Answering the big questions around the Payment Protection Program

Buildertrend’s legal expert, Nick Knihnisky, is joining Tom and Paul on today’s special-release episode of “The Building Code” to answer questions about the Payment Protection Program (PPP).

Check out the full episode to hear about the latest updates to the PPP, what these updates mean for you and your business, and looking forward, what you can expect from the program.

WHAT IS THE PAYMENT PROTECTION PROGRAM?

The PPP is a loan program that allows the Small Business Administration to administer loans, through private lenders, to businesses with fewer than 500 employees. PPP loans are designed to help small businesses maintain employee payroll while dealing with the challenges caused by the pandemic and are forgivable if certain requirements are met.

WHAT DO I NEED TO KNOW?

  • There was a second round of resources released in the amount of $320 billion
  • The second round may be close to exhaustion, so get out there and apply as soon as possible
  • If you have a relationship with a small community bank, start there
  • The time between loan application and loan disbursement is only about eight to ten days
  • You can still receive a loan if you have another line of credit elsewhere
  • If you already have a loan, focus on what you need to be doing to get it forgiven. Don’t forget to document!
  • Your bank will be able to seek reimbursement from the government around week seven of the eight-week loan

WE’RE HERE TO HELP

If you’ve got questions, we’re sure you’re not the only one. Don’t hesitate to reach out if you have questions about the PPP or the Buildertrend platform. We’ll do our best to help in any way we can!

LINKS AND MORE

Buildertrend COVID-19 resource hub

Small Business Administration website

Nick Knihnisky | Buildertrend

Tom Houghton:

You’re listening to “The Building Code,” your guide for a better way to run your business.

Tom Houghton:

I’m Tom Houghton.

Paul Wurth:

I’m Paul Wurth.

Tom Houghton:

And joining us recording via Zoom today is our in-house legal counsel in charge of all matters legal, Nick Knihnisky.

Nick Knihnisky:

Hey guys, how’s it going? It’s going to be back.

Tom Houghton:

Great to have you back on for a little special edition. We were just talking about this. Both of your podcasts are special releases.

Nick Knihnisky:

I like that. That makes me feel awfully important.

Tom Houghton:

We just have this… it’s timely information. We want to get it out to our listeners as quickly as possible, so that’s why we’re kind of breaking our usual release cycle. We’ll still keep releasing podcasts on Thursday, but of course, if we have some information that we think that is extremely beneficial to our clients and to our listeners, we’re going to get that out as soon as possible. So that’s what we’re doing here today.

Nick Knihnisky:

Excellent. Looking forward to it. There’s been plenty happening on the Paycheck Protection Program front and hopefully be able to provide some more details to our listeners.

Tom Houghton:

Awesome. Let’s just dive right in. So for those who haven’t heard of the Paycheck Protection Program or PPP, what is it?

Nick Knihnisky:

There you go. So if you haven’t had the chance already to go out and listen to our webisode that we did about a month and a half ago, a month ago or so with Chris Anderson from Monthend, I highly encourage you to do that. That’s going to provide the basic details of the Paycheck Protection Program. And we also dove into some of the nitty-gritty based on the information that we had available at the time. Again, some of that’s changed over the past few months, but let’s give you just the 30,000-foot view.

Nick Knihnisky:

Paycheck Protection Program is part of the CARES Act which was passed on March 27th. The first version of that gave $350 billion in small business loans. So typically, this was part of the Small Business Associations, which you’ll hear me mention that a whole bunch throughout the next 20 or 30 minutes, their 7(a) loan program.

Nick Knihnisky:

Now the PPP simply expanded the eligibility, availability, and forgivability of those loans. To give you a nice, easy threshold on that, any business with less than 500 employees is going to be eligible for one of these loans. And, as long as you take the right steps, you go through the correct process, it should be forgivable.

Nick Knihnisky:

Now for the loan amount, it’s going to be 250% of your monthly payroll costs. Now again, there’s ways that you can go out and calculate that. We’re not going to provide those details here today. Instead, we’re really going to focus more on the updates to the program. So if you’re curious for more of the initial details, some more background on the law itself, I encourage you to go out and check out that webisode.

Tom Houghton:

Awesome. And you can find that on our COVID-19 resources page, buildertrend.com/covid19-resource. So buildertrend.com/covid19 and then a – resource.

Nick Knihnisky:

That’s awesome that you have that right in front of you, Tom. I’m kidding.

Tom Houghton:

Well, I came prepared.

Nick Knihnisky:

There you go. There you go.

