How Small Business Owners Can Qualify for PPP Funding Round 2 – Glenn Kruse & Mark Collier, UGA SBDC

The COVID pandemic brought most businesses to an abrupt halt and standstill, and many looked to the federal government for help. Fortunately, the Small Business Administration or SBA stepped up and answered the call with two core small business relief programs, which delivered lifesaving assistance to small businesses.

During last year’s COVID relief funding round, the SBA delivered an excess of 48,000 PPP loans to Georgia small businesses representing an aggregate $9 billion in funding. The second round for PPP has now kicked off and many unanswered questions are on the minds of Georgia business owners. Today, guest host Mark Collier sits down with Glenn Kruse, Area Director of the UGA SBDC office in Gwinnett.

Transcription:

Mark Collier:
Hi everyone. I’m Mark Collier, your guest host of today’s Atlanta Small Business Show. 2020 was a year of change, pivot and resilience for small businesses across the globe. Glenn Kruse is the Area Director of our UGA SBDC office in Gwinnett, and we’re going to embark on an information-packed fact-finding mission today. Welcome into ASBN, Glenn.

Glenn Kruse:
Thanks, Mark. A pleasure to be here with you.

Mark Collier:
Fantastic. Listen, small businesses have lots of questions surrounding this latest iteration of PPP funding. So I guess we should begin with, what are the major differences between PPP 1 of last year and the current PPP round of today?

Glenn Kruse:
Well, it’s somewhat of a continuation, but in order to qualify for a second draw or what we’re referring to as PPP 2, you have to have shown a reduction in revenue one quarter over quarter between 2020 and 2019, where your revenue was reduced by 25% or more. So they’re looking for those businesses that have been hardest hit and have had the impact hit them a little bit harder than maybe other businesses. So to the extent that you can prove that and you had that kind of experience, then you’re going to be able to apply for a second round or second draw or what we call PPP 2 loan. Basically everything then that you go forward on that is very similar to what you did before. Pull your payroll, you determine what your monthly average is, you multiply by two, or in the case of if you’re in a restaurant or hospitality business, you actually get to multiply that by 3.5.

Glenn Kruse:
So you get a little bit more money this time in this round. So again, targeted at highest hit, hardest hit businesses and that have shown a revenue reduction. There’s also an option, if you didn’t participate in the first round, to go back and get a first draw loan. And so there still is an opportunity to go back, and then the rules for that first draw alone are the same as they were last year in 2020. And we do get questions from people as, can I go to a second draw instead of a first draw, and I say, this is like baseball. You got to touch first base before you can go to second base. So that’s a distinction in this last law that was passed.

Mark Collier:
Well, that makes perfect sense. And let me ask you kind of a clarifying question. Now, you said a quarter over quarter. Can it be any quarter of the business owner’s choosing, or is there a particular quarter that the government’s looking for?

Glenn Kruse:
They have defined it as calendar quarters. I had this question today from one of our colleagues, and they’ve got three consecutive months, but it doesn’t fall into one of the Q1, Q2, Q3 or Q4 designations of the calendar year. Now that’s pending any clarification by SBA and they may come back and offer some more flexibility. But right now I’d say it’s got to be a traditional calendar quarter over quarter. So Q2, 2020 versus Q2, ’19, if you saw a 25% drop, then you’re going to be eligible to apply for a PPP 2 loan.

Mark Collier:
That makes sense. I appreciate the clarification. So there’ve been a number of different disaster relief programs over the last year. And can you kind of give us a quick overview of the status of those programs and who’s going to be eligible for the relief?

Glenn Kruse:
Yeah. The real workhorses of those programs were what they called EIDL, Emergency Injury Disaster Loan. And that is a traditional SBA role, that’s an SBA loan. [crosstalk 00:04:16].

Mark Collier:
So that’s treasury direct.

Glenn Kruse:
That’s right. Directly from SBA. And you would normally see then in the instance of a natural disaster. So if you hear the president declared an area a disaster area, that then allows SBA to go in and offer EIDL to people. What they did with COVID is declare the entire United States and territories as a disaster area. So the breadth of this EIDL program is unprecedented and will never be passed. There’s just not any more territory to cover than all of the United States and its territory. So the size of the program and the eligibility of businesses were unprecedented. They’ve continued that program. It originally expired on December 31st, but they’ve extended that now through December 31st of 2021. So if you didn’t participate in an EIDL loan, you didn’t think you needed it and then the COVID recovery is taking a little bit longer than you thought and you want to go back and look at that, that program is still available. And log on and where you go and apply is the same location as it was before on the SBA website.

