Small Businesses Hit Bumps When Applying for Stimulus Loans

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Small Business Loan Form Concept

As the Treasury Department launched Friday its relief loan program for small businesses being hurt by the COVID-19 pandemic, advisors say they are hitting hurdles with large banks and have questions about the $349 billion of available assistance. 

The news comes just hours after the Treasury released its interim rules on the Paycheck Protection Program, which it posted online in a 31-page document. It also made the revised application form accessible online. 

That earned the agency the praise of Jeff Levine, director of advisor education for Kitces.com and director of advanced planning for Buckingham Wealth Partners. “I’m about to review and break them down, but before doing so, I just want to quickly mention how incredible it is that @USTreasury got these out before tomorrow ‘Opening Day,’ he tweeted late Thursday in a lengthy thread.

This development seems to be “the good news” for many advisors and small business owners. There also appears to be lots of “bad news.”

‘10,000 Loans an Hour’

To get their loans going, advisors and others turned to the big banks, like Bank of America. BofA is saying that applicants must have an existing credit account with it in order to access the new program.

“A number of banks requiring existing checking AND/or lending relationship with bank – this will be a big hurdle for many IC/Self-employed and those that might need the loans the most – obviously larger businesses have these relationships but not many small businesses,” Carson Group’s retirement head Jamie Hopkins said on Twitter. 

This situation infuriated many individuals, including Sen. Marco Rubio, R-Fla., who tweeted: “.@BankofAmerica got bailed out with $45 billion of your tax money But now just heard from #smallbusiness with a BOA account & a 400k line of credit they paid off BOA denied #PPP loan because they don’t have a credit account A ridiculous requirement that isn’t anywhere in law.”

Bill Sweet, chief financial officer of Ritholtz Wealth Management, chimed in via a tweet: “PPP roll-out is basically the small business Fyre Festival – BOA automatically rejecting applicants who don’t have an existing credit card, Chase website returning null data.” (Frye was a fraudulent “luxury” music event set for April 2017 in the Bahamas; it was not staged as promised and led to six lawsuits.)

BofA said it’s processed about 106,000 applications in the first 24 hours of the program; the average amount requested is about $245,000 and the total is $26 billion. On Saturday, it began working with small businesses that have a BofA deposit account and that do not have a lending relationship with it or with another bank.

Wells Fargo said in a statement: “As soon as we can start accepting applications, we’ll add the link on this page to the online application, so check back often.”

Treasury Secretary Stephen Mnuchin boasted in a tweet at about 2 p.m. Friday: “UPDATE over $1,800,000,000 #PPPloan now processed by @SBAgov mostly all from community banks. Big banks taking in large amounts but not yet submitted in these numbers! #CARESAct #SmallBusiness.”

What the Program Covers

“Treasury confirms that a MAXIMUM of 25% of loan proceeds can be used for non-payroll expenses. Sorta runs counter to plain language of CARES Act, but they’re gonna interpret liberally here to preserve program $ for payroll. And only 25% of the amount of the loan that is forgiven can be attributable to non-payroll costs,” Levine explained in a tweet.

The CPA added that those applying for loans have to certify that economic uncertainty is what makes the funds critical for a business today. “Economic uncertainty = highly likely right now. Necessity? Definitely more of a judgment call,” he Tweeted.

As for payroll expenses, an individual’s salary, wages and commissions are capped at $100,000, according to Hopkins. “BUT Retirement, Health Care Premiums, State and Unemployment Tax will be added on top for calculating the loan,” he tweeted, noting that Section 2e of the law provides clarity on the matter. 

What About Independent Contractors?

“While the CARES Act reads as though IC payments should be included in payroll, I don’t think they are and I don’t think that’s how SBA and Treasury are choosing to interpret. IC payments won’t be part of payroll,” Levine explained on Twitter.

This is where the language in the stimulus package is “sloppy,” the CPA said in an interview with ThinkAdvisor. “It reads that a business owner with employees should be able to count [himself or herself] as an IC, but I’ve seen other interpretations regarding net earnings made by those who are self employed.” 

This may depend on how a business is legally structured, he adds. 

The main point that counts right now, Levine said, is that advisory firms need to apply ASAP: “If you want to get a piece of the action, you’d better act quickly. Real quickly. Businesses are going to be lining up for the ‘free money,’ ” he tweeted.

The program’s interim rules explain (in Section 2m): “Is the PPP ‘first-come, first-served?’ Yes.”

Read more on ThinkAdvisor.com

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