SBA Loans - Q&A for Gym Owners

If we have the financial choice, is there a benefit to keeping employees on payroll versus laying off? Right now, if you have the financial choice, I mean, really what I'd be looking at, do I have the financial choice in 3 months?

Almost.

So maybe I would recommend doing a 13-week cash flow to see revenue when it comes in, my expenses when they go out. What does my cash situation look like in 13 weeks? If it looks like in 13 weeks, I'm not going to have the financial choice, then you probably want to lay them off now because they have a better chance of getting unemployment now than they will 13 weeks from now. Does that help, Bethany?

I think the big piece too is if you can sustain this, even with a bridge loan or a line of credit, if the cash is not there, To the point of the loan, it's gonna— if you get that 7 loan, it will allow you to have that money for free. And I think the timing part is going to be the biggest challenge, where if you physically don't have access to the credit or the cash, it may be that you're forced to lay off. And in that case, John, you brought it up before, where it may be beneficial to the employees so they can apply for unemployment.

So a couple scenarios. So another question, Bowie. If we think we can get through April and even maybe May, is it worth it to apply for one of these loans? I think so, because you can receive the loan proceeds, you'll gain experience on what it's like to go through a loan process, and if you don't end up needing it, you can just turn around and give it back to them. Because most of these aren't going to have— I mean, worst case scenario, you're out a month of interest and some closing costs. But if you're unsure, I personally think it's worth having the cushion. Because if you're not sure and you don't have a cushion somewhere else, where is that going to come from? So I'm looking at it as hedging my risk there.

I agree.

James says, which loan again has the potential for forgiveness if used for rent or payroll of Independent contractors. Is that the 7?

Uh, that was the 7. Yeah, the forgiveness. The, uh, disaster was the lower, uh, percentage and longer term, but they're not giving away, uh, the actual, uh, uh, portion of that. So in many cases, it could be, uh, depending on your situation, one loan is better than the other, but I do think you should apply for both. And like John said, if, if you, you know, it's not your loan until you sign on the dot, so you can see how the terms come back and make sure that they fit your situation too.

Yeah, Stephanie, I see your note. Sorry, you're on Bowie's. I hope we answered your question. Josh asks, will the forgiven portion of the loan count for all checks written during this time to payroll? Does it count for the owner payroll as well? Did I miss or misunderstand earlier? There is a calculation. We're not quite sure exactly where it will land. The main thing being, if you are able to maintain your current payroll expense, then it sounds like it'll likely be forgiven. If you're not able to do that, probably only a portion will be forgiven, and it's unclear whether they will count owner payroll or not. I'm assuming if you're on W-2, the W-2 amount you pay yourself would count. But if it's distributions, right now there's nothing that's addressing it. But we'll see what they do.

That's probably pretty scary in a lot of cases too, where, you know, I know for myself, like, we'll try and drive down as much payroll tax as we can on the owner side, and a significant portion is in that distribution. And that's, that's the gray that gets a little scary where, you know, you end up only getting, what, a third, you know, third or, you know, 50% of what's actually sent over on payroll taxes that could get covered.

But as I think about that too, if my— if what I'm paying myself is considered a distribution, uh, from a standpoint of applying for the this loan, my pay doesn't show up in the calculation because it's not a payroll expense, because they're going to use your payroll amount that you pay as a factor of how much of a loan they're willing to give you. And so, um, this still benefits the owner greatly because your loan could be forgiven. So if you have $5,000 a month of coach expense and you're able to maintain it at least for like a 2.5-month period, That's like $12,500 that you paid your coaches that was basically given to you for free, which means if you, you could have paid yourself that month, the additional $12,500 to yourself as a distribution. So to some degree, you're, I mean, you're getting a serious benefit here because normally that money comes out of your pocket to pay the coaches. And now the government's saying they're basically going to do it for you as long as you play the rules of their game.

Speaking on that, do you think that they'll actually have a stated loan amount and then in terms of like the disbursement will be the difference? Or do you think they'll reflect that on a tax IRS statement? I don't know. That's the one thing I, you know, what are they doing with the actual cash?

Yeah.

I guess that's too big to tell.

They love using the tax returns for crap like this.

Right.

It complicates the hell out of everything. Uh, yeah, so we'll see. Um, Nathan asked, he submitted his SBA loan this morning, his application. He thinks it only has the application and a submission of that. Was that it? Wasn't sure if they wanted more now, or has anyone else submitted recently? Um, from what I've read, you're experiencing something similar to everybody else because the system is so inundated. People who have applied are going back to see where their loan is in process and the loan isn't showing up. Unfortunately, I don't have an answer for you. And I know that if you call the SBA, they're likely not going to have the bandwidth to answer your call anyways. But most people are like just applying multiple times.

