? So if the answer is no, then you're good. And then within the last 7 years, and then you only answer number 6. Wait, let me— Matt, you want to weigh in on this one?

Yeah. So if in the last 7 years you've committed any crime or felony against a minor, been convicted, pled guilty, once again, to Matt's point, these are the questions you want to look at, this section, the section referenced before, and just if there's any reason why you would answer no to either one of those, then, you know, you know not to spend your time putting together your payroll calculations and figuring out how you're going to spend the money. And then obviously they're going to be distributing these to US citizens as well. And that brings up a good question when we start to look at the payroll calculation that I didn't have in my notes that's worth touching on. Somebody asked me yesterday, so what about my virtual assistant in the Philippines? Do they count into this 1099 number? And we're going to look at that number in just a moment here. And the— And the answer is no. People who are not in the US, even though— even if they are— you're using them as contractors, will not factor into that number. So yeah, so, so hopefully that helps. But I think that's a good sort of point of reference you hit on earlier, Matt, is say, just go through and check and make sure if these disqualifying questions are going to apply to you, that you're not sort of wasting your time going through this.

Great. So this, and I believe this is the final part of this application, it's called the certifications. And this is where you're, you're basically, I mean, you're certifying that the loan is necessary, like we talked about before at the beginning of the presentation, that the loan is necessary, that you're going to use it for its purposes, which are to retain workers and maintain payroll, and that you can document and verify the number of full-time employees after the first, after the first 8 weeks after you get the loan funds, and then that your loan forgiveness will be based on that. This last part is part is something that any of the lenders that I've talked to have mentioned. This is important, is that it's anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. So let's just, let's take that out and say, let's say you got $100 for your PPP loan. If you spend any less than $75 of that on payroll expenses, expenses, it's not likely that that amount will be forgiven. So let's say you spend $70 on payroll expenses and $30 on all of the other things like interest, utilities, and rent. It's likely that $5 out of that $30 that you spend on the other stuff will not be forgiven. I think that's a pretty big clue that they've put in here. But like I said before, The forgiveness conditions around this loan are something that the banks are very hard at work trying to define with the regulators because anything that's not forgiven stays on their books. So These are just further certifications. Like we said before, you can't apply for another loan under this program. You can't get two of them. You can't get two duplicate loans. You certify that it's true and that you understand that the lender is going to calculate your eligible loan amount based on the documents you provided. Even though you put a number up in that box and multiply it by 2.5, what this is saying is you acknowledge that you might not get that number. You're going to get the number that the bankers calculate based on the tax documents that you provide.

All right, so let's talk about the average monthly payroll and get into this. There have been a couple, and this is Sean Wickowski, a friend who's on the line and also fellow payroll company owner, asked this question. This is a question that we're all asking right now is this average monthly payroll number, is this coming from 2019 and the 12 calendar months inside of 2019, Or is it coming from the most recent 12 months, April 1st, 2019 to March 31st, 2020? And as far as we can tell, the answer is yes. And we're getting both from lenders and even some other very— I just got off the phone with yet another lender before this who said that they're going to be asking for 2 years of payroll information. He was the first one to tell me that. I have not heard that from anybody else. I will see where that ends up. But on the sample application distributed by the SBA, it reads relatively straightforward in that most applicants will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis. So if somebody made $150,000, you would take that $50,000 out of the calculation. And then for new businesses, it would be average monthly payroll being calculated using the time period from January 1st to February 29th, excluding those folks.— when we look at getting into those numbers, it— we have found the easiest number to pull from on the payroll side is box 5 on your W-3 for 2019, which is your Medicare wages, which pulls in all of the— all of the layer cake of information that they're asking for because they're asking for— somebody just asked in the chat, does it include contractor? Yes, you're not going to find that obviously. Inside the layer cake that includes your Medicare wages on your W-3, but there is a line for your folks. But what goes into that is going to be those Medicare wages. So everything, you know, paid sick time, paid vacation time, any wages paid to employee for hours worked or hours compensated based on categories such as that, your 1099s, any state taxes that you paid in as an employer. So some states do have localized tax that are employer-based. You