On April 16th, I had the opportunity to be interviewed by Allen Dixon, an affiliate broker with Compass Real Estate here in Nashville, Tennessee, to discuss all things surrounding the $349 billion of relief provided through the CARES Act, including stimulus checks, Paycheck Protection Program Loans (PPP), the Economic Injury Disaster Loan (EIDL), and unemployment benefits.
Unfortunately the funding for the PPP and EIDL programs under the CARES Act ran out on April 16th.
On April 24th, President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act expanding the funding of the PPP and the EIDL programs. As a result, on April 29th, Allen and I did a followup interview reviewing the additional $484 billion in funds applied and the potential forgiveness of the PPP loan.
Want to know more about the CARES Act? Click here to watch the full interview:
Part 1: https://youtu.be/A2RUHaPK4rw
Want to know more about the Paycheck Protection Program and Health Care Enhancement Act? Click here to watch the full interview:
Part 2: https://youtu.be/p4Ks-o0VjP8
If you prefer to read through some of our Q and A here is a quick summary of each video.
Part I: CARES Act
Question: Who qualifies and who doesn’t for the Stimulus Package? Has everyone received their checks yet?
Answer: There’s a big misconception that everybody has gotten their check and that caused a little bit of panic. You can go check on the IRS website on the status of your payment. There’s information to check whether yours has been deposited. There’s some who won’t qualify because they’re over the income threshold. It’s 75,000 for single and 150,000 for married. And once you get to 198,000/99,000, you’re not going to get a check at all. If you’re in between, what you’ll get is a prorated and it’s reduced five dollars for every 100 dollars you’re over the threshold. If you’re over the threshold, you won’t get a check. If you’re under the threshold, you should get it.
Question: Is it affected by how many children you have?
Answer: Yes, the amount is going be $1,200 per person and then you get $500 for each child that you have.
Question: Do they have an idea when it’ll go out?
Answer: I would go on that economic payment portal and then check on the status of your payment first and then that would tell you where you stand. And everybody’s situation is different. It depends on how they file, when they file, what they file and some important things to know is basically if you don’t have a social security number or you only have an ITIN, you’re not going to get a payment. If you lived outside the United States, you’re not going to get a payment. If you’ve been claimed as a dependent of another person, you’re not going to get a payment and that includes college students and the elderly.
Question: Is there anything else that just couples need to know about this?
Answer: I’ve been getting a lot of questions concerning whether they will have to pay this back? And the answer from the IRS is that it’s an advance payment on the 2020 tax credit.
Question: There’s a lot of conflict on the small business side because they’ve really been hit by this part of the stimulus plan like loans and grants. So break it down for us in a minute. What does this mean for a small business?
Answer: According to the SBA’s website this morning, all of the fund appropriations have run out for these programs so what we’re really waiting on right now is for the bank to give feedback about what that means for them so they obviously have applications in flux. They have loaded two buckets of money- one is under an EIDL and that is a system that existed before COVID-19. The other is under the Paycheck Protection Program (PPP).
Question: Is there any caveats about how you needed to use that money?
Answer: Not EIDL. The other program (PPP) has some very distinct caveats that go with it and a lot of strings attached to it. EIDL is intended for rent, payroll, mortgage interest, and utilities.
Question: Tell me about the second type.
Answer: Yeah, you hear a lot of people calling it the PPP or P3 for short but it stands for Paycheck Protection Program. It intends to give money to the hands of the people affected by COVID-19. They’re placing an emphasis on restoring paychecks for people. You have to use it as described in the bill.
Question: More or less, if you have the documentation, you apply for forgiveness off the bat?
Answer: There’s a cut-off date where we have to apply for forgiveness. You have to submit documents that are payroll-related 940, W-2s, and state unemployment returns.
Question: Is there anything else that people need to think through or go to your CPA?
