20 Minute Tuesday: Paycheck Protection Program Forgiveness and What it Means

Wendy Northcross: Hi, I’m Wendy Northcross, CEO of the Cape Cod Chamber of Commerce, and I’m welcoming you today to our inaugural 20-minute Tuesday. It’s a video series that we are doing in partnership with The Cooperative Bank of Cape Cod, and we are discussing topics that matter to the business community here on Cape Cod. And today’s topic is the Paycheck Protection Program. We have Peter Rice and Jamie Quitadamo from The Cooperative Bank of Cape Cod as our business experts that are going to give us the ins and the outs of the PPP program. Welcome, Peter. Welcome, Jamie. I’m going to ask both of you to introduce yourselves and give us a little bit of an overview of what your position at the bank entails. So, Peter, why don’t you go first?

Peter Rice: Sure, thanks, Wendy. I’m the Chief Commercial Officer for The Cooperative Bank of Cape Cod, and really that role entails overseeing our folks who interact primarily with customers and manage their accounts manage their relationships and make sure that they have the right products and services, including loans to help them run their businesses successfully.

James Quitadamo: Hi, I’m Jamie, the Chief Credit Officer at The Cooperative Bank of Cape Cod. I joined a little over a year ago, and my primary function is to manage a group of credit underwriters to help them underwrite new commercial deals for the bank as well as managing the ongoing risk of the portfolio. And I also help Peter’s lenders structure deals at original time of origination.

Northcross: Excellent! So, we have two pros here, and two people that know Cape Cod well. I know Jamie is got a lot of sand in his shoes even though he’s been at the bank just a year. He’s a he’s really a Cape Codder. So, for our first question. Unfortunately, 2020 has been the year of the pandemic and a lot of businesses have suffered and struggled to stay afloat, but one of the financial aids that businesses seem to have flocked to was the Paycheck Protection Program or as we call it the PPP from the SBA — the Small Business Administration. So, Peter, would you give us a quick overview of what that is, where it stands now, and if businesses can still apply for PPP loans?

Rice: Sure, so the PPP program really very high level was intended to — at a time when the coronavirus outbreak came along back in March — it was intended to be a job retention program and really helped to protect payrolls across the country. And here locally and you know the idea was going into what was likely to be an economic downturn. The Congress and SBA wanted to come up with a program to help businesses be able to stay in business and continue to employ the people that were on their payroll ultimately so that it didn’t negatively impact the economy any more than necessary. It was originally two rounds of applications. It was it was many hundreds of billions of dollars nationally. We actually lent $77 million dollars across 906 loans here at The Coop. If people use the funds appropriately, it would be fully forgiven to them and ultimately wouldn’t cost them anything. So, a real a real win. It’s been a great success I’d say really beyond great. It’s been a lifeline for many, many businesses. You did ask if it’s still available. It’s not still available. It’s now transitioned into the forgiveness phase, and we can, you know, we can explain more about that as we as we go on.

Northcross: Thanks, I know a lot of people called the Chamber office when it was first announced. People were looking for a lot of guidance, you know, ‘Should I go for a loan,’ and it did create a huge flurry of activity at the onset of the pandemic, for sure. So, this next question is for Jamie. So, Jamie, for those businesses that did receive a PPP loan and are now looking for the forgiveness part. This process seems complicated, and it has strict deadlines. And so can you explain what businesses need to do if they have the PPP loan what do they have to do to apply for the forgiveness and tell us how the bank is handling it or what your role at the bank is and making the forgiveness happen.

Quitadamo: Sure thing. It’s a great question because that’s on the top of a lot of borrowers minds right now. So, the best advice before you even apply for forgiveness — the best advice I could give is have all your records in order. Keep in mind that part of the program is divided between payroll expenses that you use the money for as well as other expenses, for example rent, utilities, and a mortgage payment. You want to have very good records, receipts of everything you use the money for. The next step to apply for forgiveness is determine whether you’re eligible to use one of the simplified forms that the SBA has just rolled out or one of the more involved ones. At The Coop, what we’ve done is we’ve partnered with a software provider named Abrigo, and we’re able to put out on our website a direct link to apply for forgiveness electronically at the bank. You can upload those particular receipts that I spoke to earlier, and that comes directly into the bank. And I’m on a team, as well as Peter, and a few other members of the bank that are processing those applications, looking to make sure the proper documentation was provided and then we send it on to the estimate.

Northcross: Excellent. So, does the software make it easier for the borrower or is it just made it makes it faster for the bank to process?

Quitadamo: In my opinion, it makes it easier for both the borrower and the bank. I find it to be very user friendly and, quite frankly, it’s much more efficient than going directly onto the SBA’s website to process the old paper format of that.