Mark Collier:
Well, that’s great news because a lot of business owners, they don’t know exactly where to go. There’s some conflicting information out there, and having someone like you to kind of clarify those things is going to be a very good thing.

Glenn Kruse:
Yeah. And SBA has got a really nice website that actually takes all of that information and puts it into one place and then links down to the individual programs. And we’ll be able to provide that link, I think, as part of this presentation.

Mark Collier:
Well, good. Once that link is provided, I’m sure they’ll put it down at the bottom of the screen here for business owners to access it and hopefully take advantage of those programs.

Glenn Kruse:
Yeah. And the nice thing about that is there are changes in these programs, and there are. There are clarifications. They’ll issue frequently asked questions and they’ll do responses. It’s good to keep your eyes on that because sometimes it could have a big impact on, let’s say for example, in the case of PPP where you can go get loan forgiveness, they may in fact make some changes that make that easier. And so keeping your eye on that as a small business owner is really key. It will be to your benefit.

Mark Collier:
All right. Well, that’s one of the reasons small business owners need to keep in touch with UGA SBDC and other support programs out here whose sole mission it is to assist businesses navigate through that process.

Glenn Kruse:
Yeah. And we never missed an opportunity to do an advertisement for the Small Business Development Center. Georgiasbdc.org, we’ve got links to those sites as well. So we’ve got webinars that we do periodically and when changes occur, you can easily register for those. And so that’s another site to bookmark. I know it’s on my computer, but it should be on every small business owner’s computer.

Mark Collier:
Absolutely. So one thing we keep learning about and I keep getting inquiries from my clients on is something called the Targeted EIDL Advance grant. And can you give us kind of an overview of this grant and how a business will know if they qualify for that grant?

Glenn Kruse:
Yeah. This ties back into the EIDL advance, which was part of the CARES Act, which was passed last March, March 27th. That was, if you applied for an EIDL loan, you got an immediate advance once that portal was up and operating. That was happening in a matter of a few days. And the metric on how they determined the size of that grant was $1,000 times the number of employees that you have, up to $10,000. So you couldn’t exceed $10,000. Well, that fund was extinguished in summertime. That was one of the programs that actually, all the funds were allocated. So with this new round of financing, they’ve done it somewhat of an extension, but again, it’s targeted a lot of what’s in this legislation, the Economic Aid Act, is very targeted at hard hit businesses. So the way you will qualify for a Targeted EIDL is you would have applied for an EIDL last year.

Glenn Kruse:
You may have gotten a partial advance, or you may have gotten no advanced because when you applied, the funds had already been allocated. If you fall into those categories and the SBA determines that you’re in a low income area, that’s their one qualifier, then you will receive a notification from the SBA. And those notifications have gone out. We’re seeing clients forwarding that information to some of our colleagues. So the notifications went out last week. And then you go in and apply. I’ve got a note this morning from one of our colleagues, again, they’d said the process was very, very simple. It was about 15 minutes. You provide information about your business. You’re going to upload what your revenue was to prove that you had a revenue reduction and then SBA will look at that and then they will fund that grant.

Glenn Kruse:
Now, what they’ll do is if you received less than $10,000 in the first round, you will get a gross up if you will to $10,000. If you receive nothing, you’ll get $10,000. And they’re doing it in that order. The people who got some money are going to be fulfilled first and they’re going to get that gross-up, and then they’re going to get to those people who missed out and then get them their $10,000 if they qualify. Again, have to be in a low income area.

Mark Collier:
All right. Well, speaking of other programs, we’ve heard about something called the Shutter Venue Operators Grant. Because many of these entertainment venues, they are pretty much out of business and have been since last March, which has been a big problem for them from their perspective. So who’s going to qualify for that grant and what business do they need to actually be in and ready to apply for that type of grant.

Glenn Kruse:
Generally speaking, they need to be involved in live performance or in the arts area. So it’s museums, it is movie theaters, independent movie theaters. You won’t qualify if you’re an AMC or one of the large movie houses. But if you have an independently run movie theater, you can qualify. There’s one stipulation for museums and movie theaters is they have to have some area inside of their bowling that has fixed seating. So they want something that is actually a fixed, performing arts areas. Then people who provide music venues. So if you look at some of the venues around the state of Georgia, or if you’re familiar with Athens, you look at like a 40 Watt or something like that, they will qualify as well and they do not have that fixed seat requirement. That was a clarification that the SBA came out with last weekend. And then you’ve got to show some revenue reduction as well.

