How Your Small Business Can Benefit from Pandemic Relief Programs

Welcome to another episode of The Playbook with Mark Collier, an original ASBN series that highlights Atlanta’s emerging entrepreneurs, seasoned business owners, and resource experts. Mark Collier is an experienced business consultant in Georgia, and a faculty member with the University of Georgia Small Business Development Center.

On today’s show, we welcome back Glenn Kruse, area director at the UGA Small Business Development Gwinnett Office. Kruse is a subject matter expert on pandemic relief programs and in this segment, he discusses updates on existing programs and new relief initiatives for small businesses.

Transcription:

Mark Collier:
Welcome back to The Playbook, Glenn.

Glenn Kruse:
Thanks for having me back Mark, you said you were going to do it and you did it, so I’m glad to be back.

Mark Collier:
All right. Well a lot’s happened since your last appearance here on ASBN and the need for financial assistance is still there and as we claw our way back from the pandemic and the economic effects of that pandemic. So let’s begin with a quick recap of the existing SBA relief programs that are out here.

Glenn Kruse:
A few new pandemic relief programs have launched since I was last here, but the core programs that we talked about the last time are still going on, the PPP loan which is the Paycheck Protection Program loans, which are still continuing through the end of May, May 31st. That deadline was extended from March 31st to May 31st to let a few smaller businesses still get some additional loans. The EIDL program, the EIDL loan program was extended from December 31st, actually the last time we were here we talked about this right to December 31st of this year. So that program is still alive and well, we’ll talk about a few changes on that a little bit later. The Debt Relief program, if you get an SBA guaranteed loan, that program is still in place running through the end of September, as long as you have a loan approved by September 30th, you’ll qualify for three payments, principal and interest, the first three payments will be paid by SBA. Since then we’ve added some additional new programs, Shuttered Venues Operators Grant and that’s for performing arts, facilities and agents and managers to get some relief.

Mark Collier:
Now would that also include producers and people who are actually involved with the production.

Glenn Kruse:
It does. So the more you get away from the actual venue that you got to look at how you qualify or don’t qualify, but it is anybody who’s in that whole performing arts and it doesn’t include sports venues or anything like that. It’s all arts and performing so music, acting, dance, those types of things. So that actually launched and not well the first time, but they retrenched and they relaunched last Monday and it seems like that platform is running very smoothly and a number of people have actually gotten the applications in place, so that programs on its way. Then lastly, the Restaurant Revitalization Fund or RRF-

Mark Collier:
That’s going be a big one because the restaurant industry was particularly hard hit.

Glenn Kruse:
Those last two they are very specific, actually in point Mark is that those are very targeted to some of the worst or hardest hit businesses. So Shuttered Venues and now the Restaurant Revitalization Fund, that launched on Monday, we were kind of holding our breath because we figured there’s going to be a lot of people out there and by all accounts the launch of that platform has been quite successful. We haven’t heard any slowdowns on the application process, people are not having any problems. SBA has done a really nice job of tying the whole application process into a knowledge base. If you have questions going through the process, you can hit a little help widget and it will coach you through the application process and it seems two three or four days in now be running pretty smoothly.

Mark Collier:
All right. Well, that’s good. So those are new programs. So what existing programs are still active and what changes if any, have been made to them?

Glenn Kruse:
Well there have been. Again starting back with PPP, SBA notified us yesterday or notified everybody yesterday that essentially the funds have just about run out of the PPP program. Now it’s set to expire at the end of May, so we’re going to probably just chug into the station if you will running out of gas on that program. There still is availability, but it’s not through the large banks any longer they’ve left, they are focusing in the remaining days of the PPP program on what they call CDIs, Community Development Institutes and so those lenders are still active and there’s still funds available. They also have said that if you’ve got an application in place that might be on hold, there’s some hold codes on previous loans that they’re going to process those as well. So they’re really doing that last little bit of funding through that program. There’s still money out there, don’t panic and say that there isn’t, it’s just the field and the number of people participating in the lending side is going to be greatly reduced with a notification yesterday.

Mark Collier:
All right. Well I’m sure people are hearing this, they need to get that application in ASAP if they plan to apply.