Tom Houghton:

Awesome. So, updates. That’s what we’re talking about today. Updates to the Paycheck Protection Program. So where are we at with it?

Nick Knihnisky:

So right now we are in the middle of what we’re calling phase two of the program. So I mentioned that there was originally $350 billion committed to it. Now, small businesses went through that in about 10 days. We’re going to focus a little bit on the political rhetoric on how quickly those were exhausted here in a little bit, but Congress came back. They refunded it, $320 billion in the second round. And so right now, and we’re recording this on what? May 6th. So we’re about $180 billion into the program right now. So still some money out there, still some things you can do.

Nick Knihnisky:

Fortunately, just give a little recap on phase one and some of the reporting that we’ve seen. It was massively impactful for the construction industry. Construction actually led in the number of loans received during phase one which is a really great sign that the industry was able to go out, get loans and help with liquidity during really uncertain time. So we’ll continue to see guidance from the SBA, the Treasury. Even just yesterday, they came out and said, “We’re going to be seeing more, particularly ahead of May 14th” which this podcast should be released ahead of that. So, continuing to keep an eye out there. I know there’s plenty of news articles, but hopefully we’ll be able to answer some of the basic questions here.

Paul Wurth:

Nick, do you know, and I’m not sure if you do. How did they come to the original 350 billion number and then subsequently, the next round, the 320 billion? I mean, there had to have been some sort of math behind that, right, as it relates to how many small businesses and how they qualify? Is there anything further?

Nick Knihnisky:

I don’t know how they came up with those numbers. Surely, my impression is that they just kind of pulled them out of a hat, especially given how quickly they exhausted the first round. And, it sounds like there might even be a third round. Those are the rumors that I’m hearing. Haven’t really seen anything concrete there, but in terms of how they’re counting, calculating these numbers, I have no idea. I think they were desperate to get something passed in a hurry, get money out the door, start helping small businesses. And once they realized that round one was gone, we got to round two. And, if round two is, again, quickly exhausted, we’ll get to round three.

Nick Knihnisky:

So no firm way, at least that I know of, that they’re coming up with these calculations.

Paul Wurth:

So round two, just to be specific. If you got into round one, you don’t get into round two. That round one covers you for eight weeks, right? And then if there is another some sort of plan after that, then you’d qualify for that.

Nick Knihnisky:

Well, so in terms of the Paycheck Protection Program, you can only dip into it once. So one shot at the well here. If you got in round one, you’re not going to be able to get into round two, unlikely that you’re going to be able to get in round three and so on and so forth down the line. If you’ve already got a loan in hand, you should be worried about what you’re supposed to be doing for forgiveness. But I think we’re going to touch on that a little bit later as well.

Paul Wurth:

The last thing I was going to ask about this is a lot of our construction businesses also have a real estate arm, development. They have multiple businesses. Was there any guidance on being able to bundle those up into one or did they have to do that individually?

Nick Knihnisky:

So there’s some affiliation rules, and it kind of depends on how your business is structured. Unfortunately, I don’t have a lot of those details right in front of me, so I would highly encourage anybody that has multiple businesses to go out, see if you’d be eligible to “double dip,” so to speak. But ultimately, it’s going to come back to if the same people are owning both businesses, they should be able to roll it all up into one. But it kind of just depends on how those are structured.

Paul Wurth:

Makes sense.

Tom Houghton:

So just to recap, Nick, in your professional opinion, you said you think phase two is probably going to run out here pretty soon.

Nick Knihnisky:

So, I know you mentioned that this podcast is due to air next Tuesday, so that’s about a week from today. I would expect that we’re going to be right around that exhaustion point when this podcast drops. It’s impossible to go out and project that, but given the burn rate of where we’re at right now, I would say we’re probably looking about a week or so away, maybe 10 days, maybe the end of next week. So if you’re hearing this for the first time, you haven’t gone out and applied for one of those loans, highly encourage you to do that ASAP, just to see if you can get in there and hopefully get some funding into your business.

Paul Wurth:

Are those numbers publicly available on the SBA, Small Business Association, website?

Nick Knihnisky:

Yeah, so-

Paul Wurth:

Is there where you get that?

Nick Knihnisky:

… every couple days, the SBA comes out with a new report on where they stand. So they came out with one yesterday which had them, and again, that would have been May 5th, had them at about 180 billion of the 320 of phase two already committed. So, certainly we’re seeing the rates slow down as businesses are able to get in. They’re able to get loans. And like I said, you’re only able to get one shot. So, hopefully there’s still going to be some money available, but the SBA is coming out with numbers every couple days.

