Tiana Clewis: Hey Dreamers and welcome back to my channel where we take a look at all things money so you can stop looking at it as an obstacle and start using it for what it is: a tool to help you build a life that you truly find worth living.
Today, I want to continue our discussion on a piece of legislation passed by Congress just last month: the Coronavirus Aid, Relief and Economic Securities Act, AKA the CARES Act.
Last week we started breaking down key elements of the CARES Act by looking at a piece of the legislation that affects 80% of the population: the section all about the stimulus checks. Now if you missed that breakdown, you got some questions, you need some understanding, don't worry. I've got you covered. My podcasters out there can download episode 98 of the Dreamers Financial Playbook podcast and my YouTubers can go ahead and just click the link above my head.
Today, I want to chat about another piece of the legislation that's also getting a ton of press, especially among small business owners and entrepreneurs: the Paycheck Protection Program.
With roughly 48% of Americans being employed by small businesses or being self employed, this is something that's key to keeping our economy going. The truth of the matter is that with everything being on lockdown, many entrepreneurs, many entre, uh, independent contractors, many small businesses are losing income. They're not finding a way to sustain themselves and the last thing that we want is for all these small businesses to go under. The last thing we want is for them not to be able to make payroll. And we definitely don't want our self employed people to find themselves losing the shirts off their backs.
So this is a key part of the legislation that's designed to help small businesses stay on their feet, not lose all their income, or not have to fire all their employees. So whether you're an employee of a small business that's worried about the business going under, a church employee who's worried about giving going down, or a mompreneur who's trying to figure out how she's going to continue to pay the bills, listen up, because this might just be the solution that you or your bosses have been looking for.
Before we start walking through the pieces of this particular program, I want to introduce myself to the new Dreamers on the channel. I'm Tiana B. Clewis, a Financial Lifestyle Coach and Start-Up Strategist who's dedicated her life to helping women entrepreneurs escape the nine to five grind by building income in their business and then using that money strategically at home to accomplish every single financial goal that she has for herself.
If this journey sounds like something that's right up your alley, go ahead and let me know by liking this video and subscribing to my channel. Don't forget to hit the bell so that you're notified every time I drop new business and money tips and strategies every Wednesday and Saturday.
Now let's get back to covering payroll.
The Payment [Paycheck] Protection Program is a provision of the CARES Act that set aside 350 billion dollars to help small businesses cover their payroll so that their employees can stay off of unemployment.
Here's the idea: if these companies are able to keep their people on the payroll, the first thing is that the government doesn't have to process all these unemployment claims and doesn't have to spend all this money to get these people on unemployment and navigate through the program, which can be really pricey, even though what the people receive on unemployment is not that great.
The second aspect of it is if these companies can keep their people on the payroll, the one thing that they're able to do as soon as this coronavirus foolishness passes is get back to business. They don't have to go back and rehire any one. They don't have to go through the expensive hiring process. They've already got the people on their payroll. They don't have to worry. They can just get back together and get to business. That's exactly the type of thing that we need to bring the economy back to life after we get through with coronavirus.
Before you listen to me break down all the terms of this particular program, let's make sure that you actually qualify first.
So when we're looking at the qualifications set by the small business administration, we're looking at a company that employs less than 500 people. Now, when I say company, I'm talking about a for-profit business, a nonprofit that is 501c3 eligible. We're talking about a tribal business or a veteran's organization. We're also including in this batch, sole proprietors, independent contractors, and anyone else who qualifies as self-employed.
The key thing is your business, your self-employment, your independent contracting had to have started before February 15th of 2020. If you meet all of these scenarios, you basically qualify.
Now, there's a reason why I had to say "Basically." There are of course, some other factors that might disqualify you even if you already qualify under the terms I just listed.
Now, this is not a completely exhaustive list, and let me note that as I'm recording this, the Small Business Administration is still actually making updates and changes to the program. I literally just talked to my pastor about some of these changes today. So everything is not yet set in stone, but let me read to you what I do have and what I know for sure.
