The early days of applying for the the Paycheck Protection Program (PPP) proved tough. Millions of small businesses tried. They struggled to take advantage of the opportunity to get the funding they need. Small businesses need this funding to ride out the economic shutdown due to the coronavirus pandemic. But consider the good news too. Some of those first to submit their applications received their approval notifications back. Take this week’s convo with Corpnet CEO and frequent Small Business Trends contributor Nellie Akalp. She shared the details of both the PPP and Economic Injury Disaster Relief Program(ECIDRP) opportunities. Meanwhile, a small business friend of mine sent me a message saying he had just been approved. He shared the process he went through. And just like that, Nellie got her approval notification!
So small business early to apply started to hear back. So if you haven’t submitted your application, get started! Nellie really helped us lay out the program in the recent interview. Learn who is eligible for the program. Also discover what you need to have ready before you apply. Get more details about these programs.
Check out an edited transcript of a portion of our conversation below. Or see the whole conversation and hear all of Nellie’s tips and advice on these programs. Just watch the video or click on the embedded SoundCloud player below.
Small Business Trends: What’s the current environment for small businesses?
Nellie Akalp: Right now, it’s pandemonium. And I’m not kidding you. There is so much misinformation out there. And small business owners are running around trying to figure out what is the correct information. What is incorrect information? Where they need to turn to. And in dealing with a lot of accountants, CPAs, legal and tax professionals.
And doing webinars for that segment of our business. I continuously say right now. Accountants, CPAs, this is the silver lining for you guys. I mean your business should be rocking right now. And if you’re going dormant or if you’re thinking of closing up shop, then shame on you.
Because right now clients are really looking at their financial advisors. Whether it be their enrolled agents, their CPA, their accountant. To get them the correct information they need to be able to submit these applications. For financial aid and Paycheck Protection Program assistance. And as a result, we’re here to help.
Small Business Trends: Let’s talk about the Paycheck Protection Program. Exactly what is that?
Nellie Akalp: So right now under the CARES Act and through the stimulus, small business owners have the ability to apply for different types of financial aid and assistance out there through the SBA. The Paycheck Protection Program, is really your normal 7(a) SBA loan. And what this Paycheck Protection Program allows is for a small business owner with 500 or fewer employees, they can qualify up to a $10 million forgivable loan as long as it’s used for payroll costs, payroll benefits for their company.
And really there’s a list as to what qualifies. But generally the way this loan is qualified for is a small business owner takes their 2019 total payroll for the last 12 months, takes the average and times that by 2.5% and that is what is going to equal the amount that a small business owner can qualify for. And this loan is designed to allow small business owners with employees to get back up on their feet and prevent small business owners from laying off their employees. And it’s a very strict guideline that even until today there’s new rules and regulations added to it.
We have a team of six to 10 people working round the clock to find the actual laws that are governing this act that has been passed and what are the new developments. But generally, anyone who has a business and as a small business owner and has employees, employees that are on payroll can qualify for this Paycheck Protection Program loan, which is a forgivable loan that you can qualify up to $10 million. And most of it, if not all of it, can become forgivable.
Meaning you don’t have to pay it back as long as it is used for eight weeks preceding the time the loan is funded for payroll costs and keeping your employees and not having to lay them off. There is very strict rules with that in that 75% of this loan amount has to be used for payroll and the balance of 25% has to be used towards expenses such as rent, mortgage interest for your business, if you own the location where your business is being conducted or utilities expense and the list goes on.
Small Business Trends: A lot of small businesses, they have 1099 contract folks that do a lot of their work and these folks might work for a significant amount of time for them, but they’re not full-time employees. So if you’re in that situation, are you not able to apply for this?
Nellie Akalp: This is a great question. So independent contractors that are working with a business are eligible to apply for their own Paycheck Protection Program as of April 10th, 2020. So the program is going to be available to independent contractors and the application process for independent contractors to qualify for the Paycheck Protection Program will open up April 10.
Prior to that, and in answer to your question as to what about small business owners that have independent contractors that they’re working with and they’re paying? Well that is something that according to the SBA, if a small business owner has been approved for this PPP loan, a portion of the loan proceeds can be used to pay their independent contractors, but it has to fall under the guidelines of that 25% versus the 75%. They’re very strict because this is potentially a forgivable loan.
So they want to be very clear and have very strict guidelines as to what will qualify for it being forgivable. For those that think or have the notion of thinking that, oh, I’ll get this loan and immediately it’s forgiven as long as I follow steps one, two, three, that’s not the case. Your lender that will fund you this loan will immediately be invoicing you with the loan terms and the payment amounts.