Northcross: Excellent. Thank you. So, Peter, this next question is for you. I hear that the loan forgiveness application forms carry an expiration date of October 31st, 2020, and since this is November that can’t obviously be correct. Can you can you enlighten us?

Rice: Sure. I’m happy to answer that. That’s, so that, that’s a myth that I’m happy to dispel. The application forms, and there’s a few different types of forms, but they carry that October 31st expiration date and that’s not correct. That was actually a date that when they originally published the form it was intended to be a date when they would no longer use that form. Nothing to do with the program itself. As it turns out, they did not get a new form out in time and that 10/31 form still remains absolutely operable. Now, I will add, just as Jamie mentioned, you know here at The Coop our process is an online electronic version. So, while you can certainly reference that form to as you go through your application process, it’s not actually the document that’s used to submit for forgiveness in the case of The Coop, at least other banks it potentially could be. So, I think there’s a lot of patience that’s required through this whole process.

Northcross: Right both sides. Peter, another follow-up to you. There does seem to be some confusion about the covered period as it pertains to PPP. Could you explain what the covered period is and provide some insights as to how that’s impacting our local businesses?

Rice: Sure. So, the covered period was the timeframe or the window, if you want to think of it that way, during which businesses can use their PPP funds. And if used for appropriate and eligible purposes, the loan would be fully forgiven. When the PPP program started, which was really back in March or early April, it was at a time when there was uncertainty about the virus and how long it would last. Nobody, of course, knew for sure. And so Congress and the SBA established initially an eight-week covered period window. I think the thinking being, you know, this might kind of run its course in a couple of months. Obviously, in hindsight, we know that turned out not to be the case. So, they actually made a change where people could opt for either an eight-week covered period or a 24-week covered period. And that, as it turns out, was very helpful because it enabled businesses to not only better match the timeframe when they were going to need to use the funds, particularly here on the Cape where seasonal businesses some cases weren’t even open yet and the eight-week covered period really wasn’t all that helpful to them. So that longer 24-week period that they could opt for was better. And then the other reason it was helpful is that a longer covered period, timeframe, during which they could use their funds greatly enhanced the likelihood that the loan would be fully forgiven. Again if used appropriately. So, hopefully that clears up a little confusion around what the coverage period now.

Northcross: Thank you. I know that the Chamber was very active in advocating for an extension of that covered period and primarily because our tourism season starts in the warmer weather and all of this was rolling out before that got going. So, that’s good to know. Jamie, this next question is for you to recap what business expenses are covered under the PPP loan. We know you couldn’t just spend the money on anything. So, what expenses are covered in? Is it impacted by the type of operating structure a business has, like if you’re an S Corp versus a partnership versus a C Corp versus being self-employed. Can you speak to those two?

Quitadamo: So, originally when the program first came out, the restriction was you had to use 75 percent of the money for payroll and the balance you could use for other items that I alluded to earlier, such as rent, mortgage payments, and utility payments. During the program, they changed that and the minimum amount used for payroll had to be at least 60 percent and the balance of 40 could be used for those other items. So, you’re absolutely right, you cannot spend it on whatever you would like. You have to follow the guidelines. The corporate structure that you mentioned the only you are a sole proprietor and the amount of money you could borrow is there’s a cap on that portion of it, whereas in the S Corps and the C corps, there really isn’t much of a difference at all depending on your corporate structure. So, again it all gets back to keep the documentation, keep the proof of how you use your money. It’d be a lot easier at the back end.

Northcross: Thank you. In terms of loan forgiveness, so I’m going to ask Jamie to follow up on this question as well. Can the loan forgiveness amount be less than the full amount of the PPP loan received? And if so, how can that happen … I mean that how does the, and we’ll make this a two-part, three-part question. So, can less than the full amount of the PPP loan received to be forgiven?

Quitadamo: The answer to that part is yes. And you want to ask the follow-up question, or if you want to moderate?

Northcross: I’ll be happy to. How can that happen?

Quitadamo: OK, here’s how it can happen. One of two reasons is, what we’ve seen so far, early on in the program or just prior to the program’s commencement there was the Economic Injury Disaster Loan program was rolled out directly by the SBA. So, the banks didn’t play a part in this. In most cases, people borrowed up to I believe 10 thousand dollars because at that level there wasn’t a prepayment penalty. In those funds, we have some borrowers who had the EIDL loans as well as a PPP loan. Because the EIDL loan is a grant, it doesn’t need to be repaid. It is netted off your triple P loan amount, when it comes time for forgiveness. So, if you had a $50,000 PPP loan and a $10,000 EIDL loan, forgiveness for the PPP loan would be maxed at $40,000. Other reasons why it wouldn’t be completely forgiven is because you didn’t provide the adequate documentation needed for forgiveness.

