Episode 5: Utilizing Your Paycheck Protection Program Loan

On this episode of Making it Count, hosts Cristina and Will take a deep dive into the Paycheck Protection Program with three special guests: Eduardo Fernandez, an attorney, Paul Roldán, a financial advisor, and John de Armas, a local small business owner. Listen along to learn how to utilize your PPP loan and strategies to qualify for loan forgiveness from three people who have actually gone through the process!


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Guest Interview


Will asks Question 1: “This crisis has put a spotlight on small businesses. Why are small businesses so important to the economy?”

Eddie responds: “I consider small business to be the backbone of America. When you look at the number of people employed by small businesses, it’s estimated to be about 59 million Americans. When you look at those kinds of numbers you start to realize that while you might hear about big companies in the headlines, it’s really small businesses who are keeping Americans employed and paying those bills. So from that perspective, keeping Americans employed at small businesses became a priority to the United States government and that’s what ended up resulting in the PPP.”

John also responds: “I would like to add that my wife and I run a preschool here in town and we hire about 40 employees. Because of the COVID-19 crisis, we were about to cut some of our personnel and cut the salaries of some of our critical personnel. We had been trying desperately to get a loan with one of the big banks and it was an absolute nightmare that we went through for two weeks. Through our friends we learned about Addition Financial and we thought this was one of the most extraordinary experiences we’ve ever gone through. In the matter of a week we were able to submit the PPP loan application. We had amazing folks holding our hands, helping us through the process, and getting the work done. We were funded within a week. What that means is that almost 40 employees were able to keep their jobs."


Cristina asks Question 2: “So, that’s the reason that small business loans were a big part of the CAREs Act, which was passed into law in March. For people who don’t know, can you explain what Paycheck Protection Program loans are?”

Paul responds: “John just gave a classic example of the purpose of the Paycheck Protection Program, which is inherent in the title. The pandemic is affecting so many people, especially small business owners that aren’t able to earn income at the moment and therefore aren’t able to pay employees. So the goal from the government’s standpoint is to provide access to capital through financing with amazing terms – and the option for loan forgiveness – to keep people paid during this time.”

Eddie also responds: “The way I looked at it was, if we’re going to have to pay something to these Americans, it’s better to keep them employed through their existing paycheck than it is to have them collecting unemployment. I think it was a vital and good decision that was made. And as Paul alluded to, one of the biggest aspects is truly the forgiveness aspect of these loans and making sure that any business that is a recipient of these loans is properly preparing to apply for forgiveness. That’s a vital component here.”


Will asks Question 3: “Speaking of forgiveness criteria, let’s talk about those. What are the ways that business owners can use that money and not have to repay their loan?"

John responds: “That is a very important question and we are very lucky that we were counseled very diligently with Addition Financial by letting us know what we could or could not use the money for. In this particular case, I want to make sure people understand that the money is primarily for payroll, but there are also other uses that we’ve already been exercising, such as paying mortgage interest, utilities, and rent.”

Paul also responds: “John’s right, the bulk of the loan has to be used to pay your employees. As of this recording (May 29th, 2020), that’s 75% of the loan amount. So the other 25% can be used on other expenses like the ones John mentioned. Keep in mind that the government is also looking at the actual number of people you have employed – before and after the pandemic – and is calculating if you did actually use the loan to restore jobs.”


Cristina asks Question 4: “What are the requirements for a business to be eligible for the Paycheck Protection Program loan?”

Eddie responds: “The reality is that there are very specific requirements, the first of which is that you have to be a small business with under 500 employees. Other detailed requirements can be found at the U.S. Small Business Administration’s website, which is a great resource that breaks it all down. And then from there you can go to working with a financial institution, which John I know you’ve had first-hand experience with.”

John also responds: “Yes, very must so. And let’s not forget that this is a loan – this is not a giveaway. But there are ways to use the money correctly so that you won’t have to pay it back. But the wonderful thing about this loan is that it has a very low 1.00% APR and you can defer payments for up to six months.”


Will asks Question 5: “So, what are some ways that people can use the PPP loans? You ran through the basics, but can we talk a little bit more about what that means? What’s included in payroll?”

Paul responds: “Not to be repetitive, but payroll is the number one expense that the loan can be used for. And falling under that payroll category are a number of other line items, such as medical expenses (health insurance premiums that you pay for your employees), retirement plan contributions (401k contributions that you pay for your employees), etc.”