Glenn Kruse:
So you’ve got to show, to qualify for the program, at least 25% reduction quarter over quarter. So the same type of metric that would qualify you for PPP 2 would qualify you for SVOG. The other thing is that there was going to be a timing, the grants are going to be awarded in tranches, in three different tranches. The first one is going to go to those venues who would have had a 90% or more revenue reduction. So again, hardest hit, first in line. Then the next tranche will be 14 days later, is going to be those with a 70% reduction in revenue and that’s over a nine month period, actually April to December 2019 versus 2020. So if you can prove that, if you basically were determined to be a non-essential and just had a shut down, you might qualify for one of those first two rounds, and the idea is get that money out to those people hardest hit the quickest.

Mark Collier:
Okay. What seems like the common denominator here is being able to verify that you have had that yearly quarter over quarter decline. So back to the old adage, that it’s very important for businesses to keep records so they can produce that type of proof that they’re going to need.

Glenn Kruse:
Yeah. That’s a great point. It is an underlying theme throughout all of these programs is you needed that documentation to qualify. You also need to maintain that documentation in the event that you ever get an audit. Now I don’t think that that’s going to be highly likely, but we do advise our clients, don’t put yourself in a situation where if somebody comes and asks you, “Did you use those monies for the intended purposes?” That you can not document that. So keep that information and if you haven’t been good at record keeping, this would be a good time for you to maybe start doing a better job of that. We always recommend that for small businesses anyway, but it’s definitely important when you’re looking at some of these programs.

Mark Collier:
No. And I’d like to emphasize that because these are taxpayer dollars, so they are subject to audit from various government agencies. So businesses need to be aware of that.

Glenn Kruse:
Yeah. You make another great point, Mark, because there is an enforcement capability and there’s enforcement funding that the SBA has to go look for abuses. And if you’ve watched the trade press, the business press, you’ve seen some clear examples of that and I think they’ve been purposeful about making examples of people, if there was abuses going on, to let people know we do have an enforcement arm and we will use it. And that money is around through well past recovery time of COVID. So we do, again, tell people, don’t live in fear of an audit, [inaudible 00:12:53] in respect of a potential of an audit and keep that documentation.

Mark Collier:
Be prepared.

Glenn Kruse:
That’s right.

Mark Collier:
All right. So what other options are available to small businesses if they don’t qualify for these core programs, or if they’ve used up all the funds from a previous program and they haven’t returned to where they were before the pandemic began? So what are the options small businesses would have who are in that position?

Glenn Kruse:
Yeah, if you fall through the cracks, maybe you had a 20% reduction, you didn’t have 25%, that doesn’t mean that you’re not hurting, right? And so one clarification that came out of this Economic Aid Act is something called a Retained Employed Tax Credit or ERTC.

Mark Collier:
I’ve heard about that. Tell us a little bit more about that.

Glenn Kruse:
It’s perfectly named, it’s an incentive for you to retain employees, as well as a PPP loan. It was really intended for you to retain your employees and pay them and keep them off of unemployment. But if you had a PPP loan in the CARES Act, you were not allow to take advantage of that tax credit. The assumption being there, you’re going to be covered by PPP, you don’t need that tax credit on top of it. As this pandemic has dragged on, they’ve rethought that. So they now allowed anybody who gets a PPP loan, either first draw or second draw, to participate in that Retained Employed Tax Credit. So that’s an option for you. And again, if you don’t get a PPP 2 loan, then for the first two quarters of 2020, you could take advantage of this Employee Retained Tax Credit. So we’re encouraging people to look at that, talk to their tax accountant, maybe talk to their bookkeeper, pull some of those numbers together and see if they might be able to take advantage of that program.

Glenn Kruse:
And that’s an offset against your payroll taxes. So instead of submitting your payroll taxes, you can hold onto those if in fact you have one of those tax credits that you qualify for. The other is, it’s a program carried forward from the CARES Act, it’s called the debt relief program, SBA guaranteed loan debt relief program. That program, I’ve been excited about it since the CARES Act. I’m equally excited about it for 2021 because anybody who’s looking to grow their business or is recovering and maybe thinking about expanding or just need some working capital loan to maybe finish the recovery process, going out and getting an SBA guaranteed loan, you get that from a bank, not from the SBA, but SBA guarantees that. The Act allows the SBA to now up the guarantee on that level from about 75% to 90% to the bank, so making it more attractive to the lenders to lend money out to small businesses.

