What accountants think about PPP loans
Wrapping their arms around the Paycheck Protection Program has been a mind-boggling experience for New York City accounting veterans Mark Bosswick and Elliot Levine.
With hundreds of billions of dollars to be made from Congress, rapid rule changes from Washington, and bewildering responses from the banking system, accountants and their colleagues have tried to make sense of it all for clients.
Released Wednesday The real dealAs part of the TRD Talks Live webinar series, number researchers at Berdon LLP and Levine & Seltzer focused on some key facts:
- It’s not too late to get a conditional payback PPP loan for businesses that haven’t yet received one. The deadline to apply has been extended to August 8.
- Avoid the big banks. Small lenders, even the most obscure ones, are often more nimble. Have you ever heard of Kabbage.com? Neither did Levine – until he made money for one of his clients in just a few days.
- Companies that have not been able to reopen before having exhausted their PPP are SOL. For people who have lived under a rock (a lot of us, in fact), that means Shit Outta Luck.
- The program’s play seems inevitable, a fact Bosswick and Levine attributed to Congress’ failure to consult accountants in its design.
Accountants tend to be picky people, which may be why Bosswick and Levine – a managing partner and managing member of their respective firms – were flabbergasted by the way the federal agenda was put in place. The officials just seemed to catch up as they went along.
But one thing became clear to them: the program was not intended as a stimulus or economic development.
“Ultimately, the PPP was a form of unemployment compensation that put the burden on the employer,” Bosswick said.
“It was a way to keep the unemployment rate low,” Levine added. “It didn’t help businesses.
The rule changes baffled business owners, who were first asked to dedicate 10 weeks of pay in eight weeks and then 24 weeks later, accountants said. Different rules have been applied to applications filed on different dates. The initial money came from banks, but many only helped customers who had borrowed from them before.
This is how Levine ended up on Kabbage.com, which he said had been “phenomenal” to his clients, unlike giant institutions like Bank of America and JPMorgan Chase. The terms that make PPP loans business-friendly – including a 1% interest rate, payable over several years – make them less attractive to giant lenders. Many don’t want those lousy accounts to linger in their books. But other banks are attracted by the fees predicted by Congress.
“For small banks, a 5% loan grant fee plus 1% interest isn’t bad,” Levine said. “And maybe they’ll get a customer out of it.”
They noted that the program was created in a hurry, and probably necessarily. But the money would have been more useful to increase after a prolonged shutdown, rather than as an intermediary for inactive employees of closed stores.
“If there is another round of PPP, give the companies more capital and let them spend the money after business returns,” Levine said.
“Employing people just to give them money doesn’t make sense for business,” Bosswick added.
Because the program made loan cancellation conditional on spending no more than 25% of funds on rent – an amount ultimately raised to 40% – homeowners received little support despite the loss of substantial rental income, according to Bosswick.
For businesses that have taken out loans without knowing if they will be canceled, Levine said it’s best to think of them “as 1% loans of which you may have to repay a portion.”
“One thing that not many people understand about P3s is that banks lend their own money,” Levine said, noting that banks prefer loans to be canceled so they can reserve income guaranteed by the bank. federal government. For loans that are neither canceled nor repaid, the federal government will make the lender whole.
While banks need to consider how businesses have used loans before declaring them forgivable, liability questions naturally arise for such an innovative and hasty solution.
“To me,” Levine said, “the government took away a moral compass” by announcing a 1% penalty for companies that broke the rules.
“It’s a very low penalty,” he said.
To stay on the fair side of regulators, Bosswick recommended putting P3 proceeds in a separate account and using it exclusively for payroll and rent.
For companies missing the PPP, Levine noted that the government has renewed its Main Street Loan Program, which he said could provide a loan of six times EBITDA at 3.7% interest payable over five years, and interest only for the first two years.
“It’s all just a numbers game,” Levine said. “I would have liked them to involve accountants in the PPP from the start.”