Eddie also responds: “That’s exactly right Paul, and there is a list of items that are included in payroll, so it’s important to make sure that those are looked at. And like John mentioned before, rent, mortgage and other pre-existing debt interest payments (prior to February 15th, 2020), and utilities during the covered period are included. Also part of the interest payment category is the Economic Injury Disaster Loan Emergency Advance, which is a loan advance up to $10,000 of economic relief to businesses that are currently experiencing temporary difficulties. So if you’ve already qualified for that loan, you can cover the interest payments with the PPP loan.”


Cristina asks Question 6: “What happens if you need to lay off employees or reduce your workforce? How does that affect the loan?”

John responds: “Unfortunately that’s real life. We had to shut down our business for two weeks at the beginning of May. But if you rehire employees by June 30th, 2020, you will be fine.”

Paul also responds: “John’s right. Remember, the whole purpose is to keep people employed and getting paid. So don’t fret if you’re not currently at the same level you were before the pandemic. As of today (May 29th, 2020), you have until June 30th, 2020 to get back to capacity. And there’s a few other factors: there’s the number of people you have to get back to where you were at and also the salary that you’re paying those folks. So if you reduce their salaries, that could count against you in certain calculations. But the main message is that first you qualify for the loan, then you have a period in between qualifying for forgiveness.”


Will asks Question 7: “You mentioned medical expenses being covered, what about sick leave? I would think that issue would be one that looms large with more than 1.5 million COVID-19 cases reported in the United States.”

Paul responds: “Like Eddie mentions, you can find the full list of line items covered by the loan, but there are tax credits available for businesses who offer paid sick leave to employees who are self-quarantining due to exposure to COVID-19 or have been diagnosed with it. If you qualify for a tax credit, you can’t use the PPP money to pay for sick leave too. And I’m going to take this moment to disclaim this is not personal or specific financial advice to any listener; we always advise that you go speak to a professional to analyze your personal situation.”

Eddie also responds: “That’s absolutely right, Paul. One of the basics to keep in mind here is that this isn’t just about forgiveness. We need to also be considering what this money can be used for at all. Forgiveness is the goal, but we also need to keep in mind that there are parameters on how the money may be used even if you are not seeking forgiveness. If I’m going to be dealing with the federal government in any way, I would rather be getting them to forgive my loan than them telling me that I used the money for an illegal purpose. So it’s very important that we consider what it is that the loan can be used for and even in the loan usage, there are particular ratios that apply even if you are not seeking forgiveness. So the 75%/25% split that is applicable at this point (May 29th, 2020), is necessary even if you are not going to seek forgiveness.”


Cristina asks Question 8: “What are the details of loan repayment?”

John responds: “You have six months of deferment and you will have to pay 1.00% APR.”

Paul also responds: “Right, and when John says deferment, that means if you don’t qualify for forgiveness you must start making payments up to 6 months after the date you received the loan amount. And you have to repay the loan within two years of the date you received it, but there is no early repayment penalty.”


Will asks Question 9: “One last question before our speed round. Are there limits on loan amounts?"

Eddie responds: “There are limits on the loan amount. In fact, there’s two ways to look at the maximum: there’s a per business maximum based on a particular calculation on the look-back area that is selected and then there is also an overall maximum. I urge small businesses to make sure they are leveraging their payroll processing companies and their software/technology because it can help them calculate what that maximum amount actually is. And like Paul mentioned earlier, none of this is legal advice for the purposes of any small business. But I think it is great guidance to give rules of thumb and resources where more information can be obtained.”

Paul also responds: “That’s critical: leverage your payroll company and your financial institution to help you determine the correct amount. Because I’ve had two clients who received more money than they should have because their banks did not verify their financials. Now they will have to pay some of their loan back even before qualifying for forgiveness. But to answer your question, a small business can qualify for up to $10 million, which is calculated by multiplying your average monthly payroll by 2.5. This is the typical definition of how much a business can borrow.”

The Financial Guide to Starting, Growing and Managing Your Small Business

Making it Count Essentials


Will asks Quick Question 1: What’s the number one piece of advice you’d give to a small business who has applied for or received a PPP loan?”