Glenn Kruse:
So they’re taking some of the risk out of it for small businesses. They’ve also taken some of the upfront fees that small businesses normally pay and then maybe get wrapped into the loan payment. They’ve moved those off to the side or stopped those through the end of September of this year. So between now and the end of September, if you can get approved for an SBA guaranteed loan, the SBA will make six monthly payments for you up to $9,000, and that’s being your first payment that you get. So this would be a great time, if you really are thinking about starting a business and you think you’ve found a solution that’s not going to be impacted by whatever remanence of COVID we have, it’d be a great time to look into an SBA guaranteed loan because that debt relief program is a real cashflow saver and a great way for somebody to get a jump start on a business.

Mark Collier:
No, that’s a very good point because one of the restrictions on the EIDL loans, as well as PPP is you couldn’t use the money to expand your business.

Glenn Kruse:
That’s right.

Mark Collier:
So with this new program in place where businesses can qualify for funds that would allow them to expand, that could be a game changer for many small businesses.

Glenn Kruse:
Yeah. And good that you mentioned about the limits of what PPP was, which one of the things that the Economic Aid Act did as well was expanded the types of non-payroll expenses that you could use your PPP funds. So there is an expanded list of those. So it’s become less restrictive for even your PPP loan, but again, that debt relief program could help with that capital side if you want to go and expand. And you’re right, EIDL and PPP were not to be used for capital acquisition or debt retirement, but a 7A SBA guaranteed loan could be used for that. So that’s a great vehicle to look at. And then again, those debt relief payments, they’re just helping on the cashflow side tremendously.

Mark Collier:
Yeah. Because as any small business owner knows, cashflow is king. So to get that type of relief and assistance, it could be a game changer for them.

Glenn Kruse:
Yeah. I always tell people, hug your cash like your favorite child or pet, whatever it is. But I mean, yeah, keep your cash if you can. And that’s what these programs do, is really help small business cash flow.

Mark Collier:
Well, fantastic. Well, seems like these programs, because obviously a new administration is coming in so these programs they periodically get modified and changed. So where can a small business go to make sure they have the most recent and relevant information that is out there?

Glenn Kruse:
Well, probably some of the more knowledgeable people about what’s going on inside of these programs are you and me and our colleagues. So I would say, look for your local SBDC office, reach out to a consultants. As you know, Mark, the CARES Act provided additional funding to the SBDCs across the country. We were the beneficiary in Georgia, and we’ve added 10 or 12 colleagues to help us through this COVID problem. So we’ve actually got more resources available now. And I’ll be honest with you, we’ve interfaced with these folks as well. There’s some really good people that we were able to hire in the midst of this COVID crisis that we added to the team. And so we’ve got a deeper bench and actually we’ve got deeper people who can play substantial minutes out there on the field. So look for that, keep the link on the SBA website.

Glenn Kruse:
They’re being better. I don’t mean that as a criticism, but they’re doing a really good job, I think, since this latest legislation was passed of keeping people up-to-date on that website. It’s pretty topical. And in fact, we just got some numbers, you mentioned earlier how much last year. And since the beginning of this year, Georgia has had 35,349 loans. This is as of February 7th, and that’s $2.14 billion, and that’s in about three or four weeks that program has been live. So fair amount of money moving out in this next round of PPP 2, and then first draw for people who missed out last year. So this program is moving along nicely.

Mark Collier:
I love it. Glenn Kruse, Area Director, UGA SBDC, this has been fantastic information and information that should be well received by small businesses. I’ll love to have you back in in about a month or a couple of months so we can share some more information because I know programs are being talked about that are not on the books yet and I’m sure when those programs hit the ground, you’ll be the guy we can come to for the latest and greatest information.

Glenn Kruse:
We’ve done an awful lot of webinars and we usually finish those up by saying, this will not be our last one. So keep our website bookmarked because once we get that information, we try to get it out as quickly as possible, usually within a few days.

Mark Collier:
Excellent. Thanks again, Glenn, and we’ll have you in soon.

Glenn Kruse:
I’d love to come back. Thanks, Mark.

Mark Collier:
All right.

Glenn Kruse:
My pleasure.

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