Tips for Tech Leaders: Navigating SBA Paycheck Protection and Grants for COVID-19
The outcomes of the CARES (Coronavirus Aid, Relief, and Economic Security) Act are evolving day by day. Get the latest insider information about how to access the resources available to Montana tech leaders. Speakers:
Ken Fichtler: Chief Business Development Officer, State of Montana
Brent Donnelly: District Director, U.S. Small Business Administration
The speakers will be joined in a Q&A session by legal and banking experts:
Barry Johnston: Chief Credit Officer, Glacier Bancorp
Erin McCrady: Partner, Corporate Finance & Public Finance, Dorsey & Whitney LLP
Updated information and guidance will be posted on the www.sba.gov web site—specifically a FAQ document under the “Loan Information” section.
Resources from Dorsey & Whitney LLP:
Full Transcript:
Christina: Welcome, everyone. I'm Christina Henderson, Executive Director of the Montana High Tech Business Alliance. Thank you for joining us today for this webinar. It's Tips for Tech Leaders: Navigating SBA Paycheck Protection and Grants for COVID-19. This event is the first in a series of free webinars the alliance will be hosting throughout April and May. You can find the full schedule at mthightech.org/webinars. We invite you to join us for two additional webinars next week: Tuesday, April 7th at 11am, we'll have Federal Resources for Tech Leaders: Q&A on the CARES Act with U.S. Congressman Greg Gianforte, and on Thursday, April 9th at 5pm, we'll have Survival Tips for Tech Startups, featuring Pat LaPointe from Frontier Angels and Susan Carstensen from Yellowstone Growth Partners. I would like to thank the Alliance board and our members for making this event possible. I'm now pleased to welcome our speakers today. Ken Fichtler is the Chief Business Development Officer for the State of Montana and he'll be joined by Brent Donnelly, District Director for the SBA. They will give a 30 minute presentation and then open it up for Q&A. And during the Q&A time, Ken and Brent will also be joined by legal and banking experts Barry Johnston with Glacier Bancorp and Erin McCrady with Dorsey and Whitney to answer your questions. I will serve as the moderator today. If you have questions during the program, please type them in the chat box. And I also have a few questions that were shared with us in advance. So I would now like to turn the webinar over to Ken Fichtler to get us started.
Ken: Thanks, Christina. I appreciate the opportunity to be here today and talk with everyone about this extraordinary time and what the state government is doing to try to help our small businesses not only survive through this period, but also be poised to thrive again in the coming months. So I think as everyone knows, at this point, Governor Bullock has instituted a stay-at-home directive and several other directives that impact small businesses in the state. We've gotten many questions about what businesses are considered essential according to that order, and there's quite a list—I would encourage everyone to navigate to governor.mt. gov/pressroom, all one word. And that'll be a list of all the current directives and orders that the Governor has put out. Within the stay-at-home directive, essentially, all services that are required to maintain your life are excluded from shutdown. And that includes everything from finishing construction to your grocery stores or gas stations, medical institutions, state government, police, fire, on and on. We think it's a really complete list. We've certainly got lots of questions that have come in about that. But ultimately, it is based on federal guidance, and we're updating that list as we get new guidance from the feds. So I think that's probably the most important piece of what's happening at the state government side right now, that orders in place until April 10th. There is, obviously, the potential of that will get extended, and we're monitoring the situation constantly and trying to understand the impact that the order has had already, and trying to understand what impact we need to have going forward in order to get the cases in Montana to zero and to minimize the impact that we're going to have in the state. You know, the other thing that I think is important to mention is that we've got such a limited budget to work with at the state that we're exploring every option for other ways that we can help Montana small businesses and so we've got every option on the table, and I'm confident that we'll have some ability to move the needle for some small businesses coming in the next few days, but for now, we're really enthusiastic about what the federal government has done and what the SBA in particular has to offer for small businesses. And so I will happily answer any questions, but I would like to give most of the time for this presentation to Brent to talk through what the SBA has to offer, because I think it's, it's really impactful, and it's really important for small businesses to understand at this point.