When it’s time to pay it back, which is 18 months after funding, they’re going to give you a six month grace period and then you have to start paying the loan back, the portion of it that’s not forgivable. But for everybody, you as the business owner, the onus falls on you to apply for the loan amount becoming forgivable to you.
Small Business Trends: Talk about the process. How long does it take? Do you get some kind of an immediate answer? And I guess the most important question is when does the cash come into my hand?
Nellie Akalp: Yes. So that’s what we’re all waiting for. And this is something that I do not know the answer to, I don’t know the exact answer to, but what I can tell you is when I don’t know the answer to something, I will not and do not rely on hearsay and I don’t rely on opinions. I go and look for the information. And right now the most accurate information that you can get is on the United States Treasury website as it relates to this Paycheck Protection Program loan.
So from what I understand is that the SBA has contracted with many different banks as SBA third-party approved lenders and most of the smaller banks are hiring processors and strictly focusing on processing these types of loans. And what they’re telling us is ever since April 3. Which this application process opened up to small business owners. They’re taking applications online and it’ll take about three to six days for the application to be reviewed to see if they need any additional information.
And then it’s going to be assigned to an underwriter. And after that, the underwriter will directly work with the small business owner and it can take anywhere from the start of the process till the end, anywhere from two to four weeks till funding. Now there is a lot of media around this right now as we speak.
I mean even while I’m on this radio show, my phone is going off the hook. Oh my God, the funds are ran out, the funds have been run out. It is very true that Wells Fargo, from our understanding and from the news media, in that they bowed out of this program. However, as of this morning we understand that they want to participate. However, they’re waiting for certain guidelines. So I’m not sure about the information that’s out there.
I do know, having been a Bank of America client and having all my business banking through B of A, B of A is offering this service to their clients but they’re making it very rigorous, very hard for business clients to use B of A to go through the application process, to submit an application for the Paycheck Protection Program.
So right now, we’re at the mercy of the smaller banks and where our company, CorpNet, can assist the small business owner is that we have partnered with Liberty SBF bank and we’ve partnered with them to provide the small business owner with a Paycheck Protection Program loan submission assistance whereby we take the information from our client.
There is no upfront fees. We cannot charge our clients. No one can charge their client for assisting them with the Paycheck Protection Program application. It’s against the law. We as a third-party consultant, SBA loan packager, get our fees paid by the SBA at loan funding. It doesn’t come from the client and that’s if we get paid.
Small Business Trends: Do you have to go to a bank you already have a relationship with?
Nellie Akalp: If a small business owner has an existing relationship with their bank. We not only urge them but we want them, we encourage them, to go to their existing bank. Because they are going to get the fastest response from their current bank. However, the problem that many small business owners are facing to this morning is the fact that their existing bank doesn’t want to deal with them.
Or that their relationship with their bank is so new. Or the fact that their bank has rigorous requirements as to what they’re going to require from that applicant in order for the bank to process their application. But simply stated, and in answer to your question, absolutely, you are absolutely right. If a small business owner has a banking relationship already, they should go to their bank. If the bank offers them assistance in obtaining this Paycheck Protection Program loan.
Small Business Trends: What do they need to do to make sure their loan is forgiven if they are able to get it forgiven?
Nellie Akalp: So again, the Paycheck Protection Program SBA Disaster loan is a 7(a) SBA loan. And it’s a form of a loan where under the CARES Act, a small business owner can qualify for up to $10 million. Based on their average monthly payroll for last year times 2.5. And that would be the loan amount that they would qualify for.
Now when I talk about payroll, there’s a lot of things that can qualify as payroll costs. And you know I’ve written about this. It’s on the Small Business Trends website in the blog section under my blogs. And under the articles that I’ve written. But there’s many different bullets as to what would qualify. Payroll costs, healthcare insurance premiums paid on behalf of the company for the employees, vacation time, sick leave.
There’s a lot of things that go under there. But for the formula, it’s basically your average gross payroll costs. Times 2.5 equals the amount that you would qualify for. And once you get funded, you must use that amount within eight weeks. To pay for payroll and if you’ve laid off employees, bring them back.
And if you use 75% of the loan amount funded for those purposes of payroll costs. And 25% for other normal ordinary business expenses as your rent. Your mortgage interest, your utilities expense, expenses that you would normally incur in running a business under normal circumstances. Then the entire loan will be forgivable to that business owner. Meaning that business owner does not have to pay that loan back.
This is part of the One-on-One Interview series with thought leaders. The transcript has been edited for publication. If it's an audio or video interview, click on the embedded player above, or subscribe via iTunes or via Stitcher.More in: Coronavirus Biz Advice