Answer: I would say with the PPP loan, you're really getting the funds from your bank so the first person I’ve told everyone to reach out to is your bank. It’s very important to have a good relationship with a banker to get your PPP application approved and funded.
Question: So talk to us what tax credits are available.
Answer: There’s one tax credit and then I’ll mention other tax provisions that came through Cares Act. There’s an employer retention tax credit and it is as described. They give you credit for retaining your employees during this time and it goes back from March 13th all the way to the end of the year. There is another program that provides sick pay to companies that wouldn't normally give sick pay to their employees for people that end up either contracting COVID or family members contract COVID or they don’t have daycare for their children. There are payroll tax credits are available to cover the cost of paying those employees.
Question: Was there anything else on the tax credit?
Answer: You can defer payroll tax payments and again you can’t do this plus PPP and they’re supposed to also allow this for self- employed people as well.
Question: When we talk about deferment, does what does look like, 12/31? How does that work?
Answer: They’re basically letting me wait till December to make the payments that you would have made during this time frame. I think it’s gonna be two lumps like one at the end of the year and then maybe the other one’s in the next year. And if you want to find more information, I think the IRS has a whole page dedicated to that.
Question: One last big thing, unemployment. I know a lot of people, I got a family that got laid off because of their forced shutdown so talk to us about where we are with unemployment right now.
Answer: Every state has their own unemployment state run program and basically in the CARES Act, they included a federal and I’ll call it a stimulus but it’s an extra payment for unemployed people. They call it a Pandemic Unemployment Assistance payment or PUA for short. It’s a flat $600 per week for anybody that was affected by COVID or unemployed and that included some self-employed people for the first time I’ve ever seen.
Question: There’s a lot of people in the real estate industry, how do you prove unemployment especially if you’re essential? You know in real estate, “we are essential” so there’s a sense in which there’s a lot of real estate agents that are still out there and I’m sure this applies to other “essential people” that work does not necessarily stop but has slowed down. How does that work when you’re both essential but also trying to file for unemployment?
Answer: I don’t think that the unemployment office and the questions that I’ve seen is asking “Are you a part of an essential business?” because every business has a right to make a decision so we have a right if we want to go back to work or close our business because of safety reasons so not just essential businesses are closed. Other people have fear if they stay open so they’ve chosen to close. So I don’t think that the unemployment office is looking at it from that perspective and it’s a great question on how you can prove that. I would say that it’s not necessarily a situation where you have to prove unemployment. I would say the opposite: you need to make sure that if someone came after things are said and done and you got unemployment benefits, you better not have had any deposit on your business account during that time.
Question: We’ve covered a lot, is there anything that we didn’t talk about that you want to bring out?
Answer: I think the important thing for people is to take this opportunity as a small business owner to focus on your business. Right now, if your business is closed maybe it’s a great time to work on your business instead of in your business and I think a lot of people neglect that part just because they’re too busy and this is the time you can fine-tune your skills, get those standard operating procedures put in place, share content with your viewers during this time which you may not have had time to do before and I think that’s a good way to use your resources. The other thing is to think about ways you can pivot your business. Work on your expenses, family budget, and build emergency funds.
Part II: Paycheck Protection Program and Health Care Enhancement Act
Question: Pick us up from last time, where are we and what do we know?
Answer: Last time we talked about the money that ran out that day. The PPP program and the economic injury disaster loan program or EIDL. Basically that was $349 billion for the PPP program and $10 billion for EIDL and we ran out on the same day. I think it was April 16th and if you contrast that to what SBA did in 2019, they only did about $30 billion backed loans so in less than 12-13 days, they blew through $349 billion.
Question: It seemed like there was a big stink because of that. You have huge companies that were taking $20 million plus in funds and there were a lot of people not happy.
Answer: The statistics that I came up with - there was about $900 million that was loaned out into public companies and about a $140 million of it has been returned and so in the process of just post-mortem on the PPP program, the Trump administration, and Trsury Secretary Mnuchin with the Treasury Department have basically said that’s not who it was for and we’re gonna give them some guidance, and they did issue them some guidelines last Friday and we’re gonna give them some time to pay back until May 7th with no penalty.