So one, you're excluded if your business is currently in bankruptcy. Your business is also excluded if it is currently delinquent or has defaulted on an SBA loan in the last seven years. Also, if you or your business are facing criminal charges or you're currently incarcerated.
You also are disqualified if you have previous crimes against children based on a conviction, a guilty plea, a plea of no contest, that sort of thing. Something that implies that you've actually done wrong against children.
Finally, if you are not a us citizen or a lawful permanent resident, you're also disqualified for this particular program.
Well, if you don't have any of those issues that I just listed and your business has existed since before February 15th of 2020. You're good to go. You qualify. Let's keep going.
Since you do qualify, now it's time to figure out how much you can actually apply for. How much of a loan can you get?
Well, according to the cart rolls, you're able to apply for 2.5 times your average monthly payroll. So if you pay your employees $10,000 a month on average, then that means you can apply for $25,000. If it's a, I don't know, a company that pays $1 million a month, they can apply for $2.5 million. In fact, the program goes all the way up to $10 million, but basically it's 2.5 times your average monthly income [payroll].
As of this recording, SBA guidelines say, that to figure out what your average monthly payroll is, you're going to have to use your numbers from 2019.
Where this starts to get sticky is when we're looking at, okay, well what counts is payroll? What counts as payroll costs?
Well, if you're a company with employees, we're really talking about the things that fall into your employees' W-2. So let's look at salaries and wages and commissions. We're looking at cash tips. We're looking at paid leave. So parental leave, family leave, medical leave, sick leave.
We're also looking for things such as payments for group health care benefits, including the insurance premiums. Mind you, that one is super key because it has to be a group health care benefit. So if it's something that's exclusive only to your C-suite, that doesn't count. It has to be something that's for the entire group, the entire company.
Also, we're looking at payments for retirement benefits and payment of state and local taxes for those payroll calls.
For my self-employed folks such as the sole proprietors and the independent contractors, we're going to look at things like your wages and commissions.
We're going to look at things such as your, just your business income, and this is really key for people like independent contractors. Typically they don't have any sort of actual cost associated with what they're doing. They literally are just receiving money from the different projects that they're taking on. Usually they don't have costs associated with that or any costs associated with it is covered by the client. So in that case, it's literally just their income.
Or you would look at your net earnings from self employment. Basically it's the information that would go onto your Schedule-C or in 1099s for your taxes.
A key limit that you definitely want to know about is the fact that you cannot claim more than a $100,000 for each employee. So if you have, for example, an employee that makes $150,000 or if you pay yourself $150,000 you're actually going to have to bring that down to just a flat $100k. You cannot claim more than a $100,000 per person.
If you are independent contractor and you have money coming from all different directions, your income ends up being more than $150,000. Remember, it's 4100,000 per person. You're one person. So even though you have 15 different contracts, 15 different people, or you might even be operating under 15 different business names, ultimately you're one person. You can only claim for $100,000.
Another thing you have to note is that this program does not cover payroll for employees that do not currently live in the United States of America. Now remember, the entire point of why they're doing this is they want to make sure that money stays in the hands of American citizens. They're able to pay their bills and they don't get on unemployment.
Well, if you have an internal working from India, for example, they wouldn't end up on American unemployment. So they're really not a priority in this particular program. So I hate to say it, but if you have someone who is an employee who's working outside of the country, you can't get their payroll covered. So you're just going to have to figure that one out on your own.
Also, let's be real, there are other parts of the calculation to have to be considered, but I'm just trying to give you the basics so you can figure out whether or not this is where you want to go, so you'll have a good idea of what to do. And ultimately, most of what I've covered is all you need to include. You might have some nuances, some shifts and adjustments there, but, pretty much, I just gave you the breakdown that you need to know.
Okay, so let's say that your company has applied for a loan under this program. Well, now what? Once you're approved, what do you do?
Well, now you get to spend the money on approved expenditures under the program. Let's read through those...