Brent: Thanks very much, Christina for the invitation to spend some time here. And thank you, Ken, for the introduction. I'll start out by saying that a lot has happened over the last, even, hour in regards to the announcements with the SBA assistance, and so we'll do the best we can to navigate through that but you're hearing some of this stuff as I am. I also start out by saying that since this Coronavirus pandemic has launched and we've gone through the iterations of disaster declarations and the different things that we've needed to do to get some of this assistance available to Montana, a really wonderful part of that is working with our state and local partners, our lenders. All the leadership in the state of Montana pulled together in a real quick hurry to get those things declared so we could get to work on this. So thank you to all of those folks, and we're looking forward to continuing to work with those partnerships as we roll this out. Because those partnerships are going to be really important to dial down. With the SBA, there's been a huge amount of attention, a huge amount of demand, as to a couple of different things that are coming down the pike. So first was the Economic Injury Disaster Loan Program. Then second, what's been highly anticipated over the last week since the bill was passed last Friday in Congress, is the Payment Protection Program, a component of the CARES Act, which just this afternoon, within the last hour or so, was launched. So our lenders and us in the SBA and all of our partners are going to be getting guidance for that. Some of it's starting to be populated on the websites right now and distributed via email, and I think a lot of that will come over overnight and into tomorrow. So keep your eyes and ears open for that. We'll start to talk a little bit about the Economic Injury Disaster Loan Program, because that has been available and continues to be available for small businesses to apply for some funding. And that funding is a loan, with a loan amount of up to $2 million to provide working capital for businesses impacted by the COVID-19 pandemic, to help them basically pay bills that they wouldn't otherwise be able to pay as a result of the impacts of the disaster. It's gone through, as many of you on the phone may have experienced or heard. This is the program historically, the SBA's Office of Disaster Assistance has available and it would come into a region or community that got hit by a natural disaster. So those are things that we hear about: tornadoes, flooding, hurricanes, that sort of thing. Congress opened this program up to be used for the virus pandemic, which is first of its kind. The demand was pretty tough on the SBA's IT infrastructure, as in the website would go down and crash or be really slow and a lot of businesses had frustration in trying to apply for the funds. Over the past couple of weeks the SBA has made some good steps in updating the backbone of that infrastructure. Earlier this week they relaunched the portal for applications and it's much more user friendly. Now, it incorporates some of the components that were in the CARES Act to kind of open up the opportunity for more businesses to be eligible and more businesses to navigate through the program, as well as the option for businesses to request in advance on their economic injury disaster loan of up to $10,000, which is to be paid within three days of a complete application. So that was launched Monday afternoon; Tuesday, I have gotten a number of reports from businesses that tried to navigate the old system, and they're now able to navigate the new system much more easily. All that to say is if you attempted to submit an application through that system and you were unsuccessful, please go back and try again. Because it should be a little bit more palatable experience. Also, if you applied for that program previously, before the early part of this week, you didn't have the option to request the up to $10,000 advance, you would have received a letter from the SBA indicating you need to go back and reapply through the new portal to request that advance, if that's what you want to do. So if you didn't receive that message, for whatever reason, please go back and do that if you're interested. We're told that if you do that, you will not lose your place in the queue as far as processing your application. So a $2 million loan up to a 30 year term and interest rate for for-profit businesses of 3.75%. Nonprofits can apply at an interest rate of 2.75%. That's available on the sba.gov website, and there's all kinds of links there to apply for disaster assistance. And you can be able to navigate through and find that application. That website, I clicked on that website about five minutes before getting on this call, it is changing right now, because they're updating that site with a bunch of information for the Paycheck Protection Plan that was just rolled out. Maybe I'll take questions for a quick minute on the economic injury disaster loan, and then we could convert over to the Paycheck Protection Plan.
Question: What is the portal address? It doesn't seem to be working.
Brent: Just go to sba.gov. I just went through there and I know they're making changes right now. But up at the top of the screen, there was the COVID-19 disaster link. When I clicked on there, maybe it could even be different right now that you'll want to go to "apply for disaster assistance" or "apply for a disaster loan." Let me pull it up. So on the sba.gov website, right at the top of the screen, there's a yellow banner that says "Coronavirus, COVID-19: apply for an economic injury disaster loan, click here." If you click that, it'll direct you to the application portal.
Question: I have a follow-up question on the term of the loan. I've read two years at .5% after six months, and then heard 10 years and you mentioned 30. Can you confirm that?