know, your typical state and federal withholding is coming out of the employee's check. So that is not going to calculate into that. Your employer contribution, and I'm going to send out a list of this. I apologize. I could have swore it was on the next slide. So I was fumbling up to the next one, but I'll put a list and a calculation on how we're or even this in the Dropbox that we're going to reference. So the employer contribution of your healthcare and the employer contribution towards your 401, you add those numbers together and divide by 12. Right now, the guidance that we're providing to all of our clients is we are giving them all 4 quarters of 2019, the 941s for each quarter of 2019 along with their 940, packaging them up nice, then also putting that, that calculation right there, dividing that by 12 and timesing it by 2.5 and giving them that number so that they can fill out that first line going back to the beginning of that application and have that packaged up and ready to go. Now, if we need to change that slightly based on some lenders are saying, no, no, no, that won't work, we need it right up until March 31st, then we'll make adjustments as necessary. But based on the SBA guidance and, and what a majority of banks are telling us, that will suffice for the calculation. So I will say it is— once again, I'll provide those numbers, what goes into that number. If you are an ERG client, you should have already heard from us related to pulling that information if we were working with you in 2019 together, and we'll have that over to you by tomorrow morning. And if you're not an ERG client, as Matt referenced earlier, that's information that you can pull from either your payroll system, your payroll reports, talking to— you are going to need to get your retirement and healthcare providers involved in this. So one of the things that, you know, even your payroll company might be able to pull out the healthcare contribution as an example, but they're still at some point, it sounds like the banks are going to want something directly from from the broker agency that gives the breakdown on that. Like a report alone is not going to be validation enough. They're going to need almost some sort of cert— not certification per se, but some further evidence is kind of the initial guidance, and I'm sure that'll come more clearly over time. So just be prepared and start putting your partners on alert. Before I'm going to dive in real quick, we're going to take off the CARES Act because we're coming up on our time. We'll probably get into this more next week as well. Don't forget ergpayroll.com. This is a screenshot from our website. Everything related to coronavirus, all these resources we've talked about, all these FAQs, right on the home page at the top of the screen, you'll see a link to register for the next webinar. We're going to do them every Thursday, same time, same place. So please join us for the next one. I think we're going to have more information on the CARES Act next week as the first round of applications start getting taken in. So I expect that to be a really valuable session, and we're going to have Teresina Maxwell from Claris Work Opportunity Tax Credits joining us as well. And so also don't forget, I'll be sharing this Dropbox. You'll see a bunch of files in here. I literally was adding files to it while we were talking. So this is a really dynamic resource in that it's something that we can just keep adding more stuff in here and sharing it for free with anybody who— you can share that link with anybody you want. You'll see there's, you know, layoff resignation inform templates, remote work resources, recordings of these webinars, everything you want. No sign-in required, no email address required. You can give it to whoever you want and use it however you want. And that's just part of our mission of providing as much free education and resources out to the, the business community as humanly possible during this process. I'm going to touch on a couple of quick things related to Emergency Family Medical Leave and Expansion Act and Emergency Paid Sick Leave Act. So these went into effect Yesterday. So as of yesterday, if one of your employees comes to you and says, I need to stay home with a child who no longer has applicable childcare or school and I can't work during that time, they're going to be eligible for these two types of paid leave. And one of the frequently asked questions that I'm getting is, oh, we can't afford this, should we just lay them off? Quite frankly, the answer is no on that. First of all, affording it is going to be something that will be hard to prove in the respect that if I have to pay somebody $500 for 2 weeks of Emergency Family Medical Leave Act time or emergency paid sick leave, that immediately comes off my next payroll in the form of my federal withholdings and employer portion of my Social Security. So that money is immediately reimbursed to you. It never actually leaves leaves your bank account. So, so it's gonna be hard to prove that you can't afford it. And a step further, the Department of Labor is actually looking at that as potential discrimination if somebody comes in to me and requests emergency paid sick leave and then I lay them off immediately after the fact. So I would be really cautious with how you're handling that. And that, that seems to be the first sort of wave of questions are all related to, I can't afford this, what should I do? You technically should not have to afford it unless just a large percentage of your workforce comes through and starts