John answers: “I’d say, keep track of everything. Set up a spreadsheet or use your accounting program and track every penny you spend. And, like us, put that money in a separate bank account to help you keep track of it.”


Cristina asks Quick Question 2: “Can you list the things that will disqualify a business from loan forgiveness?”

Eddie answers: “Spending money on unpermitted purposes, reducing employee headcount, cutting employee pay by more than 25% of the applicable amount, and not rehiring furloughed employees.”


Will asks Quick Question 3: “What’s the process for applying for loan forgiveness?”

Paul answers: “There’s a form that the SBA put out that’s called a 3508. You’ll have to submit either that form specifically or a form similar to it that your bank has. All forgiveness requests go through the lender that issued the loan. You’ll need to provide supporting payroll, rent, mortgage, or utility documentation and certify that the information you’re providing is true. The lender has 60 days to make a decision.”


Crisinta asks Quick Question 4: “What if a business owner wants to start making payments early or pay off the loan early? Are there early payment penalties or fees?”

John answers: “No, and I think it’s a good idea to try to pay the loan back early if you can. That way, you can save on interest.”


Will asks Quick Question 5: “Okay, last question. Do business owners need to sign a personal guarantee for the PPP loans?”

Eduardo answers: “The way the SBA loan works is that the financial institution receives the guarantee of the federal government through the SBA. Consequently, the principal of the business does not need to provide a personal guarantee. But, because of the types of disclosures affidavits that are required of the principal of the small business, any kind of things that are inaccurate, false, fraudulent, anything like that, will ultimately fall on those small business owners. So it’s critical that through the application and forgiveness process, even though there is not a personal guarantee to the financial institution because Uncle Sam is taking care of signing that for us, we still need to worry about making sure things are as accurate as possible. In other words, I think there is an inherent personal guarantee that comes with being a business owner.”

The Sum Up


Now it’s time for the segment we call The Sum Up, where we talk about the news as it relates to our topic. This week, we want to look at an article from Inc. that addressed some issues related to PPP loans and unemployment One of the things we thought was interesting is the issue of double dipping with a PPP loan and unemployment. Can you walk us through that?

Paul responds: “Well, the main thing is that if you’re self-employed, you can get a PPP loan – but if you do, you can’t also file for unemployment. You’ve got to choose one or the other. And that’s not just with unemployment – there’s no double dipping in any of these resources. This is especially true for the sole proprietor.”

Eddie also responds: “Another area I know small business owners worry about is rehiring employees. I want small business owners to know that there are resources out there for employees that have COVID-19 or have family members with it or who are having to take care of minors within the home. So it is critical to know that there are additional requirements which aren’t really germane with this particular conversation that they need to worry about. But certainly I think rehiring employees is critical to maximize the availability of the forgiveness. And making sure you are creating what I call proforma forgiveness applications – filling one out now so you can see where you are at and have one of your projections for the end of the covered period just to make sure you are on track at all times.”


Will asks a follow-up question: “What about hazard pay? I heard that some employers are offering bonuses to their employees. Is that covered by the PPP?”

John responds: “It is. We have been giving our employees additional bonuses as they have been coming back to work and doing work that is exceedingly difficult, especially now under COVID-19.”


Cristina also asks a follow-up question: “What happens if some of your employees choose to go on unemployment? Does that mean you need to return the PPP loan?”

Paul responds: “No, not at all. Understand that the PPP loan has the intent of keeping your employees and the forgiveness is really keyed on that. But if you make an offer to employees and they choose not to come back, and you have that in writing, you can still qualify for forgiveness. Even if you don’t qualify for forgiveness because you didn’t have enough employees available, you can still keep the money as a loan. I’m a financial advisor, so I hate debt, but if your business is not liquid enough and you need this loan for viable purposes, well in that case it’s a great loan in terms of interest rate and payback terms. So hopefully that’s enough of a cash injection to be able to get your business turned around over the next couple of years and make it viable in the long term.”

How to Make it Count


At the end of every episode, we like to leave our listeners with one or more resources to help them. This week, we have three that are directly related to our topic. The first is Addition Financial’s free Financial Guide to Starting, Growing and Managing Your Small Business.

Eddie and Paul also recently led a webinar on this topic in Spanish, the PowerPoint of which you can access here.

And, for anybody who would like to apply for a PPP loan, you can learn more about the program and how to apply through Addition Financial here.

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