Brent: So there's lots of information out there, some of which has become very confusing. And it's probably going to take a little while to sort all of that out. So this is kind of a good segue perhaps to talk about the two separate loan programs. The Economic Injury Disaster Loan is separate from the Paycheck Protection Program loan. And so the Economic Injury Disaster Loan can go as long as 30 years once a business applies for that. Once your application goes through, they'll work with an SBA loan officer to determine the term, and they try to make the term such that it's affordable for the business. They're deferring payments on these loans for up to a year in this particular case, but then thereafter, you determine the term. The question talked about the interest rate of a half percent and two years and four years and different things: those are some iterations of the payment Protection Program loan and the up to 4% interest rate in the term of up to 10 years is what was written in the bill text. And so what's happened since last Friday when the bill was approved, and now, as the SBA headquarters has been writing that, the rules on this the implementation roles and making those determinations, where it says up to, what they landed on was just announced this afternoon, was a 1% interest rate, which was announced by the Secretary of Treasury at a news conference, in a term of two years. So that's where we are on that particular program. And I'll talk a little bit more about that program when we're ready if you want to take questions on this or I can convert over now.
Question: Are taxes paid on the grant?
Brent: That's a good question. I don't know the answer to that question. If you could capture that question and perhaps email it to me, I would be glad to see if I could generate an answer to you and get it back to you for your membership.
Question: Has the $350 billion approved nationwide been allocated down by dollar limits to each state?
Brent: It has not. As I understand it, it's on a first come first serve basis.
Brent: Now I'll talk about the Paycheck Protection Program a little bit. Because that's what's in all the news headlines this afternoon, and it has been for a while. First of all, its purpose is an incentive for small business owners to basically retain their employees on board. It's a forgivable loan program for employers that keep their employees on the payroll for up to an eight week period. I'm going to talk a little bit about some of the gnomes that I have based on the bill of the loan program. You guys are caught right in the middle of this being rolled out and launched, and so about 20 minutes before this call, I received an email that said that rule was headed for the Federal Register shortly. So I think it's headed there literally as we speak, and so there'll be more information for us and for everybody, probably tomorrow.So a couple of things about this that I think are pertinent and important is that the bill text talks about a covered period going back to February 15th 2020 and through the end of June this year. So that's the window of opportunity, and I mentioned that because we've gotten a lot of questions at the district office about, 'what if I was a business that was shut down early, or for whatever the circumstance, I had to lay off my employees right away? Does that mean I no longer can take advantage of this?' And it's not the case. There are rules and you'll probably have to bring some employees back, but you can still take advantage of this week of payroll forgivable loans during that time period. So that's one point that I want to highlight for this group. Everybody's situation is different. But that may be important for many of those folks. Another bullet that I would like to say is—who's eligible for this? We're the US Small Business Administration. And many of you know that we have this definition of a small business, which goes by industry classification code; that for some industries is a revenue major, and for some industries is a number of employees. The bill tax expanded that definition a little bit for the purpose of this Paycheck Protection Program. And it talks about businesses with 500 or fewer employees. Unless the typical industry classification code, it has greater than 500 employees, which is the case in some manufacturing businesses that employee number for a small business, it's higher. So if you happen to be a business out there that applied or tried to apply for a Small Business Administration product in the past, and were determined not to be small, I would say take a look at the new regulation or the new rule on this because you may be able to be pulled into the mix. Also, they get pulled in on things like sole proprietorships, independent contractors, other self-employed folks, nonprofit organizations, 501(c)(19). veterans organizations are all eligible, so that net has been expanded a little bit.I'll jump to where you can apply for these funds and how this is going to work. These loans are going to be facilitated through the SBA's network of