I think one thing to note too is don't If you did not reach out to anyone or click on the website, don't fill out random applications. I think fraud is going to go through the roof, um, and you may be giving someone your information and then they'll go apply and change all the information, they get the loan. So I think this is going to be the most fraud we've ever seen, uh, but just be aware, like, If you talk to someone and they say they're sending you an application or emailing it, make sure it's coming from that person. And then same thing with the website. This, this is going to increase the amount of, you know, fraud exponentially. Yeah.

Bethany says, are they putting parameters on how you spend the money? They are not putting parameters on how you spend the money, but if you do spend it on the certain things that they've identified, the loan amount would be forgiven. And right now that's like paying your coaches, rent. I thought I saw on there utilities and maybe like mortgage payments are the ones that I remember off the top of my head.

Yep.

Josh asks, any recommendations on how much we should apply for? Does the CARES specify it needs to be spent on payroll? Okay, so yeah, we just answered that. It doesn't specify. The amount you can apply for will be Based on your average monthly payroll, not to exceed $10 million. So those of you looking for a million-dollar, $11 million loan, you're not going to get it. Sorry. Um, but yeah, they're going to take your average monthly payroll, multiply it by 2.5. That looks like that's going to be the max.

Um, Stephanie, take that example. So if the average was just say $10 grand, you're looking at what, uh, $25,000? $5,000 loan.

Yep, that's right. Is there something in Florida now that's basically free money in terms of using it for payroll and you don't have to repay it?

I have read that there's that bridge loan that I was telling you about. It's free money in the sense it's free interest, but it does have to get paid back within a year. Otherwise, it kicks over to 12% interest rate. But again, that could be rolled into, you know, one of these SBA loans. There also are options that I've read on that have this grant function, but they're vague. So it's like they put a bullet point in there and we're like, hmm, I want that. And then there's no information on how to even apply for that or qualify.

Yeah. And Mike actually asked that question. He says, is it true that the disaster loan will give you an immediate $10,000 that does not have to be paid back if you don't qualify. This is what it says so far. Eligible applicants can be awarded an emergency grant of up to $10,000 within 3 days of the application. This grant does not need to be repaid even if an applicant subsequently is denied. The big question is, what the hell do they mean by eligible applicants?

I was more impressed with the 3-day term. I'm like, how's that gonna happen?

Yeah, please. They're not even returning our phone calls within 3 days. I mean, again, that sounds great, but we don't know what eligible means.

Yep.

Great questions, guys. Anything else?

Cool. I think it was a success.

Yeah.

Anything else comes by, you know, put it in the comments section of the post. And then, like I said, you guys can reach us at the following, you know, if you're not in John's group, what is the specific name? It's Micro— what is your—

Profit First for Micro Gyms.

Yep. And then Art of a Profit Gym for me. And then you guys are welcome to message, you know, me directly and I don't know if that's all right, John. I put your stuff in there for them, but we'll help in any way that we can and go from there.

Okay. Last question, then we'll stop this thing. James asked, can we use our CRM such as Pike 13 to provide them with what our payroll costs are, or do we need to use our bank account? I think either way, both should probably give you the same number. So as long as you have documentation, we know they love documentation, so they are going to ask for it at some point. And that's— we have to understand, like, man, the loan is good. The loan can potentially be forgiven. Look, banks make money off of lending money, right? That's how— that's their service that they offer. So let's not be fooled that while this sounds great, they are going to require you to prove why you deserve to have the loan amount forgiven. Which of course then, from my understanding, SBA or the government then reimburses them. But regardless, as Chris mentioned, we don't want to fall into the scenario of potentially perpetrating fraud.

And I'll end on this then. So just keep that in mind where we're applying and then that underwriting step or that process, it's that person's job to approve good loans or good lenders. So they're accountable. So it's not going to be a free-for-all, although it will feel like that because of the amount of money flooding into the economy, but someone is still accountable to writing Approved on there, and if they're not having qualifications or checking and verifying things that add up, yeah, it's on them. So I think they're easing money in there so we all have the opportunity to apply, and they're encouraging us to. But yeah, there still needs to be the verification side. So like, the CRM isn't going to be enough. I, John, I think it's— they're going to have to go to The tax accountant documents as well as—

Yeah, they likely will require the 941s, which are the payroll tax forms.