You want to spend it on things such as payroll costs. Well, yeah, obviously it's called the Paycheck Protection Program. So obviously payroll costs, the paycheck is what you want to cover. And one thing that's important is that you should keep your payroll costs as 75% of what you spend the money on and the other 25% it can be things such as mortgage interest or rent for your business, not your house. I understand you're self employed, but rent for your house or your apartment is not going to count. I'm sorry.
You can also pay for utilities such as electricity, gas, water, phone, internet, and even transportation, which is an interesting one, but I think the reason why they added in transportation is that a lot of people, there are some people who still have to do some sort of travel. They still have to go around and meet people and see things, right? Well, most people aren't hopping on planes and the ones who are hopping on the planes are literally riding on an entire plane by themselves. So most people are driving from place to place that is increasing the transportation costs and I believe that's part of the reason why this has been included.
Here's an important bit that you really have to pay attention to when it comes to this. Once the bank puts the money into your bank account, once the funds are deposited to you, you have a total of eight weeks to spend everything on approved expenditures.
Anything that you spend, even if it's on an approved expenditure, after that eight week mark - not going to be forgiven. Only the stuff that you spend during that first eight weeks is what's going to get forgiven, underneath the loan forgiveness program.
So you have to be really, really careful in how you time this. Make sure that you know, "Okay, how much do I need for an eight week period?" Don't ask for more than that. Otherwise you're going to end up with a little excess on the end.
Speaking of the forgiveness part, what does that actually look like? Well, can I be honest with you? I don't truly completely know. I have a pretty good idea but again, the Small Business Administration has been changing things around, shifting things around, adjusting things around. In fact, on April 1st, I was actually on a conference call with some banks who have been working 24 hours a day to be ready for this loan program and they said by the time it opens for everyone - which for businesses, it was supposed to be last Friday and for sole proprietors, it's supposed to be this Friday - by the time it opens for everyone, they still are not confident that all the details for the loan forgiveness part of the program are going to be completely worked out.
However, they do have a pretty good idea of what it's going to look like, so I'm going to share with you what we do know.
So far what it looks like is once you reach the end of that eight week period, you're going to work with your bank to start initiating that forgiveness process. Ultimately, they're going to look at your bank account. They're going to see, "Okay, what did they spend the money on? Let's validate that it went to payroll - that 75% of it went to payroll. Let's validate that they did all of the things that they were supposed to do," and they will work on your behalf with the SBA to make sure that that loan gets forgiven.
Now, there are some ways that your loan forgiveness amount can be reduced to below 100% of what you asked for, and here are the four ways. Let's read them...
The first one is you spent it on unapproved stuff. That one's obvious. They have a clear list of what you can spend the money on. If you spend it on anything else, obviously they're not going to prove it.
Also, you didn't spend it all within eight weeks. I warned you. I told you. You have to spend within that eight week period. Anything you spend in week nine, ten, eleven and twelve is not going to be forgiven.
Also, here's a good one: you reduce the pay of your employees by more than 25%. Now, of course, this excludes anyone who is making over a $100,000 because you can't get payroll covered for those people, so they're not counting them. But anyone who was below $100,000 already, if you reduce their income by more than 25%, then they are actually going to start reducing the amount of the loan that you have forgiven.
Remember the idea is that they want to keep these people rolling. They want your employees to keep going forward, and so if you're reducing their income by an insignificant amount, they end up in a bad position. They might end up on some sort of government program anyway, which defeats the whole purpose of them giving you the loan. So that's why if you reduce their income, you reduce their payroll by more than 25% your loan forgiveness amount will be reduced.
The last thing is that your number of FTEs went down. Of course, now you have the question of what the heck is an FTE?
An FTE stands for full time equivalent employee. Yeah, I know. That's two words with Es, but whatever, there's only one E in this.
FTEs are full time equivalent employees. Basically, it's a calculation that allows them to have a standard way to compare how many employees you had when we implemented the program and how many employees do you have at the end. They want to make sure that you're not reducing your number of employees while getting money so that you can pay for payroll. Hello! If you're firing people, you're not keeping people off employment, which is exactly the entire point of this program.
