I was honored to be interviewed for and quoted by Block Club Chicago in their article entitled, Chicago Small Businesses Shut Out Of Federal Government’s Loan Program. (It was especially interesting to be surrounded unexpectedly by some beloved clients and former clients in the same article.)

Of course, no article can publish more than a few words here or there by any one person, so I’m sharing the entire email interview Q&A here on my blog. Feel free to quote me.

What’s it been like to be a small business accountant this last month? Are you inundated with calls and emails? 

Absolutely. The questions started right after the Families First Act came out on March 18th, with confusion about the requirement to offer paid sick and family leave, and how to get reimbursed by the government for it. Then the CARES Act came out on March 27^th – and it’s been a more-than full-time job since then. Just the research and analysis portion is many hours per day… and responding to clients, writing blog posts and email blasts, and helping people with calculations has made it even busier than tax season usually is (which of course I’ve fallen behind on due to all of this).

It’s been impossible to get back in touch with everyone – there just aren’t enough hours in the day – so I decided on April 3^rd to start offering a free daily Zoom Q&A for any client who’s interested, since so many people are asking the same questions, and we can all learn from each other’s experiences. That’s been a huge help, and has led to my doing similar sessions for other groups, like the Logan Square Chamber of Commerce, various professional accounting organizations, and hopefully soon, a Town Hall with our State Rep, Will Guzzardi.

There’s just so much misinformation out there caused by poor guidance, regulations that make no sense, and some terribly-written legislation that is so vague, it creates more questions than it answers. Add to that the panic everyone is feeling, and you get a lot of rumors. Dispelling those and clarifying what’s what has felt like the best way to contribute to the small business cause. I’ve decided not to charge any of my clients for work on COVID-19 relief resources, with the idea that keeping these businesses alive should be my main goal, or the fabric of the Logan Square community I’ve called home for over 20 years will be ripped apart. I don’t want the chains – those with capital to survive this period – to swoop in after all the small businesses disappear. We’ve got to do everything we can to keep them going.

What percentage (roughly) of small business owners who you work with are getting grants — city or federal — right now?

Among my clients, these are the stats:

EIDL – 5% of applicants
PPP – 6% of applicants
Chicago Resiliency Fund – 0% of applicants; in fact I don’t know anyone who has received anything from this fund, which was supposed to be a bridge loan until you could get other relief.
IL Hospitality Grant – 0% of my clients who applied; though I know in actuality the number is closer to 5% overall.

To clarify, there are other sources for relief that do not require an application and approval, such as the Employee Retention Tax Credit, or the Payroll Tax Deferral Program – both of which an employer claims on their payroll tax return; but this requires that they are still paying their employees and does not account for those who do not have sufficient revenues or savings to make that happen.

Have any of the small business owners you work with gotten the PPP loan?

Yes, one was already funded, and two more have signed with confirmations from their bankers that the money is on the way. A couple were in the 72-hr waiting period and lost it. This is out of nearly 70 applications, that we spent the past three weeks preparing. I’m seeing similar low percentages among colleagues’ clients.

UPDATE: as of April 19, a total of five of my clients received funding.

Has the PPP loan been a source of frustration among small business owners you work with?

I don’t mean to be rude, but this is an almost laughable question. At least, it would be if everything hadn’t ground to a halt yesterday, leaving hundreds of thousands of applications stranded, and along with that, many businesses that may have to declare bankruptcy. I haven’t slept for two nights because of it. A dear friend is a Senior VP at a major bank and she shared the news of the funding running out the second it came to her. She said that is was among the worst days of her career – so much anguish and angst for their customers, so many people waiting for fund replenishment, irate and desperate clients full of ire and threats, and her own emotional exhaustion and anxiety through the roof. She said – and this rings so true for me as well – “It’s not my fault, but it is my problem, and I can’t fix it”.

But even before the funding ran out, there were so many sources of frustration:

• There were no templates or calculations released by the SBA, and the regs and guidance were so vague that multiple rounds of guidance were released. The most recent was named the “Second PPP Interim Final Rule”, if that gives you any sense.
• Bankers were so busy at their jobs that they couldn’t take three hours a day to do continuing education from the daily guidance their companies and the SBA/Treasury were releasing; this caused them to give inaccurate guidance to their customers, who would go to their accountants for help, and find that not even their accountants necessarily knew all the rules. And when they did, they’d have to go back-and-forth and accountants would effectively train their clients’ bankers on the regs.
• Banks are required by the federal government to follow “Know Your Customer” and “Anti-Money-Laundering” rules, which made it almost impossible to take care of anyone who wasn’t a current customer. This had small business owners freaking out, if their bank was slow to respond and they tried looking elsewhere. Congress tried to tell banks not to do this, but the courts allowed it, since it was precisely because banks were trying to follow the previously-existing federal regulations set upon them.
• Banks said they were processing applications in order, but that turned out to be a bald-faced lie for some. I know of folks who applied with Chase for example, on the same day, and one had their money in-hand by the 15^th, whereas others were still waiting to hear back from anyone, their applications presumably sucked into a black hole.
• There was a big exception that I see as a loophole in the law: allowing anyone in the hospitality industry to consider EACH LOCATION as separate – meaning a restaurant group or chain could apply for the $20M maximum for each of their locations, effectively giving big companies a major opportunity to grab funding meant for small-to-medium businesses.
• I think perhaps most frustrating, though, was that it’s clear that companies with capital and resources hired attorneys and accountants to jump on this the second it came available. These bigger companies have bigger payrolls and therefore were more likely to request the full $10M per location (as opposed to about $20-50K per each of my clients). They also tend to have existing relationships with banks, such as a business Line of Credit, so they had a real person they could call and get in line immediately. They used up the funding, leaving little left for those without the resources to apply immediately.