Glenn Kruse:
Well, and you know that between you or I we’ll always get a pitch in for our SBDC colleagues. So if you have any questions on that or could use some help either identifying lenders or going through that process and we’ve got 18 locations around the state, reach out to one of our SBDC offices and we’ll be able to help you out.

Mark Collier:
Fantastic. So in terms of restrictions, limitations or deadlines on these programs let’s discuss that a little bit because that’s important.

Glenn Kruse:
The PPP deadline is looming, it’s May 31st. So that’s probably the next one we’re going to see and it’s going to come into play, the restrictions on that are the lenders that can now participate. No restrictions on who can get the loans, nothing’s changed on that. On EIDL there’s been a huge change on that. So I’d like you to spend a little bit of time on that, on April 6th, SBA said, we’re going to revise in two areas. One is they took the cap on EIDL, which had been set at $150,000 and they bumped it up to $500,000 and they’re going to go back to anybody who has an existing loan and allow them to gross that up if they’re eligible. So if you have an outstanding EIDL loan, you should have been notified by the SBA of have that option.

Glen Kruse:
If you missed that email again, you could reach out to one of us at the office or go to the SBA website and there is a way to go proactively apply for that. Anybody who’s got a loan should probably consider doing that. Again, that loan just to recap is a 30 year fixed rate, 3.75% interest rate. Now the other changes that they made is they decided to extend the deferment period, was 12 months now for any loan that was issued last year. It’s now going to be 24 months and if you get alone this year, if you didn’t participate last year and decided to this, you’re going to get an 18 month deferral. So nobody’s going to have to pay on any of those loans until 2022. Now the interest accrues, so just be aware of that but at 3.75% interest, that’s a very modest interest rate.

Mark Collier:
That’s not only modest, but the deferment period is going to help with the company’s cash flow and cash is King with small businesses.

Glenn Kruse:
That’s right and one other change they made and this is actually probably the biggest change of the program. Last year when they rolled it out they had what they called an injury period and it was determined to be six months. What they did is they took your gross revenue, less your cost of goods sold to get the gross margin and then they gave you six months of that. So you do that over the year of 2019, then you would get six months of that in the form of a loan. They’ve now gone back, I think to your lead in Mark, right into your lead in which is this thing has going on much longer than we thought it would the pandemic, so now they’re saying, we’re going to give you injury relief for 24 months. So little math here, 24 divided by six is four.

Glen Kruse:
So you’re going to get a chance to do a four-fold increase up to that $500,000 limit of your existing EIDL loan provided that your credit checks out. That is a huge change and probably the most dramatic change in the last two months. It may be other than the RRF or SVOG programs, but for the broad small business owner, that EIDL change is worthwhile taking a look at. That 30 year fixed 3.75% interest rate, it’s pretty hard to beat out there right now and EIDL loans again have got a little more liberal usage than actually PPP did and again, we can help you work through that and do some cashflow planning. If you think you need a buffer, if you think you need a little bit, you want to have some cash because cash is King, I would look into that loan. I’m not certain you’re going to see a loan like that, God willing, we won’t because of the pandemic, but it’s a great opportunity and something I think every small business owner odd to investigate.

Mark Collier:
You made a very important point about the use of funds on the EIDL is a lot broader, with the PPP loan it’s restricted to payroll, rent, utilities, whereas with the EIDL it’s for any legitimate operating expense.

Glenn Kruse:
It’s almost easier with EIDL to say what you can’t do and what you can’t do is you can’t purchase capital and you can’t refinance a loan. She can’t do anything on the capital side of your balance sheet if you will. On the operating side, on the P and L side you can pretty much use it for any operating expense that you’ve got. So from that perspective, it’s a great compliment too if your PPP funds have run out and you hadn’t used EIDL to pick that up, to cover your payroll, to cover your rent, your utilities, you can buy inventory with that. It’s a working capital loan essentially and a great bridge for someone and then it allows you to use what revenues you’ve got today, preserve those revenues and use those for purposes that are maybe outside of what you can use your EIDL loan. So I think that whole program is extremely exciting, particularly for businesses who either haven’t quite fully recovered or have recovered and want to venture out a little bit, that EIDL loan extension or increase is a fantastic program to look at.