lenders. So through our banks, it's what I would call an enhancement or expansion of our 7A Guaranteed Loan Program. The government is going to give the banks 100% guarantees on these loans and the loans are forgivable provided that they're used for eligible purposes. Those purposes that are lined out are payroll, interest on mortgage, rent, and utilities. So the loan amount, the maximum loan amount, there's a couple of different calculations. But for the purpose of this, the simplest way is two and a half times the average monthly payroll over the prior year period. And so that's how these loan amounts are going to be calculated. A business can go and apply for a loan and make certifications that they're going to use the funds for the proper purpose. And then if they do that, after an eight week period, their loan can be forgivable. You apply with your lenders. Our lenders, I will tell you right now, do not have all the guidance that they need from SBA, although they may be receiving it right now as we speak, as that is being rolled out. And I only say that just to make sure that everybody on the call has expectations managed. We've been in touch with all the banks in Montana, and so they are up to speed as far as we're up to speed. And we're all sort of sitting on the edge of our seat waiting for the mechanics of this, so that the banks can make the determination on how they will be able to process these loans. So, technically, can you go apply for these funds with your bank tomorrow? Yes. Please understand, though, that your bank is going to need a little bit of time to digest the mechanics of the SBA process on this and learn those before they're going to be able to implement it. So over the next couple of days, I think that that'll happen pretty quickly. But please, just be aware of that. You're going to need good payroll documentation for this: your payroll tax filings and records, your employee count, their wages, benefits, sick leave, all of that employment related data, you're going to want to have ready and have able to pull together. So to make sure I don't miss something, vacation peril, family medical or sick leave, payments for group health care benefits, including insurance premiums, payment of retirement benefits, state and local taxes on compensation. The maximum loan is $10 million under this program for any one business. On rehiring that question has come up, I'm gonna just mention that you have until June 30th, 2020 to restore your full-time employment and salary levels for any changes you made between February 15th and April 26th. If you did make some changes in your employment composition after February 15th, you have until June 30 to make that back up. That's the bulk of what I know regarding the PPP, I know that there's 30 pages of regulation that's headed for the Federal Register right now. So I'll get a chance to read that this evening and start to digest that over the next couple of days. And in addition, I would expect that the SBA will be providing some other information on their website, and then potentially some things that we can send out to some of our partners and groups across the state. And when and if that comes out how that comes out, Christina, I'll certainly try to get that to you so you can distribute to your membership.
Question: Does the PPP cover full time and part time employees?
Brent: It does, there's a limitation on employees with a salary of $100,000 or more. So there's $100,000 cut off. One of the questions I don't have an answer to is 'Does that mean you can pay an employee up to the hundred thousand, or is that $100,000? employee just out?' I don't know the answer to that. I imagine it's in the guidance that's being published right now. So the question is if you have an employee that's making $110,000, are they just not eligible to be included? Or can we count them up to 100,000 and not the last 10? I don't know the answer.
Question: What if, as a small business owner, I've always taken a reduced salary that's not respective of my title? Can I raise my own salary to a reasonable one with the PPP?
Brent: That's that's a good question. My knee jerk reaction is going to be probably not, it's likely going to be based on historical levels. But again, the devil is in the details on that stuff and I think that a review of that guidance as it comes out will be pretty important.
Question: When restoring employee levels will they count FTEs or headcount?
Brent: Yeah, gonna need to look at the guidance on that one. There's been a lot of information published by different groups, and as a lot of it's come past me I've seen opinions both ways. And so, the SBA guidance on that it's going to be really critical.
Christina: This might be a great time to invite our legal and banking experts Erin and Barry to join in. We'll begin with Erin. Do you have any thoughts that you might share with the folks on this webinar today, things that you've been thinking about, from your point of view, working at Dorsey and serving clients, and trying to help them navigate all of this?
