"ADVENTURES IN YES" and "IN THE MOMENT"

Random thoughts about watching, working and living in the arts, from HMS co-founder and executive producer Scott Silberstein. "In The Moment" offers a quick 60-second read about new ideas, events, shows and productions in the HMS world, and "Adventures In Yes" takes a deeper dive into how art and media reflect, define and inspire our world. Enjoy!

April 10, 2020

ART MATTERS: Updates on small business and payroll protection programs

Good morning friends! As promised, I have updates on the Small Business Administration and Payroll Protection Plan loan programs.
  1. As of today, April 10, the PPP is now accepting applications from independent contractors and sole proprietors. 
  2. Also, there have been some changes since Tuesday which are important to know. 
At least some of this will be of great interest to you, your employers and/or your employees.

I'd like to share a thought before we dive in.

The CARES act, sweeping as it was, allocated approximately $300 million to the arts and humanities sectors (NEA, NEH, Library and Museum Services and other deserving institutions). And that's great.

But as of Wednesday, the cultural sector has already suffered $4.5 billion in economic losses.

That's a staggering discrepancy,

As I've reminded friends of the list before, we're a very large part of the US economy. Most recent estimates put us at 4.2% of the GDP, which is in excess of $800 billion, which is bigger than the manufacturing, transportation or warehouse sectors. Dollars spent on the arts have a significant multiplier effect on other businesses, like hotels, restaurants and parking garages, and for every consumer dollar spent on an arts, another nine get spent on those related businesses. That, plus the $9 billion we generate in federal taxes and the profound impact we have on health care, education, technology and other areas, makes us indispensable.

We deserve this assistance. And we must encourage ourselves and each other to seek the support being offered.

Same disclaimer as before: I'm no expert, just a friendly voice trying to cut through all the noise and chaos sharing what I know. I think these summaries are pretty solid, but please check with your bankers, accountants, lawyers, etc before making any serious decisions.

Let's dive in, Please feel free to pass this along to any of your friends, colleagues and networks!

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There are three big federal loan programs out there:

  • The Paycheck Protection Program (PPP), which the government has so far funded to the tune of $349B. UPDATE: There is talk of adding another $250B, but this is currently in the Senate.
  • Economic Impact Disaster Loans/Grants, funded to the tune of $10B.
  • Small Business Administration Debt Relief loans, funded to the tune of $17B

(You may have heard about a new "Main Street Lending Program" – this applies to businesses with 500 or more employees. All we're really talking about here are programs for small businesses, sole proprietors and independent contractors.)

And you can see into which program the federal government is putting most of its financial heft: the PPP. So when considering where you might apply for assistance, follow the money.

Remember that applying, getting approved and getting the money are not the same thing. Money is finally starting to flow to borrowers as banks and participating lenders are working on their closing processes. As of the this morning, 587K applications had been processed and $151B approved. There's still a long way to go.

Like any "gold rush," this process is chaotic and not without risks. We should all be cautious and beware of scams.

But that said, take a breath. Be patient, If you're in need and you qualify, dive in. Don't take anyone's word that you don't qualify – read the rules and decide for yourself. Stay close to your trusted banker. If your bank is not going to participate, look for a community bank or credit union with whom you can work. They will likely want you to move your checking account there, but that's an ok request and should not be considered a scam.

Now let's take a deep dive into the biggest of these initiatives, the Paycheck Protection Program.

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The Paycheck Protection Program

Who is eligible?

  • Small businesses with 500 or fewer employees, including not-for-profits
  • Veteran’s organizations
  • Tribal concerns
  • Self-employed individuals
  • Sole proprietorships
  • Independent contractors
  • Faith-based organizations
  • Businesses with more than 500 employees in certain industries, including hotel, food, franchises in the Small Business Administration's directory and companies that receive financial assistance from investment companies licensed by the SBA.
  • Household employees do not count.


When does the PPP program begin?

  • Now! The PPP program went into effect for small businesses on last week, and as of today it is also available for sole proprietors and independent contractors.
  • Brace for a “material difference” between application dates and funding dates. You can apply through any existing SBA 7a lender or any federally insured institution, credit union and Farm Credit system that is participating. Other lenders might be approved. If your bank participates, that’s the best way to go.
  • SBA.GOV lists 3000 eligible banks but that doesn’t mean they are necessarily participating. Wells Fargo, for example, started in the program, bowed out, and are now participating once again.
  • Many banks are still not ready to process PPP applications. Each needs to set up its own process and systems, and the majority are still not ready to process applications.
  • If banks take your application, that does not mean you will get funded.
  • Banks are taking care of their own first. Applied and funded are two very different things.
  • Be patient. This is an overwhelming undertaking for the banks. Keep in mind that they do not stand to make money – interest rates are low and there are no fees. Banks will likely take care of their customers first and make their own decisions on each application.
  • Simpler applications get through faster. System designed to process quickly.
  • Nurture your relationship with your banker. Make April "HUG YOUR BANKER MONTH."


