Business side info for small businesses from current legislation
- Thread starter cr8zyncalif
- Start date
I honestly haven’t looked at it other than the quick summary emails sent out by a couple different banks with whom I deal with on a regular basis. Most of my companies are pre-rev with capital in place already and/or private investors injecting capital for a much longer time horizon than 8 weeks . For those companies it would be simply lower cost capital.
And most of the emails I’ve seen and TV talking heads have used the term forbearance. And, yes, I am quite familiar with the difference between forbearance and forgiveness. I do a ton of work with capital restructuring.
But that is a way better rebuttal than previously provided.
First, Wells Fargo has already hit it's asset cap at $10 billion, so I guess it's not too worried. You're spinning around in circles and confusing yourself. It's ironic that I told you banks don't have the money yet, you went nuts over that, and now you're saying that since the banks don't the money that's a risk. But, I'll respond anyway.
You're worried about banks not getting repaid. These loans are 100% SBA guaranteed. REPEAT- 100% SBA GUARANTEED. Backed by the full faith and credit of the United States government. What else do you want? If the borrower spends the money on hookers and blow and zero percent is forgiven, the loan is still 100% guaranteed by the SBA. Forgiveness has nothing to do with 100% guaranty. The banks are safe. There may be a cash flow issue while waiting for the guaranty funds but that's it. The whole aim of the program is that the loans WILL BE FORGIVEN and you're saying that's a risk because some might not be.
The far greater risk is your paralysis by incorrect analysis. This program ends when the money is gone or June 30, whichever occurs first. In case you missed it there approximately zero commercial activity happening right now. If banks don't want to participate do to uncertainty or whatever, they will be choosing to financial suicide. But I guess they'll still have their strong credit culture, or whatever.
Marketing are not facts.
You don't understand the mechanics of how this program works man. That SBA 100% guarantee only applies if the loans are underwritten/reviewed/what ever word you prefer/etc... correctly. Banks do this by following approved guidelines. The guidelines keep changing daily. Banks lose the 100% guarantee if they incorrectly underwrite/submit these loans. Hence risk.
You also ignored my ETRAN comment....
Regulations from Treasury is not marketing material. Guidance from Treasury is not marketing material.
You're spinning away from forgiveness now to improper underwriting. Neato. If a bank screws something up, the bank screws up. You're talking about inherent risk of a bank performing its business function. The SBA is providing the form application, Congress provided the loan terms, Treasury has provided the guidance on what backup is needed. You're basically afraid of the unknown. Fine. But that's it. As stated above, it looks like Wells Fargo is not worried.
And yes I ignored that an E-Tran number would be generated. Since you put in all caps "HERE IS THE GAP, the RISK PART. Funds are out the bank's doors to the borrower. No forgiveness issued yet. Borrower still owes money to the bank at this point."
Dgibbons, risk of no forgiveness and no guarantee are the symptoms of the same issue: Guidance.
Guidance which keeps changing. For example, over the weekend the feds decided to allow federal payroll taxes into the loan amount calculation... I wonder what all the people that already get der moneyz will feel about that....
Banks won't receive 100% sba guarantee if loans are underwritten incorrectly. Banks won't receive loan forgiveness funds if loan is underwritten incorrectly.
Right now you can't even tell me what the FORM of repayment is on these loans... Interest only? Principal and interest? How about at the 2 year maturity, assuming the loan is not forgiven... Is it a balloon payment? Auto-convert to a new 10 year loan? These are simple terms and conditions that have not been fleshed out...
Also, no ETRAN number means no funds reserved for that borrower... That point is kind of important.