Tom Houghton:

And we’ll put a link to that in the show notes. So if you go to… if you can remember that website, just go to buildertrend.com/podcast. That’s where our show notes are hosted, and you’ll see a link to the SBA website there.

Tom Houghton:

So let’s say, Nick, I want to apply. How does the timing of this all work? Can I get funding as soon as I apply? What’s that look like?

Nick Knihnisky:

So that’s been one of the complaints that we’ve actually heard about the program. People are going in thinking, “I’m going to be able to get money the next day.” Then they out from their lender, “No, it’s going to take a few days,” and they ended up pulling the application altogether. Now, there’s obviously quite a bit of bureaucracy surrounding this. I’m not going to say it’s a quick application process, but compared to a typical loan, this is moving as quick as any. You’re about a week to 10 days from the date of application until the date of loan disbursement. So if you’re able to get by for those 7 to 10 days, fully go in expecting that, and you should have money in your pocket pretty quick and like I said, especially relative to the typical loan process.

Tom Houghton:

Nice. So as far as the application goes, how do I know if this actually applies even to me?

Nick Knihnisky:

So we keep on seeing this economic necessity question come up. It’s been kind of the main talking point for all of the politicians out in DC and depending on which side you fall is going to be what you really hear. And we’ve seen Secretary Mnuchin, who’s the Treasury Secretary, quite a bit of political posturing, saying that certain businesses were ineligible and saying that they weren’t able to actually certify economic necessity. And this is just a one-line thing on the application. It’s essentially saying you feel that economic conditions have put you in a place that you need this money.

Nick Knihnisky:

Now that’s extraordinarily subjective. And we haven’t really seen any specific guidance on this. The SBA, the Treasury, like I said, keep on coming out with these little quips, to use informal term saying, “Political necessity, political motivations are steering the conversation one way or the other.”

Nick Knihnisky:

And, we’re hearing some of these rumors that you can’t apply if you have a line of credit elsewhere and some things like that. That simply isn’t true. It’s all going to be a case by case determination, but keep in mind that so much of that rhetoric coming out of Washington is targeting these large public corporations. We’ve heard about the Los Angeles Lakers receiving a loan and Shake Shack, and they’ve since given back their money. But we’re seeing some of these bad actors, and that’s who they’re really focusing on.

Nick Knihnisky:

So for our listeners, what I want you to do is look at your balance sheet. We have some great cashflow resources on that COVID-19 Resources page that you’ve discussed. And if you feel like there’s some economic restraints on your business of any kind, you should feel confident in certifying the economic necessity on the application, and your lenders should be fully understanding of that as well.

Tom Houghton:

Awesome. So let’s move on to, I guess, the second phase. Let’s say somebody has applied. They’ve gotten money. Now what? Now what do they do?

Nick Knihnisky:

And so that’s really the focus at this point. If you haven’t already applied, obviously, I highly encourage you to do so, but I hope so many of our listeners there have already gone out, they’ve spoken to their lender, they’ve got the money in hand.

Nick Knihnisky:

Big focus should be on forgiveness. How do we convert that loan to a grant, and you don’t need to worry about paying it back. And obviously even the basic loan terms are pretty conducive as it is, but if you don’t have to pay back the money, why would you?

Nick Knihnisky:

So right now you should be taking all the right steps. And what are those? First and foremost, document what you’ve been doing. What was your calculation for the money on the front end, the 250% of the monthly payroll costs. Track that stuff. Track what you gave over to your lender. And then go and spend on the right things. That includes… the money’s supposed to be for payroll, rent, utility payments, any mortgage interest, things like that. Make sure you’re putting the exact amount that you received towards those things. And if you’re doing that, and if you’re, again, documenting those things and then handing them over to your lender at the end of your eight-week period, you should have no trouble getting forgiveness.

Nick Knihnisky:

Like I said, going back quite a bit of political posturing happening. Just don’t get overwhelmed by that. As long as you’re doing the right things, you should be good to go. You shouldn’t have any real concerns. And hopefully, this thing will convert from a loan to a grant, and you’re off and running.

Paul Wurth:

So, let’s talk taxes. I thought something come out this week. The IRS did make a statement about payroll tax. I’m sure a few people saw that headline, maybe don’t understand that fully. What did that mean?

Nick Knihnisky:

So that was kind of bizarre. And did we expect that? Not necessarily. We were certainly blindsided by it. There was no real messaging surrounding it until we saw the IRS drop their notice. And essentially, what they came out and said is that that payroll expenses will not be deductible if you then seek PPP forgiveness. So this means that the proceeds that you received are essentially going to be taxed, so to try and quantify that a little bit, you can take your marginal tax rate, lop off that portion of your PPP proceeds, and then expect that to go back to the federal government come tax time.