What does the PPP program cover?

It's aimed to cover payroll. You can apply for 2.5x monthly payroll cost, and you'll need to supply your bank with proof that you have these costs, which include:

  • Salary, wages, commissions or tips, capped at $100K on an annualized basis for each employee
  • Employee benefits, including costs for vacation, parental, family, medical or sick leave; allowance for separation or dismissal; and payments required for the provisions of group health care benefits, including insurance premiums and payment of any retirement benefit
  • Interest on mortgage incurred before Feb 15, 2020
  • Rent, under lease agreements in force before Feb 15, 2020
  • Utilities for which service began before Feb 15, 2020
  • State and local taxes assessed on compensation
  • For a sole proprietor or independent contractor, these costs include wages, commissions, income or net earnings from self-employment, again capped at $100K on an annualized basis
  • Most applicants will use average monthly payroll for 2019, excluding costs over $100K on an annualized basis for each employee
  • Seasonal businesses use alternative time frames per the application guidelines
  • New businesses can calculate average monthly payroll using the time from Jan 1 through Feb 29, 2020
  • Employers CANNOT include 1099’s in their calculations. Those receiving 1099’s can start applying on their own as of April 10.
  • NOTE: The exclusion of compensation in excess of $100K annually applies only to cash compensation, not to non-cash benefits, including employer contributions to defined-benefit or defined contribution retirement plans; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and payment of state and local taxes assessed on compensation of employees.
  • ALSO NOTE: Payroll costs are calculated on a gross basis without regard to federal taxes imposed or withheld, such as the employee’s and employer’s share of FICA and income taxes required to be withheld from employees. Payroll costs are NOT reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do NOT include the employer’s share of payroll tax.


What are some of the key terms of the loan?

  • Interest rate is 1%.
  • All payments deferred for 6 months, but interest accrues over this period.
  • Loan is due in 2 years.
  • No prepayment penalties or fees.
  • No collateral is required.
  • No personal guarantee requirement, but if proceeds are used fraudulently, criminal charges will be pressed.
  • Credit elsewhere is not applicable. You can have applied elsewhere for loans and it doesn’t matter if you have credit elsewhere.
  • All loans have same terms regardless of lender or borrower.
  • No lender fees. Agents cannot charge fees to borrowers.
  • Nothing says you can’t apply to multiple banks, but please note that most banks are prioritizing and in some cases only taking their own customers.
  • Once you accept one loan, you’re in the system and will not be allowed to accept a second loan. So shop around carefully because each bank will have its own terms and processes.
  • Once you're approved, the bank has 10 days to get you the money.
  • Different lenders will have different requirements. You'll want to complete the PPP Borrower application form and submit all necessary documentation to establish eligibility, including payroll processor records, payroll tax filing, or Form 1099-MISC or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower much provide other supporting documentation, such as bank records sufficient to demonstrate the qualifying payroll amount.


Applicants must certify that:

  • the loan is necessary to support operations under current economic condition
  • that funds will be used to retain workers and maintain payroll or make mortgage/lease/rent payments (otherwise the feds come and get us)
  • that all documentation is true.
  • The nature of business ownership and the identity of the owners are both important. There are a lot of rules and regs for who counts as an owner of a company, what owners must advise to lenders and what might disqualify owners from receiving funds (usually one or more having legal troubles or a criminal past). These are lengthy, so rather than make an already long newsletter longer, I’ll refrain from posting there here (but feel free to email me if you want more info about them).
  • PPP loans can only be taken by participating authorized banks or credit unions.
  • Several affiliate rules have been waived; the details are lengthy, so I won't post them here, but if you have questions, email me and I'll send you a link to get that information.
  • Paperwork and additional info are available at Home.treasury.gov


Is there a way to have the loan forgiven?

  • Yes. The PPP rules do offer loan forgiveness, which could be provided for the sum of documented payroll costs, mortgage interest, rent, lease, utilities, etc., per above.
  • However, you will owe money when your loan is due if you use loan amount for anything other than payroll costs, mortgage interest, rent and utilities over the 8 weeks after getting the loan.
  • You must use at least 75% of the loan for payroll costs, and not more than 25% of the amount will be forgiven if it used for non-payroll costs.
  • Please note that forgiveness laws are not 100% clear at the moment and are changing all the time, so consider this more of a general caution than anything else.
  • Forgiveness applications are made solely and directly to the lender that processed the loan.
  • You can seek loan forgiveness by submitting a request to your bank which include all docs for all applicable expenses and certification that all the information is true. Lenders must decide within 60 days.


BE VERY CAREFUL.