Erin: Hi, Christina, thanks for having me. Absolutely. I will tell you who's had a flood of questions with, you know, very anxious people, you know, kind of clamoring to get into this loan program as fast as possible. And I will caution everyone as, as Brent said, very clearly, you know, the regulations have not been published yet. So there will be a lot of additional detail that's coming out over the next, you know, week, maybe sooner, and it'll take a little time for banks and legal advisors and others to digest all of that, but we do expect that some of the questions that are being posed today will certainly be clarified. Under those regulations, but the one or two things I might just point out, you know, the point of the program, at least in our view is, you know, to really allow businesses to be able to cover payroll expenses for about an eight week period. And you know, the point of the program is to borrow the funds and then deploy them in a way that you really have 100% loan forgiveness through the program because you've borrowed them for the appropriate purposes, and you've extended them, both within a timeframe that's required, and on the proper expenditures. So one thing to keep in mind is the ways you can use the funds do not line up perfectly with the forgiveness portion of this. So there are ways to use some of the money that will result in you actually not being able to have full forgiveness of the principal amount alone. So I would just encourage everyone to be very careful. As you're applying for the money, are you actually going to be eligible for the forgiveness portion of it. And, even if you do spend the funds correctly, and you think they're going to be fully forgiving, if you do reduce your workforce, during the applicable time period, or if you reduce salaries, you can also completely eliminate your ability to get the loan forgiven. So it's really, you know, kind of a two two step process there. So I would encourage everyone to really be very careful and mindful about deployment of funds. And then the other thing, which we are still getting our arms around a little bit here at Dorsey and Whitney is, when you're counting the number of employees you have, you know, it's a very good question, is it on an FTE basis or a number of bodies, but the other thing is, of course, there are some rules around it. There's some rules in the SBA program generally around affiliate relationships, and whether or not an affiliate's employees will count towards your total number of employees. So for example, if you have an equity investor who owns 50% of your company, that person is very likely going to be an affiliate. And so if they themselves are a company, their employees may very well count against your total numbers and in addition, affiliates of your equity investors could get picked up in that. So we want to be very careful as to how you're calculating that 500 employee number. I did look at some preliminary application materials for the Paycheck Protection Program and they do have you disclose in their investors or you know, equity investors who own at least 20% of the company, so it does appear there may be some minority investors that can be picked up in this analysis as well. So, Brent, I don't know if you think regulations will provide some other guidance there, but that's something for I think, for everyone to pay attention to.
Brent: Yeah, if you don't mind me jumping in there for a minute, I agree completely with that statement. I will add to it and this may complicate it more, but they have come out and said that they're waiving the affiliation standards for businesses that are in the hotel and food service industries. So that's under NAICS code 72 as well as franchises that are in the franchise directory, so franchises may come into that affiliate bucket where eligibility as a small business becomes problematic. So there's a couple of areas there that certainly have been opened up. So understanding how that guidance is going to read as related to affiliates and those specific industries, there may be some set asides there to certainly pay attention to.
Erin: And I would say, if I could just add one more thing, anytime you're applying for, first of all, for a bank loan, and certainly for a federal a federally backed bank loan, you know, being extremely careful with your disclosure and the representations that you're making in application materials is essential. You know, it goes without saying, it is a criminal offence to deliberately mislead or provide inaccurate information on a deliberate basis. So I would just encourage everyone to be very careful with the application process. I know folks are panicked and stressed and trying to get into the one program as fast as they can, but just to be mindful of all of that.
Question: Are restaurants with gaming operations excluded from applying?
Brent: Just because a restaurant has a gaming operation does not necessarily make them ineligible. However, the way the SBA programs, across both our disaster loan programs, our 7A, and our other lending programs, they all have a restriction on gaming income that it can't be more than 1/3 of revenues. And so it's that restriction that sometimes becomes problematic for those types of operations. I will say that over the last week, I've had a lot of traffic and requests from that industry to see if that is a rule that could be relaxed or modified in some way specific to the CARES Act. And there's been effort by a number of folks to see if we can do that. The one of the first things I'll probably be looking at as I go through the regulation as it comes out, because that's been a very hot topic in our office, and I think it has been in Ken's office too.
Christina: I would love to have Barry jump on for a moment. So, certainly businesses will want to reach out to their local banker if they haven't already. And we have a number of phenomenal banks that are part of the Montana High Tech Business Alliance that would love to help you apply for this. But we invited Barry, the Chief Credit Officer for Glacier Bancorp today just to provide the bankers perspective and to maybe help folks understand what he's thinking about and what folks like him are thinking about. Any thoughts from your perspective, Barry?