Mark Collier:
All right. Well let’s peel back the layers a little bit on the shuttered venue operator and it’s a grant or a loan, first of all and secondly, how do you qualify and where do you go to apply?

Glenn Kruse:
Yeah it’s a grant, you apply to the SBA, there’s a portal for doing that. That like we said, the first launch of that was not a success, nobody got past the first page. SBA has been very clear too just to let everybody know that nobody got a first mover advantage because nobody got past the first page. There was a problem with uploading forms and they got that rectified, relaunched it last Monday, it seems to be operating very well. As a matter of fact, about 22,500 applications have been either started or entered and about half of those have actually been completed. Now you want to make certain, if you’re going to go into SVOG, you have all of your data together, which is probably where we got about half of them still sitting in submission mode because they want to make certain you do it right.

Glenn Kruse:
There’s no chance to go resubmit on SVOG, so get your numbers straight. There’s great guidance on the SBA website and we can help you with that as well to go work through that. There’s going to be three phases of that program, the first phase is going to be for those people who had 90% revenue reduction, 2020 over 2019. The second phase of 14 days is going to be for people who had 70% reduction and then the last phase is for anybody who had a 25% quarter over quarter reduction. So that third phase opens it up to a number of applicants. Interestingly, the vast majority of the numbers of applicants are in that first two phases. So those people are the hardest hit are out there looking for money. So we hope to see some of that money flowing here maybe in the next in the next few weeks, but it is a grant, the only thing you have to do and be prepared to do this is you have to submit a budget on how you’re going to use those funds. That’s part of the application process.

Mark Collier:
Now that budget is it a monthly projection, a quarterly projection, annual projection? How has that budget have to be submitted?

Glenn Kruse:
Total use of the funds.

Mark Collier:
Over the life of the loan?

Glenn Kruse:
Yes, as you’re working through it. So what you should do is we should work up a budget based on what you think you’re going to get for your grant and then as you go through it, if that number is off a little bit, just tweak your numbers that you need to add up… I actually think there’s checks and balances in there that if they don’t, they’re going to prompt you to say your budget’s not fitting with your grant amount, but you have to submit that and you have to track your revenue. You’re going to have to report against it. This is not a take the money and run thing, it’s take the money and use it broadly. You get very liberal usage of SVOG funds, however there’s going to be a reporting requirement back.

Glenn Kruse:
You have to go back and have some accountability as to how you used those funds. So I would say whatever your implementation you had for PPP, as far as tracking your costs for that for loan forgiveness, you want to make certain you maintain that, if you could improve in that area, go ahead and improve in that area. This is a great time for you to actually clean up your reporting because you really need to do that. It’s going to be in your best interest to do so.

Mark Collier:
Now reporting sometimes it’s a broad category. So kind of detail what reporting is going to look like for the small business owner. Are they going to have to go onto the SBA website, they have to do it weekly, monthly, or how will that reporting going to work?

Glenn Kruse:
It’s going to be at the end of the year, I believe and we don’t know exactly how that’s going to be done, whether they might create a portal for that we don’t have visibility on that but suffice it to say is if you put a budget together, it makes certain that you’re tracking. You don’t have to hit your budget numbers direct on, you got to be able to run your business. I don’t think that DSB is going to hold you to, Oh, you’re off $10 on your payroll versus your residency-

Mark Collier:
It’s just a projection.

Glenn Kruse:
It’s just a good faith and then you’re going to report back against that and just do good blocking and tackling as far as how you track your cost and I think you’ll be fine.

Mark Collier:
Good deal. Second major program Restaurant Revitalization Fund and that again is targeted to the hard hit restaurant industry. So what businesses qualify for that, is this a grant as well, is this a loan and just give us some details on that please.

Glenn Kruse:
It’s a grant in implementation, it’s an award in name. Now there’s a distinction there. SBA cannot assist you with SVOG because it’s a grant, they’re prohibited by law from assisting anybody who’s going for a grant. In the case of the RRF, they’ve said this is not a grant, this is an award and so therefore we can help you. So they are around to help, which is great because we think there’s going to be a lot more people applying for RRF, but it’s functionally a grant when it’s all said and done. You’re not going to have to ask for forgiveness, there’s not going to be any requirement for you to pay it back, with two notable exceptions. You’ve got a period of time called a covered period.