Nick Knihnisky:

So I’m not going to say it isn’t nearly as sweet as what it could have been a couple weeks ago before this came out. Obviously, it’s still money in your pocket, but they’re certainly reducing the direct impact since you’re going to have to pay taxes on it. Those expenses that are typically deductible come next March, next April, simply aren’t going to be. So you’re going to have to pay for it in some way.

Paul Wurth:

That seems really strange that they would come out with that after the entire round one has been distributed. People may have already spent the entire amount.

Nick Knihnisky:

And that’s been kind of the big theme throughout the past, I don’t know, eight, nine weeks since they originally announced this is, all right, so the initial bill was just so ambiguous, and we expected there to be some guidance around it, but we didn’t expect it to be this muddied by typical congressional politics and just outside rhetoric as much as it has been. We were hoping that it was going to be a little bit more straightforward, but this is just kind of the reality we face when they’re trying to get needed assistance out to small businesses as quickly as possible. Ultimately, the law isn’t going to be perfect, and that’s what we’re seeing now.

Paul Wurth:

I think what everybody wants to know is who do we blame this on? What political…

Nick Knihnisky:

Where were you there, right in this belt?

Paul Wurth:

Just give me one person. I don’t care which side it is. Just give me one, and I’ll…

Nick Knihnisky:

[crosstalk 00:15:31].

Tom Houghton:

I think you’ll start sending some emails.

Paul Wurth:

Lay the blame at that person’s doorstep.

Nick Knihnisky:

There you go. There you go. Paul will give his… will throw out some names there, along with the podcast details later today.

Paul Wurth:

I’ll click on the show notes.

Tom Houghton:

You can check the show notes. Exactly. Good work.

Tom Houghton:

So let’s keep it positive. Let’s talk about forgiveness of this. How do we move to the forgiveness phase of this? What does that look like?

Nick Knihnisky:

So like I said, the goal is ultimately about forgiveness. How do we convert it from a loan to a grant? So if you remember from our webisode that we did, we talked about this covered period which is the eight weeks from when you received your loan amount until, well, you literally count out eight weeks, and that’s the close of your covered period. So that’s going to be when you’re eligible to seek forgiveness. So if I received my loan on April 15th, we’re going to go out, and it’s right around June 14th is when we’re going to be able to apply for forgiveness. Now, your bank’s going to be able to seek reimbursement from the federal government earlier than that. I think the law said right around week seven, they’re able to get the money back from the federal government. That’s already been committed. Don’t worry, your spot’s already in line.

Nick Knihnisky:

But either way, be prepared with your documentation somewhere around week seven. And, like I say, as long as you’ve been doing the right things, we’ll probably be looking at some kind of bureaucratic nightmare on the backend with timing and as everybody tries to do this all at once, but still, you shouldn’t have any problem getting forgiveness at the end of the day. And they’re pretty much required to make a determination on that within 60 days of you applying for forgiveness. So you should know pretty quick whether or not you’re going to have to pay back that loan or not.

Tom Houghton:

Well, so, I mean, we’ve obviously covered a ton. What does the future of all of this look like?

Nick Knihnisky:

So, like I said, we’re going to continue to see guidance. We’re going to continue to see more posturing from the SBA, from the Treasury. Over the last week or so, we’ve also started to hear some murmurs out of DC from the Department of Justice and congressional investigative bodies that are saying, “Given the bad actors that have been involved early, they’re sure that the program’s ripe with fraud in some capacity just because when you throw out $700 billion, somebody is going to come trying to dip into that well that shouldn’t be.”

Nick Knihnisky:

Now our listeners, I don’t believe should have any issues. Our client base is exactly who this program was designed for: small businesses, main street, mom-and-pop… We really are the sweet spot. And that’s why we saw so much success on the phase one with the construction industry because I think lenders see that and obviously, our clients have great relationships with their lenders. This is a heavy equity-driven industry. And so typically, you’re going to have small business loans and access to small lenders through the mortgage process and things like that. So we, hopefully, aren’t going to have much issue for the construction industry.

Nick Knihnisky:

Now, again, third time, fourth time, however many times I’ve said this up to this point. I want to stress, do the right things, spend the money the right way. You should have no issues whatsoever. Again, there might be some timing things, but either way, you shouldn’t be worried about whatever the Department of Justice is saying or the SBA or the Treasury. It should be pretty straightforward. We’re getting from point A to point B, get this thing forgiven, and off we go. Regardless, sure we can expect some more over the next couple of weeks.