Barry: Thank you for the invitation. I'm happy to be here and talk to the group. As just noted, the interim final rule just came out. But I have to kind of caution everybody, it's an interim final rule for one, it's going to be facilitated through the SBA administration, and as all of you I think are fairly familiar with that organization. While the rule is out, however, we're still waiting on SBA to come out with their standard operating procedures. And that usually takes some time, so why there's been a lot of press, yeah, you can go to the bank tomorrow, start your application process, but until we actually have the SOPs and we have a formal documented documented application that the SBA has signed off on as part of their SOP process, we really can't process. We can start acting on maybe a draft application. but until we actually have that final application, we cannot process the loans. And we're still on a wait and hold until we get that information. The other thing that we will be waiting on, even if we do get the application, we are waiting for SBA to start processing loans. Usually those go hand in hand when the SLP is issued, we can actually take the application and process it. And, you know, get it approved, get the loan documents back to you, as long as there's all the supporting documents that are included in the application. And hopefully, we can start meeting the needs of our customers and the communities in which they operate in. As probably you all are aware that banks are going to be overwhelmed by the number of applications that are going to be submitted, given the impact that we are having across the state and in our individual communities and our households. So I'm just going to ask for a little forbearance. Along those lines, there's going to be a wait. There's going to be some process. It's going to take a lot of time for the banks to process those applications, but we feel at least at our organization with the Glacier Bank, and all of our bank divisions cross, cross the state that we should be able to accomplish, serving the needs of our of our existing borrowing customers and depositors. So we have added additional staff we've added additional, what the SBA calls eTran sites, to all of our banking divisions to get them the resources to get those applications processed, and accordingly, the applicants their respective funds as as programmed, or as outlined within the interim final rule. And even that the rule that came out is an interim final, which is kind of something unique that you really don't see too often. So you can tell that the regulatory agencies are really trying to move quickly in getting the loans approved and them and the monies distributed as quickly as they can. So just be patient, all the banks will try to get your applications as quickly as they can, I would just advise you, if you have a relationship with a bank that can approve SBA loans, that will be the quickest way to get it done. Because there are some regulatory requirements on the backside of it. So if you already have a relationship, the bank should have a lot of that information that is required to meet those regulatory requirements. And so I would highly advise that you make an application at the bank you already have a relationship with. If you try to go to a bank you do not have a relationship with, they have to go through a lot of extra hoops to supply the information that is needed to complete your application. And from the perspective of some banks, they are prioritizing who they serve first. That's unfortunate, but that's the way it is. So I would just suggest, make the application with the bank that you have a relationship with if, indeed, they can process SBA loans. So that's about all I really have to offer.
Question: What is a reasonable timeframe for business owners to expect from a PPP application to acceptance or rejection and upon acceptance, what's the timeframe to receipt of funds?
Barry: That's a great question and it really depends on the workload and the number of applications that the bank has received. We anticipate we are going to receive about 30,000 to 40,000 applications for all of our divisions across the western United States, which is a huge amount of applications. As the program leads out, we have to have all those processed before June 30th, which does give us some time, but the real challenge is, the question is, we are just asking our customers that to get in here as early as possible as soon as the SBA issues their SOP and opens up their electronic processing system to the banks as early as we can, and we will try to process them. I can't give you a definite answer because it will really come down to how long it takes to process all of the applications and get them done. Once the application is processed, it's a fairly seamless process. There's very little underwriting compared to what we would call a traditional loan or a traditional SBA loan. It's basically a two page application with very minimal documentation needed to support the amount of the loan. And I think almost all the industries through contact with either their accounting firm or their in-house accounting firms, or getting documents from their payroll processing, taxes, we'll be able to supply the documentation needed, but again, we aren't even sure what that is specifically because we have not seen the SBA SOPs yet. Then the application will be processed through SBA will load it onto their eTran portal, we will get a loan number, we will get the documents prepared to send out to the applicants, get them to sign them, return them with with the the information that we need as part of the forgiveness part of the program. There's actually two parts: there's the application and funding, but then there's also a forgiveness part that everybody really has to pay attention to, and understand that the use of the proceeds of the loan have to be for the purposes or the loan won't be forgiven. And there's some specific rules about the 25/75%—basically, over 75% of the proceeds are applied to paying salaries of employees for eight weeks after the date the loan is dispersed, so that the loan can be forgiven and whole. But only up to a maximum of 25% of the loan proceeds can be used for specific purposes: mortgage interest, utilities, that sort of thing. Again, that still has to be specified within the SOPs. But the interim final rule has got a pretty good list of what's allowed. So we have a good idea what's going to happen, but again, there's two parts to this, everybody really has to pay attention, especially to the second part, and that's the debt forgiveness part.
Christina: Thank you so much, Barry. We have come to the end of our time. I will remind you that we're going to be talking with Greg Gianforte about the CARES Act on Tuesday, April 7, so you can ask more questions at that time about other aspects of the bill. And I thank all of our panelists today for being here. I thank everyone for joining in, and good luck to everyone. Stay well, and we hope you'll join us for future webinars.