Glenn Kruse:
If we go back to PPP you remember that covered period, that was the period of time in which you were required to spend the funds, that period of time though, is very liberal. It’s been moved out to March 11th of 2023. So if you can’t spend your money there, come and see us, we can probably help you figure out where to spend it. So that’s one, if you don’t spend it in that period of time, you got to return what you didn’t spend, so spend the money, I don’t see that as being a real obstacle. The other is, if you basically, you get the grant, you get six months down, you say you know what? I’m just not going to turn the corner, I’m going to shut the business down and you haven’t spent the funds. You’re going to have to return what you haven’t spent there.

Glenn Kruse:
So those two horizons are I go out of business or I miss the end of the covered period. Now those are in control of the restaurant tour so they can control whether that eventuality hits them or not. So that’s the only stipulation, there is going to be a report back again on usage.

Mark Collier:
Annual?

Glenn Kruse:
Yes and you don’t have to submit the budget up front like you do for SVOG, so it’s a little bit more lenient. Now who applies? Anybody who serves food or drink, it’s very broad.

Mark Collier:
Does that include food trucks? They serve food and drink.

Glenn Kruse:
Yes, food trucks, food carts, I actually think the guy who drives the ice cream truck through your neighborhood, the good humor man, they’re going to qualify. It’s very broad, there’s two categories of qualification or they’ve made an additional stipulation on, one is what they call inn’s, so these we’re struggling a little bit with the definition of that, but it’s basically these tend to be rural, very small, little boutique type hotels that have a nice full service restaurant. So they’ve got a significant amount of their revenue. Now how much does it have to be? It has to be 33%. So if you have 33%, you’re an inn, owner 33% come from food and beverage then you could qualify for the RRF, that’s the one stipulation there.

Glenn Kruse:
The other stipulation is on certain types of restaurants like tap rooms, wine tasting rooms, where you might be doing on sale in the form of tasting room or off sale in the form of distribution or wholesale. Again, 33% has to be on-premise sale, if you don’t have that, then you’re not going to qualify for the RRF. So what they’re really doing is they’re saying we’re going to reserve these funds for people who are at least serving food and drink on premise at some level, in that level for people who have a balanced mix or a mix between on sale and off sale that, that 33% needs to be on sale.

Mark Collier:
So that begs the question would a catering operation qualify for Restaurant Revitalization Fund?

Glenn Kruse:
Catering would, they would qualify. You mentioned food trucks, one clarification they have made because there’s a limitation on how many locations you can have, you can only have 20 locations to qualify.

Mark Collier:
So 20 Locations is the limit?

Glenn Kruse:
Right but as a food truck owner you can have as many trucks as you want. The location for a food truck is going to be headquarters, where those trucks come back to. So that’s been a question that’s come up several times, I wanted to clarify that.

Mark Collier:
So businesses, let’s say they are operating in both worlds. Can they qualify for both of these new programs or they have to choose one?

Glenn Kruse:
No between SVOG and RRF you got to pick one. So if you think you qualify for one you want to do your calculations up front to make certain you know which one’s going to be the most valuable for you. I think by and large if you could qualify for the Restaurant Revitalization Fund because the calculation on that is your 2019 revenues, less your 2020 revenues, the difference between those two you get a full grant equal to that amount of money. Now that’s going to be reduced in the case of RRF, by how much PPP money you got. So they’re going to take are going to take that PPP loan, they’re going to assume that that’s going to be forgiven effectively turning that into a grant, so they’re going to reduce that. There’ll be a similar reduction on SVOG for PPP, but in the case of PPP for SVOG, I’m going to acronym you to death here.

Glenn Kruse:
That is restricted to any loans you got this year, PPP loans this year, in the case of restaurants is for both years. So there’s some differences, nuances that are significant in that case but again, in the SVOG, when you do that calculation of revenues 2019 versus 2020, you only get 45% of that. So if you qualify as a restaurant, I think you’re going to find that that’s going to be a far better program for you, and there’s more funds available in that program as well.

Mark Collier:
Well, based on this discussion it appears to me the main differences between these two new programs in our reporting and setting a budget. So those are kind of the two main takeaways of the new programs and of course they’re grants.

