On Friday, Home Furnishings Association Executive Vice President Mark Schumacher, HFA government relations liaison Doug Clark and Washington lobbyist Chris Andresen held a webinar with more than 400 HFA members to discuss the $2 trillion bipartisan financial-rescue package signed by President Trump. Members were particularly interested in the $350 billion-plus in relief for small-company operators like furniture store owners whose sales have plunged or whose businesses have been ordered closed. Many businesses could fail if the widespread disruptions to the economy persist for more than a month. Here are the questions HFA members asked and Andresen’s responses. (Note: responses might be edited for clarity and brevity):
Q: What are the stipulations for SBA loan forgiveness?
CA: There are four elements that are eligible and also forgivable. They are payroll costs – and that includes wages, health care benefits, it’s an expansive list – mortgage interest payments, rent payments and/or utility payments. The next question is what does forgiveness look like? There is a specific formula in the CARES Act which allows the borrower to divide their average monthly FTEs during the eight-week covered loan period AGAINST their average number of FTEs from Feb. 15, 2019 to June 30, 2019, OR average number of FTEs from Jan. 1, 2020 to Feb. 29, 2020. The goal is to have that equation equal 1 to ensure 100 percent loan forgiveness. Another aspect to loan forgiveness is any wage reductions over 25 percent; those would be subtracted from your eligible amount to be forgiven.
Q: Let’s say you already furloughed or laid off some employees and you want to call them back on your payroll, but because they are getting such generous unemployment benefits some of them are saying, “No thanks. We’re going to stay where we are.” How does that affect your payroll, and are we talking about the number of employees or total dollars payable?
CA: We’re talking about the number of employees for sure. That’s part of the issue with these unemployment benefits. That was one of the concerns raised. Does it create a disincentive to go back to work? Look, nobody knows your employees better than you will … but you could use these funds to hire them back and then those funds would be forgiven. It would essentially be a loan for you to hire them back, but then it could be taken as a grant. I’m an optimist. I would bet that most people would want to take that employment for when we come out of this, because that was their job before. Another factor is that if you offer your employee their same position and they voluntarily turn it down, they would then be ineligible for UI benefits.
Q: Small Business Administration loans are actually made by banks and they’re backed by the SBA, so can our members deal directly with the bank and not go through the SBA application process?
CA: Yes, there are many ways for businesses to get credit. SBA already has loan authority, so they’ve already got hundreds of lenders lined up. Any of your banks may already have SBA loans. The key element of this is the forgiveness aspect. I don’t know of any bank right now that will give you money without anything in return. So that’s one advantage of having the SBA involved.
Q: We’re just talking about the application here. There’s such a long delay. Do they have to use the SBA or can they go through their bank?
CA: There’s certainly a bottleneck. Congress gave SBA money to administer the program and get those systems up to date, but we’re not seeing that right now. But yes, you’re right. We’re already seeing you can go down to your bank … and talk to someone in person right now and start the process knowing that this new program doesn’t exist quite yet. An application for an SBA Economic Injury Disaster Loan (EIDL) that you apply for right now can then be refinanced into this Paycheck Protection Program and then be eligible for loan forgiveness.
Q: A lot of businesses have already been using their credit lines to pay expenses, just to pay bills, and this is affecting their credit ratings, their debt-to-income ratios. It’s already tough. Should they still apply for one of these SBA loans that can help them, for example with a mortgage cost?
CA: I would say yes if we’re talking about a mortgage cost that’s forgivable. If you’re already extending yourselves with your reserves or your available credit. In (the furniture retail business), if people aren’t allowed to go out of their house, if they can’t go to a furniture store or make deliveries if you’re not even open and there’s no money coming in. These SBA funds can come in to help stop the bleeding. You can use those funds and, depending on your employment and wage levels, it can be forgivable money from the government to stop the flush of those reserves and then perhaps build them back up.
Q: A business that has already applied for an SBA disaster relief loan, can this be rolled over into a Payroll Protection Program loan?
CA: Can it be? Yes. Will it be automatically? I don’t think so. I would stay in touch with the folks, whether it’s the SBA or a private lender, to let them know, “Hey, I’m filing this application now but my desire is to then roll it over into a Payroll Protection Program.” That is already allowed in the legislation.
Q: Any significant changes to this final version of the bill that gives clarity to what an “essential business” is that could benefit our members?
CA: In this particular bill? No. That guidance has been issued directly – so you don’t have to go through the legislation process – through a division of Homeland Security. (Note: This guidance was updated on Saturday, March 28, and can be found here).
Q: Can we add paid sick leave and family medical leave to our payroll costs for loan purposes?
CA: No … it is specifically excluded from the calculation because Congress provided a 100 percent refundable tax credit for that expense.
Q: Businesses with fewer than 50 employees, are they exempt from these Family Medical Leave Act requirements and paid sick leave requirements?
CA: The Secretary of Labor has the discretion to exempt them. I know it’s been an expectation, but I have not seen specific guidance on that from (the Labor Department).
Q: Can a business ask for reimbursement for payroll, mortgage, rent, utilities, etc., prior to when they get the loan? In other words, does the clock only start once you get the loan processed or does it start from a certain point prior?
CA: It goes back to Feb. 15. That’s that key date as a covered period of the loan. My read of the statute would say that anything before Feb. 15 would likely not be eligible. Anything after would be.
Q: If it goes back to Feb. 15, does the eight-week forgiveness window start Feb. 15 or when the loan is processed?
CA: As a business owner, you can make that request. If you want to claw back to Feb. 15, if you’re one of the early states that were impacted really hard, or maybe you haven’t seen the impact yet and want to make it March 15. The point is you have the ability to go back … that’s an important decision for you because that starts the clock on the eight-week payroll costs limits.
Q: Does it make sense to begin a loan application now?
CA: I only live in a two-story house, but I’d still be on the roof shouting, “Start the process now!” It takes a little bit of time. We’re already hearing from folks that there’s a bottleneck. I’m expecting, I’m hoping, assuming, praying there’s going to be an acceleration, but start now and any of these loan applications you make now can be refinanced or converted to the Paycheck Protection Program along the way.
Q: Is there a separate application for loan forgiveness?
CA: That’s going to be baked in with the lender. The SBA will come in and pay that forgivable part of the loan to the lender so you won’t be on the hook for it.
Q: In all of these programs, are your sales associates who are paid by commission treated differently? What about independent sales reps?
CA: They’re all sort of lumped into the same eligible payroll cost equation, so commission employees are factored in, as are 1099 employees. That’s something as you walk through the application that would be enumerated and you would fill it out to your best estimate. Each employee, whether W-2 or 1099, is eligible to be counted for their salary up to $100,000.
Q: How do I apply to the Payroll Protection Program?
CA: That’s the hardest question! Right now they don’t have a process established. I would say apply to your bank today because any application for an SBA loan today can be converted to a PPP. (Note: The Trump administration promised Monday to launch the new SBA loan program by the end of the week.)
Q: If we lay off employees, do we have to hire the same employees back to still be eligible?
CA: There is a specific exemption for re-hires. If your employee count is reduced between Feb. 15, 2020, and 30 days after enactment of the CARES Act (April 26/27, 2020), SO LONG AS you eliminate that employee and/or wage reduction by June 30, 2020, your loan forgiveness will not be impacted.