I'll try this your style in all caps- IF THE BANK INCORRECTLY UNDERWRITES THE LOAN THAT IS THE BANK'S FAULT AND HAS NOTHING TO DO WITH LACK OF GUIDANCE FROM TREASURY. THERE IS GUIDANCE, YOU HAVE JUST DECIDED THERE IS NOT ENOUGH FOR YOUR LIKING EVEN THOUGH THE LOANS ARE INCREDIBLY SIMPLE AND IT'S BORROWER'S JOB NOT THE BANK'S TO DOCUMENT LOAN USAGE AND APPLY FOR FORGIVENESS. If the loan is 100 percent guaranteed by SBA there is no risk to the lender. You were howling about risk to the lender. There is no risk with a 100 percent guaranty. SBA buys the note upon demand and the problem is solved for the lender. A potential problem with forgiveness is not not a risk to the banks. It's a risk for the borrower.
So, now you're mixing in uncertainty on the borrower side and changing the subject. Why don't you see what is out there? The program is up and running and banks are receiving applications, so that means there is a form note (or soon will be because loans can't be made without a promise to repay) which will layout the repayment terms. The worst case scenario for the borrower is being stuck with a loan in an amount 2.5x monthly payroll, at 1 percent interest, payment deferred for six months, with a two year maturity. That's damn near free money. So, the risk to the borrower is pretty slim. With no personal guarantee and no collateral, any business entity borrower can just close its doors if repaying the loan is a problem. The ten-year term is gone just like the 4 percent interest rate.
If there is no E-Tran number, and no funds are reserved for that borrower, there is no loan. So the apocalypse of insufficient guidance will be averted.
I'm getting tired of explaining the mechanics behind the loan program and the realities of the situation.
My responses are for the non-posters, who perhaps have a small business, and are understandably worried about their situation. They can read my take and decide what to do from there, and have better "ammo" for when the talk with their banker. They should certainly apply to whoever is accepting the applications, but have realistic expectations for turn around time and the amount they will or will not have to pay back.
I hope you have a better, more calm day.
It's worth saying that any applications they received last week will have to be revised, or rejected, based on the changes to the guidance which occured over the weekend. Many banks are opting out well before their internal max, or not opting in at all, until guidance is more detailed/clear.
My days are very calm. I hope yours are more informative and involve less fear mongering.
Wells Fargo opened after the current Treasury guidance was issued. No need to do anything over.
Wells Fargo is lobbying to increase or remove the $10 billion asset cap that was imposed by its regulator as part of the the fraudulent account scandal.
But clearly Wells Fargo is not worried about getting burned on some kind of underwriting problem.
Per my WTB loan officer, my docs went to underwriting this morning. They seemed to put an enphasis on having a copy of my 2019 4th qtr 941 and a letter from my accountant justifying my average monthly payroll (and loan amount w/2.5 qualifier). We're a small-fry, professional services corp, so we "only" requested a little north of $50K; neither my wife nor I are currently drawing salary, so our employees haven't seen a reduction in hours/wages. Luckily, we have (had) a rainy day fund to get through these sort of things....
Always, I was told that SBA loans always require this kind of paperwork. The SBA relies on the bank to be the fiduciary, so the bank has to have audit-appropriate documentation....even if, in this case, it is unlikely that they would do more than give a cursory glance at it. With no credit worthiness requirement and automatic forgiveness of documentable stuff within the scope of the stimulus bill, the up front process is pretty much a rubber stamp situation as long as the pro forma documentation is provided. The accounting on the back side of the 8 weeks, on the other hand, is likely to be much more legitimate. They will want payroll records for the 8 weeks as well as documentation to justify the fixed overhead expenses you are permitted to claim. I expect a semi-legit audit of the forgiveness claim.
To start preparing for forgiveness- Deposit the loan funds into a new account. Pay payroll, rent, mortgage interest and other eligible expenses out of that account. This will avoid commingling and hopefully make accounting for the loan funds easier.
Swapping payroll activity from one account to another is not that easy, maybe if you have a handful of employees. There is no need to run "approved" expenses only out of that account. If you have any sort of accounting system, monies spent on "approved" items will already be tracked. It will be business as usual for my clients and we will substantiate expenditures on approved items using various reports, bills and filings, boom!
Or just hustle down to E Sprague, burn it all on hookers and blow and give Jack and Pete the same line Boone gave to Flounder: You f’d up....you trusted us.