Glenn Kruse:
Yeah the grant aspect of it, that’s a key piece of it. There’s an argument that could be made that a PPP loan that gets fully forgiven and by the way the numbers are in, they’ve got about half of the loans that were made last year, they’ve acted on forgiveness, 99.7% have been fully forgiven. So your loan forgiveness, if you’re concerned about that, will I get my loan forgiven? If you did the right calculation on the front end, and you kept your records on the back end, you’re most likely it’s at a 99.7% rate and that turns those funds into effectively a grant. Which is why they’re doing a claw backs in both the SVOG and the RRF program. That calculation is going to be done. So I don’t know if some restaurants had some pretty good sized PPP loans because they got 30 to 40% of their expenses are personnel or labor related. So that could reduce their grant amount but again, they’re starting out at a hundred percent loss, not the 45% loss that the SVOGs are running into.

Mark Collier:
Well, coming to a close, I want to focus on a very important issue and that’s reporting because most of our viewers out here, you probably seen the news stories of people being prosecuted and arrested for PPP fraud. So again, let’s talk a little bit more about the record keeping, what records should be kept, should they set up a separate bank account or what steps can business owners take to ensure and keep themselves out of potential legal trouble?

Glenn Kruse:
Well, you’re spot on Mark that separate account is a best practice, better than best, great practice. I think you’d be better off if you get an EIDL loan, put that in a separate account, if get an RRF grant put that in a separate account, if you get an SVOG put that in a separate account and then draw from that as you use that money. That way you’re going to have that firewall built between your operating funds and what you got in the form of SBA grant or loan programs. So definitely and record keeping, record keeping is always important, but it’s very important here. Yes, now there is an enforcement arm that’s been fully funded and it’s been fully funded for several years.

Mark Collier:
Well, I remember when these PPP loans first came out last year, you and I and everyone at the UGA SBDC, we got a bulletin from a secret service saying that they were compiling a fraud task force to go after fraudsters and it’s happening.

Glenn Kruse:
Yeah. There’s great enforcement. There’s a significant amount of budget aside for SBA to enforce, they’re doing it. You’ve read about it in the news because they’re making it very visible and with good reason is they want to basically say we are going to enforce this. SBA has a fiduciary duty as a steward of our tax dollars, to look at these funds, make certain they are being used as they should be used and make certain that people aren’t using them improperly. When they detect that, that’s the case, they’ve acted pretty dramatically and pretty aggressively. So now, should you live in fear of that? No. We know that the vast majority of people who’ve participated in any one of these programs, probably doing the right thing, if they did something wrong, it was probably incidental or accidental and SBA will understand all of that. So do your best but put an effort into it. It’s good for your business in general, but it’s really good for you in the case of these programs.

Mark Collier:
I’ll tell you what, this is really been an eye-opener for a lot of small businesses who weren’t very good at record keeping, these types of programs if they want to take advantage of them and apply for them the record keeping is going to be paramount.

Glenn Kruse:
On both ends Mark, people have come in and said, how do I do my calculation? Go get your financial reports, well I don’t do those. Well, see on the front end on calculating those loans, like your PPP loan or your SVOG application or your Restaurant Revitalization Fund, having that documentation upfront to apply properly is key. Then on the back end, as you’re doing either your reporting or asking for forgiveness, there’s that backend requirement to do reporting as well. So lessons learned on that is you get good reports. There’s so many tools that are available out there, Cloud-based tools that are out there, that we all work with, with our clients, almost every. Use those, they’re very inexpensive and the payback you get out of that, that visibility into your business is what you need to run your business. So this is, I think, exposed some poor record keeping and should reinforce the value in being able to do that well.

Mark Collier:
All right, Glenn Kruse area director at our UGA SBDC Gwinnett office. Again, thanks for taking time out of your busy day to come in and impart your very valuable information on these SBA pandemic relief programs. You are a true subject matter expert to our organization and I have to have you back in on that we’ll update some more.

Glenn Kruse:
All right sounds good, Mark. I appreciate the opportunity, it’s always a pleasure to be here and thanks for the kind words, I appreciate it.

Mark Collier:
All right.

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