Ask the Experts: Breaking down the Paycheck Protection Program

By Brett Johnson
New Jersey | Apr 2, 2020 at 5:35 am

The Paycheck Protection Program is perhaps the biggest item for business owners in the $2 trillion Coronavirus Aid, Relief and Economic Security, or CARES, Act that was passed last week by the federal government.

The Paycheck Protection Program allocates $349 billion to provide businesses with a short-term cash infusion. Critically, those committed to keeping employees on their payroll during the pandemic have the potential for those loans to later be partially, if not totally, forgiven.

Businesses can begin applying Friday.

Through the program, businesses can apply for a loan of either 2.5 times their average payroll over a 12-month period or $10 million, whichever is lower. The funds can be used to pay employees, rent, utilities or certain other overhead costs.

Keith Krauss.

Keith Krauss, counsel at Genova Burns, said there are some important things to know about it: There are roadblocks for those with high employee counts (many businesses with more than 500 can’t apply), as well as those with high employee salaries (the loan can’t cover compensation of more than $100,000 annually for full forgiveness).

“I was just on the phone with a client that has to pay too many employees over $100,000 to be able to really benefit from this,” Krauss said. “Another problem we ran into was a car dealer who was going to be over the 500-employee limit because of the way the dealerships, which were all different companies, were going to be aggregated into one corporation.”

However, businesses in certain industries may have more than 500 people on their payroll and still apply for the loan if they meet the Small Business Administration’s size standards for those particular industries.

“There’s all sorts of twists and turns,” Krauss said.

As an example of the winding road a company might have to travel with an adviser: An enterprise such as Calandra’s, which has around 850 people on staff, would normally be too big to qualify by the SBA’s criteria. But under the agency’s classification system is a carve-out for accommodation and food service businesses to remain eligible, providing the business has less than 500 workers at individual locations, and revenues under a certain threshold at those locations.

Ken Biddick.

That’s according to Ken Biddick, senior managing director at KB Consulting Group, a Sewell-based firm that serves as a contracted chief financial officer to small and medium-sized businesses. He’s one of the many financial advisers working around the clock to help business owners understand how this program might help them.

Businesses feel a particular urgency to figure out the details, and they’re not wrong to. The program covers a period beginning Feb. 15 and ending June 30 and includes time-sensitive aspects, such as the need for companies that have laid off employees to rehire them within that window to be eligible for the loan forgiveness.

Keeping the doors open at some businesses may depend on it, Biddick said.

“A restaurant with zero business that has already let people go can possibly apply for this program and have their loan forgiven, as long as they’re pledging to keep payroll intact and can bring people back by June 30,” he said.

Read about Calandra’s worries about the economy.

The amount of the loan businesses can expect will be forgiven diminishes in proportion to how much the average annual payroll went down, starting at a 25% reduction.

Tricia Gasparine.

Tricia Gasparine, co-chair of Chiesa Shahinian & Giantomasi P.C.‘s Public Finance Group, said it’s all about how much a business is paying its workers — not what those workers are doing.

That’s an important distinction, given that some businesses, especially those deemed “non-essential” by various states’ quarantine orders, have to consider paying workers despite not having much — or anything, for that matter — for them to do remotely.

“To my understanding, what the government wants is for you to maintain your workforce, keep people paid,” she said. “To the extent they can work from home, great. But if they can’t, that’s OK, as we try to get this thing under control. I’ve seen nothing tied to productivity or output.”

Many businesses are coming to Gasparine and other busy advisers aware of these distinctions.

“My experience is that clients have done their best to educate themselves already on the options that are available,” she said. “They’re looking to us to make sure their read is correct … and they have narrow, nuanced questions about the programs, ‘What happens if I do X instead of Y?’”

The problem for those trying to provide the answers is that they’re working with some unknowns. A crucial one is this: No one is quite sure when all the forms for applying for these loans will be available (SBA officials have indicated possibly this week) or when they will be awarded.

Heidi Hansen.

Heidi Hansen, also of Chiesa Shahinian & Giantomasi, said a network of community banks and larger financial institutions is gearing up at the same for the implementation of this program. And as those actually dispensing the funds to businesses, they’ll play a major role.

“While it is still early, one piece of practical advice for businesses looking to get these loans is to first look to connect with your own bank,” Hansen said. “Because of the ‘Know Your Customer’ rule, if they don’t have an account already established, they might be slowed down going through this process.”

Banks have to be SBA-approved lenders to participate in the loan program. It’s possible that even certified banks will take applications for loans only up to certain sizes.

Alisha Jernack, senior manager for entrepreneurial business services at Mazars USA LLP, said her team has not only been working with clients to optimize their potential proceeds from the program, but presenting their plans to major banks.

Alisha Jernack.

“We want to make sure we have their buy-in on this,” she said. “The feedback so far from banks is just that they haven’t received guidance yet, despite them being the ones to distribute the money. Outside of that, they’re not quite sure where to go with this.”

When it comes to her clients, Jernack calls for a “peeling back the onion” approach to looking through the different layers of a company’s expenses to find cost centers that might not be immediately apparent for what the loan money could be used for, such as storage fees.

Financial guidance, like everything else, is changing by the minute.

Just about a week ago, business advisers were directing clients worried about going under during the pandemic to the Small Business Administration’s disaster relief loans.

“So, I had a lot of clients immediately asking, ‘If we previously applied for these SBA loans, are we able to still apply for this new program?’” Jernack said. “The answer is yes, but it has to be applied to different costs.”

For now, the Paycheck Protection Program is the go-to device for staying afloat.

“The bottom line is, even if there’s nothing for employees to do, even if you’re not getting a nickel at the cash register, this can potentially bail you out for two months,” Krauss said.

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