While the calculation can vary for seasonal employees, here's pretty much how it's going to break down. You're going to look at each one of your employees and you're gonna decide how on average, how many hours do they work. You're going to take those average hours for every single employee add it together. Take that total, divid it by 40. That's going to give you your total number of equivalent full time employees, your FTEs.
So listen to this example. Let's say that you have 10 employees that are classified as full time and they work 40 hours a week. That's 400 hours. Then you have four more employees who work 20 hours a week. They're classified as part time, of course. You combine that, that's 80 hours. Add it together, you have 480 hours. Divide that 480 by the number 40 and you end up with a number of 12. 12 FTEs.
So even though you have a total of 14 physical employees, you only have 12 FTEs because four of them are part time.
Now, let's say that you're one of those companies that you were looking ahead, you didn't know this program was coming down the pipeline, and you were like, we cannot sustain. So maybe you fired some people and you started laying folks off. Well, yeah, I know. It seems like it can be highly problematic because if you've laid them off since February 15th you're like, "Crap. I'm up a creek without a paddle."
Well, no, you're not. Luckily, there's a provision in there that allows you to rehire your employees and as long as you keep those employees, once you've rehired them, then boom-tastic, your FTEs are the same level they were February 15th which means your loan forgiveness amount does not get reduced.
And there you go. As long as you spend the money on approved items, you spend everything in eight weeks, you keep your employee salaries to at least 75% of what it was at February 15th and you keep the same number of FTEs as what you had on February 15th - your entire loan amount under the PA paycheck protection program will be forgiven.
Knowing the rules to make sure that your entire loan is forgiven naturally begs the question of, "Okay, what happens with any loan amount that doesn't get forgiven, just in case I mess up something on the list?"
Well, if I'm going to be real about it, the terms aren't all that bad.
The first thing we look at is the interest rate. According to the CARES Act, the interest rate can be no more than 4% but according to the SBA guidelines last we checked, they're talking about an interest rate of 0.5%. Like what? No one gets that sort of interest rate on loans! You get that sort of interest rate on savings accounts, not loans. Yeah, it's insane.
They're talking about an interest rate of 0.5%. That's phenomenal.
But that is also part of the reason why it's really important to be careful about how much you apply for in the loan. Many banks are only willing to loan what they think is going to get forgiven. If they think you've asked for more than what's going to be forgiven, you're probably not going to get that extra just because they can't survive loaning out tons and tons of money with a 0.5% interest rate. So they want to make sure that whatever they lend you is going to get forgiven under the program. Another thing is when you actually have to start repaying the loan. They're going to defer the loan payment for a total of six months.
That's awesome! That's, that's like as good as student loans, which student loans are evil cause they have much higher interest rates.
But the thing is they're deferring the payments for up to six months. You should get excited about that. And yes, interest will still accrue during that time period, but if you have a 0.5% interest rate, are you really all that mad? Especially considering this loan has helped you stay afloat during this coronavirus craziness?
Y'all know, I tend to be very anti-loan, but in this case I might actually be, I might be vibing with this.
Finally, there's no prepayment penalty. So if you're able to get things up and running very quickly and you're able to pay the loan back in just a few months - fabulous, there's no problems with it. So even if they say that you have a terms of, I don't know, two years to repay the loan. It's no big deal. You can pay it off early and there's going to be no penalty.
So overall, when you look at this total package, this Paycheck Protection Program is looking like a pretty solid deal. Even if you mess something up along the way and don't end up getting the entire amount forgiven.
Now that we've covered all of that, the last big question really is, "Okay, Tiana, how do I apply?" That is surprisingly simple as long as you currently bank with the bank that is a SBA approved bank, and the reality is most of the banks are. Simply go to their website or give them a call and you'll be able to get information on the Paycheck Protection Program.