Question: So for those who just don’t maybe didn’t get to listen last time- this is really geared towards the actual small businesses. Because we really covered everything last time, so just a really quick breakdown of the difference between the PPP and what that means.
Answer: The Paycheck Protection Program, that’s what the PPP is, is purposefully designed so that way small businesses can keep their employees on payroll and keep them off unemployment and it’s essentially free money as long as you use it for the purposes that it’s intended. And it’s intended to use it to pay your employees to retain them during this period even if you don’t have to close so it could be that your business is still open and you’re still able to work. It is a requirement that you were affected by COVID though.
Question: So even if you have to pay it back, it is a very cheap loan?
Answer: Yeah, it is a cheap loan but the intent again is just so that you can pay your employees.
Question: Even if you are a sole proprietor, it’s just you, you’re paying yourself is that correct?
Answer: Yeah, there is a cap. It’s up to $100,000 per employee and then for self-employed people they actually issued guidance defining what a self-employed person would be eligible to have forgiven and for them they’re going base that on their 2019 1040 Schedule C. So if you’re a real estate agent that works for yourself, you would take the net income on that return which is line 31, divide by 52 and multiply by 8 and that’s how much you would get forgiven. Limited to $15,385 ($100,000 or more annual net income).
Question: I think there’s a lot of confusion around it. There’s a lot of people that have talked about it and wanting to get into it but you just don’t realize what it is.
Answer: I call it decision paralysis, like you know they think, I don’t know, let me talk to this person first, let me get this person’s advise. I mean whoever acts fast can get the advantage of it and round 2 is probably not really gonna be any different.
Question: What about those last time, they were in the application process however the money had run out. Do they need to reapply or they’re automatically in the line?
Answer: They’re supposed to be already in the system for both processes. So for PPP, a lot of the banks chose not to continue to accept applications and to focus on the ones they have on hand. Then the EIDL was the same way, they stopped taking applications but everybody in the queue, they’ve continued to work on them.
Question: Let’s talk about forgiveness.
Answer: The important thing is to start with your bank because it’s your bank who’s gonna decide what gets forgiven, what documentation they have to have and they’re making the rules.
Question: What is the timeline that people are gonna be paying the unforgivable?
Answer: It’s supposed to be a 24-month amortization from when the loan is made and then they’re supposed to allow you up to, I think six to twelve months deferral on when the payments start. So I think the first kick-out is six months and then I think you can appeal for twelve.
Question: Do we know how long this higher level of unemployment?
Answer: I’d like to say July. I think that’s the cut-off right now. Obviously they could extend if they want to and there’s a certain number of weeks you can draw with the state. We’ll see if they’ll extend that.
Question: At this point really, going to a small bank is gonna be your best shot, right?
Answer: I definitely agree to that. I’ve had a lot more response out of small bankers in Nashville. They’ve all been really helpful and I definitely think you will have much more luck with a smaller bank. I would encourage people to try to stay informed and ask the people around you that you considered an expert and really try to engage with them and make sure they’re guiding you in the right decisions because there are a lot of options out there for people to choose and if you’re not well-informed in each of the options then you could choose the wrong one for you and find yourself in a situation where you owe money back that you didn't think you were.
Question: Is there anything else you’d like to go over before we get off?
Answer: No. I just wanna hope everybody is excited about going back to the businesses that they supported. I know that we are all feeling financially stressed right now but you know small businesses were opening this week and they’re gonna be opening this week and over the next couple of weeks and they really need your support. Just try to support these small businesses because they’re really the backbone of our communities and they’re the things that help make the world go round.
If you have questions about any of these relief programs please do not hesitate to reach out to our team. Thank you again to Allen, and for all your residential real estate needs in the greater Nashville area, check out Allen Dixon and his team.