This environment is ripe for scams, and some questionable lenders and practices have already surfaced. Please note:

  • PPP loans can only be taken by participating authorized banks or credit unions.
  • Forgiveness applications should only be made directly with whomever processes your loan. Forgiveness rules are still not entirely clear, and we shouldn’t expect them to be made so for several weeks. The priority is getting the money to borrowers and then sorting out forgiveness rules later.
  • Agents are FORBIDDEN to charge fees to borrowers. DO NOT PAY THEM.
  • A company called Fountainhead has been taking online applications for more than a week, but it is only holding them until it receives clarification from the SBA
  • Lendio.com is taking applications, but there remains no public evidence that they can process them yet
  • For that matter, consider that yours truly is just a guy with his heart in the right place, passing on what knows and understands but not offering anything that should be considered qualified legal or financial advice. For that, you'll want to call your banker, accountant, lawyer, etc.

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Now for the two other categories of financial assistance.

Economic Injury Disaster Loans/Grants:

  • Disaster loan assistance can be found here. That said...
  • This program is in deep disarray. Money is flowing very slowly if at all, and the current speculation is that the program is out of money. Even if you apply today and there were money, there are 4 million applications ahead of you that have yet to be processed. The folks at Multifund (from whom I'm getting the bulk of this info) report that they've only heard of one company getting money from this fund; they were applicant #23,999 out of 4 million. So bear that in mind.
  • This has similar eligibility requirements as the PPP
  • Amounts could go as high as $2 million, with no personal guarantees on loans up to $200K
  • Some applicants are getting offers of a $15K working capital loan at 3.75% interest.
  • You do not have to have been in business for more than one year before
  • There is no forgiveness
  • There are no credit-elsewhere requirements
  • As of right now, EIDL loans are only available at SBA.GOV.
  • Debt relief programs for existing 7a borrowers should be automatic. Check with your existing lender.
  • And again agents are FORBIDDEN to charge fees to borrowers. DO NOT PAY THEM.
  • In theory, within three days of application you receive a grant of $1K per employee for up to 10 employees, (i.e., max of $10K) which may be used for providing paid sick leave, maintaining payroll, meeting increased materials costs, rent, mortgage, repaying obligations due to revenue losses. One expert lender whose writings and webinars I follow said point blank that he knows of only one organization that has received this loan. ONE.


SBA Debt Relief Program:

This is different from the EIDL program. You can apply here.

  • SBA Debt Relief is a straight up loan with requirements similar to the PPP but without the same restrictions when it comes to how the money can be used.
  • You can apply for both types of loans but be careful: there is no double dipping allowed, meaning that if you use the SBA Debt Relief Program for payroll expenses, you can't use the PPP money for the same thing, which could hamstring you when it comes to PPP loan forgiveness.
  • The SBA will pay the principal and interest of current 7(a) loans for a period of six months
  • The SBA will also pay the principal and interest of new 7(a) loans issued prior to Sep 27, 2020


Again, BE CAREFUL!

  • EIDL loans are only available at SBA.gov.
  • Debt relief programs for existing 7a borrowers should be automatic. Check with your lender.
  • Agents are forbidden to charge fees. DO NOT PAY FEES. Agents can be paid by banks (although that is not common).
  • And once again, I'm just a guy sharing what he knows (or thinks he knows). Use my notes as guidelines only and confirm everything with your expert consultants.

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Closer To Home...

There are many state and cities offering their own loan programs. You can find a list of those resources here.

In Illinois, where a large number of this newsletter's recipients are based, Gov. Pritzker announced $90 million in emergency assistance programs, including a small business emergency loan fund, resources for the suburbs and rural counties and a downstate small business stabilization fund.

Illinois folks can click here for daily updates; folks from elsewhere can find information through your state government websites. But for reference, here's the latest info I have on the Illinois funds (and bear in mind this info is about a week old, so things may have changed).

The Illinois emergency loan fund

  • $60 million in low interest loans of up to $50K
  • Companies must have fewer than 50 employees and gross less than $3 million
  • No payments for 6 months, then 3% interest for the remainder of 5-year load
  • 50% of loans must to go payroll, and require a commitment to hire or retain at least 50% of workforce for at least 6 months
  • Applications are active now


$20m for suburbs and rural counties

  • This program offers grants up to $25 – that's grant, not loan, meaning it does not need to be paid back
  • Businesses with up to 50 employees can partner with local governments to obtain grants of up to $25K in working capital

Again, I'm not an authority on any of these subjects. Before taking action, consult with someone who is.

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Congress, notoriously unable to agree on the renaming of a post office, has moved swiftly to act on behalf of our small business and individuals. Yes, there are some aspects of the relief programs that many of us might find problematic, but given the challenges we face, I think it's still a good idea to express our appreciation for the swift passage of legislation that might make the difference between having a company or career or not.

This link gives you all the info you need to contact your federal, state, county and city representatives. Reaching out to them via email, phone, social media or USPS takes only a couple of minutes and offers you a chance to develop a meaningful connection with your reps.


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