Northcross: Thank you. So, Peter, obviously there’s a lot for Cape Cod businesses to know about their PPP loans and to make sure that they’re in compliance. What advice do you have concerning how businesses can best work with their banks?

Rice: Sure. So, I would say there’s a few, you know, really key things. Certainly one is apply within the deadline, which is up to 10 months after the end of your covered period and keep in mind people can opt for either an eight-week covered period or a 24-week covered period. And that timeframe starts when they actually receive their loan. So, if you sort of work forward from there, either eight or 24 weeks at the option of the business and then 10 months after the end of that covered period, they must apply for forgiveness to be eligible. So, that’s one thing certainly apply within the right timeframe. Secondly is keep good records, but Jamie alluded to this. You know during the covered period when businesses are spending money on things that they expect and anticipate to get forgiveness for, they need to keep good records of that. That includes payroll, mortgage interest, rents, and utilities. And I would say specifically with respect to payroll because that’s probably the single most important and the basis on which most people are going to be forgiven. It’s important that the documents that they that they maintain and provide when they submit their application for forgiveness is something that is sort of officially recognized. And by that, I mean, for example, an IRS — you know — form 941, which is evidence of payroll taxes being paid and it’s very clear evidence of payroll. Something that would be provided by a payroll company and the types of records that they provide that break down, you know, who’s paid and how it all breaks down would also be legitimate. Even canceled checks. If was very small businesses handling their own payroll and they want to show canceled checks for the employees that they pay, that would be eligible. What wouldn’t be so good would be, you know, somebody submits sort of a Quickbooks’ profit and loss statement that shows a bunch of salary having been paid that doesn’t quite cut it. So, submitting all that with the application and then, you know, of course, if they is important and then if they have questions the SBA has a really good frequently asked questions list that we have posted at our website. I will mention that it’s not the easiest document to wade through, but it is a searchable document so once you have it open you can kind of look for, you know, if you’re a C-corp versus an S-corp and you want to know some of the details about that you can search for it that way. And, obviously, businesses can reach out also to, you know, to their CPAs most of whom are very familiar with the PPP program. And of course here at The Coop, we’re happy to answer questions for folks at any time to the to the extent that we’re able to do that of course.

Northcross: So, if you don’t have all the loan forgiven, I assume then you have to pay that back?

Rice: That is correct. So, if you take a loan, let’s say somebody had a $20,000 PPP loan and based on the amount that they use for payroll and the amount that they use for other eligible expenses, sort of do those calculations in the in the forgiveness application process. And it falls short of what would be eligible for forgiveness. Let’s say there was $3,000 left, they would in fact have to pay that back. And the payback period is I believe it’s up to five years, Jamie?

Quitadamo: That’s correct. Anywhere from 24 months to 60 months, right.

Northcross: With interest or is there a prepayment penalty?

Rice: There is no …

Quitadamo: I’m sorry, Peter.

Rice: OK, there’s no prepayment penalty at any time, and it is there is interest on it at a rate of 1 percent.

Northcross: Excellent. So, those are all the questions that I have. Did you have any other thoughts that occurred while we were having the conversation?

Rice: Yeah, no, the only thing I would add or offer up is just as people are thinking about submitting their application for forgiveness, I would I guess encourage people to you know take their time, pull their information together, make sure that they have what they need to do the application because that’s going to best support the likelihood that it’ll be forgiven. It’ll also help the process to speed along as best as possible. Nobody should be in a rush provided they’re within the timeframe they need to apply, of course, but nobody should feel rushed about submitting it. It’s not like the money’s going to run out or something like that.

Northcross: Exactly. Any final thoughts?

Quitadamo: A lot for up one final thought is we still get many questions about whether there’s been any news about whether the government was going to or give blanket forgiveness for loans up to $150,000. At this point, I’m that remains there’s no such program at this point.

Northcross: Well, thank you, gentlemen. I think that wraps us up for today. It’s our very first ever 20 Minute Tuesday, and again this is designed to be just a bite-sized bit of information that you can quickly access. On Tuesdays, we will be rotating the release of these throughout the next six months, and we invite you to join us for future additions with The Cooperative Bank as our partner, both for content and for delivery. The next topic coming up is going to be about the tax implications of if you accepted a PPP loan, if you took an EIDL loan. Those have tax implications. So, if you have any questions or any topic suggestions that you would like us to address, please visit the link below fill out a brief survey and we’ll be sure to respond. I want to thank you, Jamie and Peter and The Cooperative Bank of Cape Cod for partnering with us to make the Cape Cod Chamber more meaningful to the local business community with good, timely, solid business advice and information. So, thank you very much.