requesting these times off. So just something to keep in mind. Also, please make sure you are distributing the posters related to this. So once again, they're in the Dropbox. So I just saw somebody come into the chat and ask, where is the Dropbox? If this is the first webinar you are attending, then you will get it in an email as a follow-up to this one. I will also use this as an opportunity to say we will not have time to cover Emergency Family Medical Leave and Expansion Act and Emergency Paid Sick Leave Act today. We cover them in incredible detail in the first webinar, which will also be in that Dropbox, the recording of it. And you can also find it on YouTube if you just search ERG payroll on YouTube. You'll find a full breakdown of emergency paid sick leave, emergency FMLA. And in the second webinar, we get deep into how those tax credits will apply to your payroll. And if you're working with a firm like an ERG, then we're going to be able to apply that money directly against your upcoming payroll so that no action is necessary on your part. So once again, do not forget to send those posters out. Make sure that as people are requesting time off related to emergency paid sick leave or emergency FMLA, you are documenting that and you are having them submit written requests or automated requests. In our example, any client that we have that's using our system, we're creating an additional code in their PTO policy in the system if they request time off through our systems so that they can request it under the emergency paid sick leave code so that it'll be isolated. Once again, we're going to have to report down the road at some point, if I'm getting a tax credit for paying somebody out 2 weeks of emergency paid sick leave, I'm going to be expected to reconcile that at some point with the IRS. And so I want to be able to easily report off of that, and I want to have documentation from my employee on why they got that time off. So a lot of employers are starting to request some sort of documentation from the schools that they're closed, some sort of proof, validation, doctor's notes. You are well within your rights to request those things as employer. So as we walk away from this, obviously a ton to digest. Matt, I can't thank you enough for sharing your knowledge about the PPP loans and what it means for us as small business owners. You guys have a lot to assess walking away from this, wondering whether or not these loans make sense for you and your business, wondering how to apply the strategies related to these tax credits and how I treat my employees employees and how I move forward. Just make sure, as we've talked about at the end of each of these conversations, that you do so with tact and you put a plan in place and you don't just fly by the seat of your pants and say, "Oh, I heard there's this thing. I'm going to rush into it." You're all doing the right thing by sitting in on webinars like this, learning more, making sure that you have all the information. To Matt's earlier point, if you take this money and you go blow it all and it's not all forgiven or you blow it inappropriately, you use it inappropriately, appropriately, then what is that going to mean to your business later? Are you, are you just delaying, you know, potential pain for you and your organization? So make sure you've got a great plan in place, and then ultimately make sure your policies and procedures reflect the updates that you're making, particularly in the short term around that emergency paid sick leave, emergency FMLA. I actually, while we were talking, I uploaded a time-off request form for emergency paid sick leave time that you can now use a Word Word document you can customize for your organization. That'll be right in that Dropbox we'll share after the meeting. So once again, Matt, thank you so much for joining us. I know that I love working with Pendleton Street Business Advisors because you and your partner John both have the same mindset as us, and that's that, you know, we've actually talked about Dr. Goodnight on many occasions, the CEO of SAS, and just that mentality of 95% of your assets drive out the gate every evening. They walk out door, they're working from home now, they're working out in the field, wherever they're at right now, they're your number one asset. You need to do whatever you can to maintain a work environment that keeps them coming back. And in some of your cases, that's going to be making sure that there's a work environment for them to come back to. And for others, it's going to be adapting to new remote work life. So make sure that you're adjusting on whatever makes the best sense for your business moving forward. And please, like I mentioned earlier, you'll have our email addresses as a follow-up here. Don't hesitate to reach out. We're doing everything we can to provide support to small businesses in this environment. ERG was started as a mission-based organization to make an impact in the local community in South Carolina. We give 5% of all of our business away to local nonprofits, and we do that around the country now. We serve about 35 states around the country and can serve about— and can serve all 50 states. But we're really grateful for the opportunity to serve those of you who are not our customers today and provide you with what I hope was valuable information. Please don't hesitate to reach out. And I appreciate everybody taking some time out of your day to spend with us today. Thank you so much and have an awesome rest of your day. And I hope to speak to each and every one of you very soon.