Paul Wurth:

Nick, you brought up a point about banks and maybe I just want to end on this as informational. I heard from multiple sources and this is anecdotal, but that a lot of the smaller community banks were really good at stepping up, quickly getting the application through, and getting the money to the small businesses. Has there been any reports that the larger banks were just a little slower to do that? And I guess the main question would be, if you still haven’t gotten your loan… many construction companies, they deal with multiple banks, some large regional and then some community. Do you have some advice for them on where maybe go to first?

Nick Knihnisky:

I mean, if you have a relationship with a small community bank, certainly start there because if you have a personal rapport with that lender, and they know your business just like you know who they are, start there. Make it easy on yourself. Don’t file more paperwork than what you absolutely have to do. Early on, we saw some issues with some of the larger banks and got to be careful what I say here, but where they potentially weren’t going about this the right way with a first-come, first-serve approach and instead, they were seeking out what their largest loan amounts were going to be and filling those first before they were worried about some of their smaller applicants. It is what it is. Unfortunately, I think that’s just a reality of the banking industry.

Nick Knihnisky:

Now, you say that, and phase two included an additional… part of that $320 billion of phase two was specifically earmarked for your small community lenders to ensure that your small main street, mom-and-pop businesses are able to access these through their community bank. And like in the Midwest here, we saw massive success with the community banks, and I think that’s really… it goes to that relationship side, being able to say, “Look, I know what your business is. We know you’re eligible. Let’s get you in. Let’s get you in line. Let’s get you filled in and off you go.” And there’s also an incentive for the community banks to do this more so than there is the larger banks. There’s fees associated with this which don’t come out of your pocket if you’re applying. They’re coming out of the federal government’s coffers which, I guess in a roundabout way, those are coming out of your pocket, but more watered down fashion. Either way, federal government’s incentivizing banks to fill these loans and allow small businesses to apply for them at an efficient rate.

Tom Houghton:

I think it’s a great wrap up point of just saying relationships are key right now, and who’s in your corner fighting for you. And obviously the small community banks are a great resource, and we are too, here at Buildertrend. We’re here for you right now. If you’ve got questions about how to use the software better, how to better integrate it into your business, that’s what we’re here for to make sure you guys are set up for the most success possible.

Paul Wurth:

Nick, and as you know, as your personal counsel, just based on your statement there against big bank, if you have an account there, Nick, personally, maybe you should just go double check, transfer that to a smaller bank.

Nick Knihnisky:

[laughs].

Paul Wurth:

You don’t want to mess with big bank, that lobby. You’re you’re in trouble now, pal.

Nick Knihnisky:

Hey, but you know what, like you said, it is what it is.

Paul Wurth:

You’re a truth speaker. That’s fine.

Nick Knihnisky:

I don’t know why we were surprised. Either way, we don’t need to get into conspiracy theories.

Paul Wurth:

Sure, sure.

Tom Houghton:

It’s in the past now. All you can do is just move forward from it, so…

Nick Knihnisky:

We’ll let those lawsuits play out in court.

Paul Wurth:

There you go.

Tom Houghton:

Exactly. We’ll leave it up to those guys.

Tom Houghton:

Awesome. Thank you so much, Nick, for coming on the podcast today and just sharing your knowledge about all of this that’s going on in this crazy time. Of course we appreciate it. We hope you do as well.

Tom Houghton:

To all of our listeners out there, we’re wishing the best for all of your businesses. And if there’s anything we can do to help, please don’t hesitate to reach out to your Buildertrend coach or just us podcast@buildertrend.com. We’re here for ya, so…

Nick Knihnisky:

Absolutely. As much as I can’t provide legal advice on an individual basis, if you have a general question, I’m sure there’s somebody else out there who has that same question. And we keep writing blog posts. We’re continuing to update people on where not only the Paycheck Protection Program stands, but the federal stimulus packages as a whole. So if you have a question, I’m sure somebody else shares that. Hopefully we can get an answer out to you. So keep an eye there.

Tom Houghton:

Awesome. Thanks so much, Nick.

Nick Knihnisky:

Absolutely. Thanks guys.

Paul Wurth:

Thanks, Nick.

Tom Houghton:

Love what you heard? Don’t forget to rate and subscribe to our podcast so you can hear from more guests that will benefit your business.

Tom Houghton:

Also, please check out our show notes page for more information on what we discussed on this episode. You can find it at buildertrend.com/podcast.

Tom Houghton:

Thanks for listening, and we’ll see you next time on “The Building Code.”


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