Webinar Date: April 16th, 2020

Thank you for joining us for the Austin Chamber of Commerce’s inaugural Business Workshop Webinar on April 15th, 2020! Ellen Wood, vcfo President and CEO and Bobby Jenkins, President of ABC Home & Commercial Services discussed protecting your cash and your people during the COVID-19 crisis. Special thanks to the fantastic moderator, Hahn Public Relations President Jeff Hahn.

You can find a full recording of the webinar here.

Webinar Follow Up Questions

Many webinar attendees had specific questions related to crisis relief funding, which are answered below.

If you have further questions, please give us a call at 512-345-9441 or send us an email at info@vcfo.com.

What are some of your key recommendations for preserving cash?
  • Prepare a weekly detailed 12-week cash flow as a working guide
    • Dial in your best estimate on the revenue shortfalls you will have
    • Remember you have some new Employer obligations (COVID related 10 days of sick time and 12 weeks of paid COVID related family leave)
  • Pay close attention to your Accounts Receivable. Collect!
  • Postpone discretionary spending.
  • Delay capital expenditures.
  • Pay bills when due (not before)
  • Many of us also have to consider staff reductions of some sort; reduction in hours, furloughs, layoffs, to permanent reductions in force.
  • Request debt payment deferrals
  • Consider whether you have vendors you could structure creative terms with.
  • Consider asking for abatement or deferral on any fixed fees such as rent.
  • Factor into your cash flow that the SBA is automatically making 6 months of payments for you on older SBA debt (essentially giving it to you P&I).
  • If you are dependent on your current line of credit, consider drawing down some of it and leaving it in cash. Bear in mind this has risks and consequences too – you owe it back and it likely has a personal guarantee associated with it.
  • Think very hard before you delay tax payments related to payroll. There are provisions now allowing for deferrals of employer FICA through the end of 2020 with the deferred balance due at the end of 2021 and 2022.  I seriously discourage you from doing this if you can possibly avoid it.  None of the liability associated with this is being waived and unpaid payroll taxes carry the most onerous and broad obligation I’ve ever seen associated with an obligation of any kind.  Consider as well that you could be long gone from the company and still held responsible.  Employees in the payroll chain of command, board members, other officers can all be held liable.
How should companies access available funding through the COVID-19 Stimulus Packages?

There are three main avenues for relief; the Economic Injury Disaster Loans (EIDL), the Payroll Protection Program (PPP), and various tax credits.

What is an EIDL and how do I get one?

The EIDL is an older program of the SBA previously used for regional disaster relief. This is a loan of up to two million with up to 10 years to repay and at a rate of 3.75% (or 2.75% if you’re a non-profit). The use of proceeds is broad but cannot be duplicated for an expense also designated paid by another source of aid (like a tax credit.) These loans can be applied for until December 21, 2020.

How do I apply for an EIDL?

The EIDL process is an online application you complete with the SBA in one setting. At a later date they will contact you for additional information to help determine what your need is. There is some guidance available for how to calculate that. Complete details about this can be found here.

I’ve heard something about a $10,000 advance payment with an EIDL. What is that about?

That is no surprise as there has been a lot of discussion about an upfront emergency grant of $10,000 that does not have to be repaid. We tried it ourselves to see how it works, and so far has not worked that way for us. It’s been two weeks now with no follow up and no funding.

In recent updates, we learned that EIDL loans are now being rationed due to very high demand and limited available funds. The $10,000 upfront is now capped at $1,000 per employee (maximum of $10,000), and total loans are NTE $15,000. The average loan size up to now has been in the low $200s.

There is time to sort this out before December 2020 if more funds are allocated to it.

What is the PPP or Paycheck Protection Program?

This is a program of the SBA and $349 billion has been authorized. Most of that has been committed in less than two weeks. The loan amount is capped at 2.5 times pre-crisis monthly payroll, NTE $10 million. Bank participation is required for underwriting. This has been the hold up as guidelines to the banks was not immediately available.

There is an amazing forgiveness element if used for designated purposes during the 8 weeks following funding. Those purposes at a high level are payroll, rent, utilities, interest in indebtedness already in place, health insurance, and retirement contributions. There are some very precise guidelines you have to follow in paying these items to achieve the forgiveness. Complete details (to the extent they have been released) can be found here.

What else should we be thinking about in taking one of these loans?
  • Follow the SBA guidance precisely on use of funds to optimize PPP forgiveness. You can be significantly penalized if you don’t.
  • The EIDL and the PPP are relatively easy to get and carry attractive interest rates.
  • Just because you can get a loan – doesn’t mean you should – (except for the forgivable piece of the PPP loans).
  • Do not take more truly unforgiven debt on than you can see your way to repaying – which has to be from profits – in a timeframe that you are comfortable with.
  • Be sure you have made the operating adjustments you should be making and don’t use debt to cover up your reluctance to make what might be painful adjustments.
Can we pay contractors with PPP funds?

No you cannot, because contractors can apply for their own PPP loan.

When does the 8 week period start where a company has to spend the PPP money received?

This starts on the day the loan funds. The loan will fund to you from the bank with which you are working. The loan has to fund within ten days of SBA approval.

Should I open a separate bank account for EIDL or PPP proceeds?

vcfo highly recommends you open a separate bank account for these proceeds, as it will make tracking your use of the funds easier to keep up with and transparent to support forgiveness discussions with your bank.

Is the spend during the 8 weeks actual payments made or expenses incurred during the period?

We have been waiting for really precise guidance on this. What we have seen says that 941 filings as well as state unemployment filings will be support documents for forgiveness and that tends to support actual payment rather than when the work was performed (or better said a cash approach rather than an accrual one on payroll expense).

What happens to the unforgiven portion of the PPP loan?

It will need to be repaid over a two year period. The first six months can be deferred such that actual repayment is over the remaining 18 months. The interest rate is 1%.

My bank is not taking an application. What should I do?

The landscape has been changing daily on this question due to demand. Most banks are working only with their existing debt clients. The bank does retain underwriting risk on the loans.

You can reach out to a regional SBA office for more local guidance and you can network around with your peers to find out the latest experiences that are happening. vcfo urges you to do whatever it takes to find a bank that will take your application.

Additional Information

The vcfo team has created a library of detailed resources regarding protecting your cash and your people, including:

For additional resources regarding the COVID-19 crisis, please visit our resources page.

Information presented is subject to further change as additional guidance may be released by the SBA, the US Treasury Department, the Internal Revenue Service or other governmental authorities. Information presented does not include all scenarios or situations that may apply. Information included in this presentation does not represent legal advice. vcfo recommends further discussion with legal counsel regarding legal questions related to the information presented.Please contact us should you have further questions.

 

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