If your bank is not an SBA approved bank or your SBA approved bank has chosen not to participate in the program, which is rare, but whatever. If you find yourself in that situation, it means you're going to have to find another SBA approved bank that's participating in the program to go ahead and apply for the loan through. The thing is, it's going to take longer because you're going to have to submit a lot of extra paperwork.
The truth is that when it comes to banks, there are a ton of regulations out there that require them to know who their customer is. They are legally not allowed to loan money to a business that they don't know. So they got to get to know you. So they're going to ask you for a ton of documentation and you're going to have to meet with the people, get to know the people, blah, blah, blah. It's going to slow down the process.
But you know what, if that's what you need to do, Sis, go do what you gotta do.
Now, if you're one of those people who's thinking about, "Well, let me go and try and check it out at another bank and I'm okay because I don't like my bank very much. I'm willing to go through the extra steps." Well, I'm going to tell you right now, don't. The thing about that $350 billion is that it's available for 30 million companies. 30 million. There are 30 million companies and entities out there that actually qualify for this loan. When you do the math, that's not enough to really go around to cover everyone the way that's needed.
So this is a first come, first serve type of thing, and you want to make sure that you got in there timely. So if you already have a SBA approved bank that you're working with that is currently participating in the program, don't go to another bank. Go through your bank. And I got that straight from the mouth of a banker.
There you go the Paycheck Protection Program that was created underneath the CARES Act and is being ultimately implemented by the Small Business Administration. Remember, as of the time that I'm recording this, things are still in flux. So while I would say like 95% of the things I said are going to hold true in the loan program, there might be some minor things that shift and adjust. So make sure that you're working with your bank to fully understand what's going to happen with the program, what changes the SBA may have recently made, and what you need to do to prepare yourself for it.
Before you run off to your local bank to see about getting your loan, I want to let you know that they're not the only people that's out here helping the folks out. I know that this is a really tough season and this is not something that I typically do, but I want to go ahead and offer my one hour Dream Builder Strategy Sessions for a special rate that's 50% off of the standard investment.
Normally these sessions where I dive deep into your business, I look at your income, I help you salvage whatever it is you need to salvage, I help you redirect and go where you need to go, and I help you create the life that you actually want to live using money as a tool to do it - I usually charge $149 for those sessions. But I've decided that, you know what? I need to cut that down because right now it's not about profit. Now it's about helping as many people as I possibly can.
The best part is that you can have as many sessions at this special rate as you want to during the month of April.
To take advantage of this special rate, and you can head to my website at tianabclewis.com/bookonline. Scroll down to Dream Builder Strategy Session and click that "Book Now" button. You're going to go ahead and set up your appointment. You're going to set the date and the time. You're going to let me know who you are, and then when you get to the checkout screen, I want you to click to enter a promo code. Your promo code here is going to be "CARES" like the CARES Act. Once you enter in that promo code, it's going to give you that 50% reduction on the investment.
As always, the link and the promo code are going to be down in the description.
Now that you know how to get the cash infusion that you may need from the Paycheck Protection Program, let's go ahead and get connected on social media. You can find me on Instagram and Twitter, what the handle tianabclewis, or you can find me on Facebook under selahfinancialcoaching.
Also let me know that you've been helped by what I've shared today by liking this video and subscribing to my channel. Make sure that you hit the bell so you're notified every time I dropped new money tips and strategies every Wednesday and Saturday. In fact, I'm going to be dropping a bonus video this weekend that talks all about additional programs at the SBA that now exists because of the CARES Act.
Finally, if you're looking for more information, it's going to help you budget like a pro so that you can survive the season and even excel.,I have a couple of videos right here that are definitely going to help you do so.
With that, you get to video watching and I'm going to talk to you soon. Bye. Bye.
If you’re one of those people struggling to figure out how you’re going to keep it all together in the midst of this insanity, I want to help. From now through the end of April, I am offering everyone a special rate of $74.50 for a Dream Builders Strategy Session. That’s 50% off of the normal rate! Just use promo code “CARES”: https://www.tianabclewis.com/bookonline
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