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Flounder had a painful learning experience. I think we've all had a few of those, one way or the other.
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How about "Productivity Consultant"?
I gave a thumbs up but I guess I need words
Yesterday I thought my wife’s business didn’t make the cut for the first $349B but low and behold the money showed up today (thank you 8 lb 6 oz sweet baby Jesus). Last night as I was rolling in bed thinking about who I thought aced us out I was really pissed thinking professional sports teams with fewer than 500 employees may have beat us out for the money since their was no cap on revenue. I doubt NFL teams are under 500 but I’d guess NBA, MLB etc are? I suppose it’s a good thing if it keeps the billionaires from laying off all of their lower paid staff positions.
Hopefully more money is on the way for those who need it.
Happy for you getting your piece. FYI there is a cap on revenue based on industry as well as an employee cap. NFL teams aren't qualifying : )
Public Service Announcement: Please contact your U.S. Legislators and let them know that we must expand the program and soon!
We missed the cut. Others whose applications went through my bank rep after mine were approved. No rhyme or reason. My personal thought is that it is just like super market checkers...some are faster than others. And the SBA probably drafted everybody they could to help out in this.
Congress has painted themselves into a corner on this one. They have to boost the funds. No other political option for them at this point.
Congress has painted themselves into a corner on this one. They have to boost the funds. No other political option for them at this point.
SBA processed 14 years worth of loans in 14 days.
Agreed, Congress needs to step up. There are small businesses getting these loans whose business isn’t down and in some cases may be up.
The goal posts are being moved:
- U.S. Small Business Administration (SBA).
- PPP loans are going to be audited and borrowers may face enforcement scrutiny. Main areas of risk include: 1) necessity for the loan, 2) size eligibility, 3) amount of loan requested and 4) use of loan proceeds.
Regarding an SBA audit for the PPP down the road, here's what will happen:
They won't required evidence of mortgage interest, payroll, rent, and utilities paid. The SBA or your lender will send out a questionnaire. You will need to answer the questionaire truthfully, without committing fraud. If you answer the questions truthfully, and you used your PPP within their guidelines, the loan is forgiven. Period. Everyone moves on.
SBA has the resources, but they don't have the manpower, nor they really care, to audit each and every borrower. If you your questionnaire triggers an issue, then you might have to pay back 25% of the loan, within a 24 month period at a 1% interest rate.
They won't required evidence of mortgage interest, payroll, rent, and utilities paid. The SBA or your lender will send out a questionnaire. You will need to answer the questionaire truthfully, without committing fraud. If you answer the questions truthfully, and you used your PPP within their guidelines, the loan is forgiven. Period. Everyone moves on.
SBA has the resources, but they don't have the manpower, nor they really care, to audit each and every borrower. If you your questionnaire triggers an issue, then you might have to pay back 25% of the loan, within a 24 month period at a 1% interest rate.
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Below is a link to the Treasury's webpage on small business relief authorized by the CARES Act. Make sure to read the FAQ posted on 4/29, which among other things says "Borrowers and lenders may rely on the guidance provided in this document as SBA’s interpretation of the CARES Act and of the Paycheck Protection Program Interim Final Rules (“PPP Interim Final Rules”)"
Also, the following is relevant:
17. Question: I filed or approved a loan application based on the version of the PPP Interim Final Rule published on April 2, 2020. Do I need to take any action based on the updated guidance in these FAQs? Answer: No. Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application. However, borrowers whose previously submitted loan applications have not yet been processed may revise their applications based on clarifications reflected in these FAQs.
So is this:
31. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan? Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.
https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses
Also, the following is relevant:
17. Question: I filed or approved a loan application based on the version of the PPP Interim Final Rule published on April 2, 2020. Do I need to take any action based on the updated guidance in these FAQs? Answer: No. Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application. However, borrowers whose previously submitted loan applications have not yet been processed may revise their applications based on clarifications reflected in these FAQs.
So is this:
31. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan? Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.
https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses
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