Check out these stats on PPP funding compiled by a couple of my colleagues, and you’ll see how the average loan went down over time, supporting the theory that those with resources applied first, were approved first, and were granted more money.

UPDATE: Further analysis shows how differently each state was treated with regard to PPP funding as a percentage of the eligible payroll population, and how small businesses received 74% of the loans, but only 17% of the funds. 70% of the loans were made in amounts greater than $350,000, and the average loan was over $200,000. In fact, the biggest 14 lenders, according to the SBA, had average loan amounts well over $200,000, with the biggest lender of all reporting average loans of $515,000.

Do you have any advice for small business owners right now?

Yes, quite a few suggestions:

1. If you still have staff you’re paying, I recommend taking advantage of the Employee Retention Tax Credit that you get by reducing your required regular payroll deposits, and applying for the balance on Form 7200. I know that Gusto (my favorite payroll company) is helping many of its clients through this process, which provides immediate cash in the form of payroll tax payments that don’t have to be made (in essence an advance on the credit). Treasury was initially telling us that you could not do this and PPP at the same time, but it turns out they are working on a way for folks to take advantage of ERTC and simply have it deducted from the PPP forgiveness should the business end up with PPP funding.
   
2. Payroll Tax Deferral – similar to the above, in the sense that you only benefit from this if you have staff still on payroll (or yourself if you are a shareholder-employee), but this one is just a delayed payment of the employer portion of Social Security taxes. Again, I know Gusto is doing this for their clients on request. And again, guidance initially indicated that you couldn’t do this and PPP, but has since indicated that you can defer these payroll taxes until the end of the PPP forgiveness period, and the original due dates for the deferment will stick. More info here:
   https://www.akerman.com/en/perspectives/interplay-between-paycheck-protection-program-loans-and-payroll-tax-provisions-under-ffcra-and-the-cares-act.html
   
3. EIDL – the Economic Injury Disaster Loans are still an option. Only the advance is forgiven, and there’s no way to know how much of an advance you’ll get (though in general it seems to line up with $1K per employee), but if you need cash, you should apply. If you request $25K or less, there’s no personal guarantee or collateral required.
   (Note: since the writing of this, EIDL funding has also been exhausted, but is likely to be replenished with the upcoming relief bill expected to be signed April 23rd.)
   
4. Regarding the PPP:
    – Get your PPP application in order if you do not already, and ask around to other small businesses who did get funded to identify a bank that has more of a success rate than others. Have everything ready-to-go the second that the PPP receives more funding. Keep in mind that the SBA has said that they are not maintaining a queue of applications that were submitted to them by banks. There is no saying whether your banker will keep your place in-line internally, either. So be ready just in case you have to resubmit your application. I have quite a few resources and a checklist on my blog at http://www.thedancingaccountant.com
    – Similarly, work with your accountant to establish a plan for tracking the loan for forgiveness, so you have everything set up properly from the moment the funds are received. Make a plan to structure your forgiveness-period payroll to ensure the maximum amount of the loan will be forgiven.
    – And make sure you have a business checking account! Some folks are using personal checking accounts for their business – these rules about this changed four years ago, but some were apparently grandfathered in, and these small business owners are finding that the banks will not even consider their applications as a result – even though they’ve been banking there for ages. The banks are prohibited from depositing PPP funds into a personal account.
   
5. If you haven’t already, start redefining your business model now. Even once the stay-at-home order is lifted, it might be quite some time before people are comfortable shopping or dining or drinking out. Research alternative models; ask around as to what other businesses are doing; investigate new revenue streams.
   Some examples: online sales, pairing with other businesses to deliver/ship care packages, going to a 100% take-out model with a contactless pick-up window, having staff take care of customer ordering and deliveries instead of GrubHub or Caviar, increasing your marketing and social media presence and improving the website, offering in-demand products along with your usual offerings, such as groceries or alcohol, teaming up with your local Chamber of Commerce to establish a virtual neighborhood store, etc.
   
6. Go on unemployment. If you’re no longer able to pay yourself, or you’re paying yourself a substantially reduced salary, you may be eligible. Shareholder-employees are already eligible (they receive W-2s from their own companies and have been paying into the system all along), and hopefully in a few weeks we’ll see sole proprietors and partners in partnerships able to apply. (IDES is simply not set up to receive their applications yet, as they need totally different information than W-2 employees. Neither their systems nor their staff have the ability to accept this info yet.)
   
7. Remember that there is currently no 10% penalty for withdrawing retirement funds – if you feel confident that you can survive this period but need cash now to do it, consider accessing those accounts now.
   
8. Cash flow forecasting is something I wish all small businesses did, but they don’t. Consider working with your accountant to build a cash-flow projection system to figure out how to get through this. CashFlowTool.com is a great resource, and they offer free webinars on how to forecast, if you don’t have a professional you can go to.
   
9. And I know this sounds insane… but try to take moments, tiny little vacations, away from your anxiety. I have to tell myself this every day. There is so much that is out of our hands; we have to work on the things over which we have control, and try to let go of what we don’t. The world isn’t working the way we want it to, or maybe even thought it did. For a lot of us, that’s a shock, and the emotional weight of that can pull us down. To survive this, we’ll need to shake off the anxiety and plan for a brighter future.

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