Transcript: Interview on Round Two of the Paycheck Protection Program (PPP)

VSCPA President & CEO Stephanie Peters, CAE, talked with Steve Bulger, regional administrator for the Small Business Administration (SBA) Atlantic Region II and Bruce Whitehurst, president & CEO of the Virginia Bankers Association (VBA) to discuss round two of the Payroll Protection Program (PPP). Here is the transcript.

Find the full video here on the VSCPA's YouTube channel.

Stephanie: Hello, everyone, I'm Stephanie Peters, the CEO of the Virginia Society of CPAs, and I am joined today by Steve Bulger, who is the Regional Administrator for the Small Business Administration Atlantic Region II. And Steve is also serving as acting Regional Administrator for the Mid Atlantic Region. Bruce Whitehurst also joins us today. He is the President and CEO of the Virginia Bankers Association. So welcome. Steven Bruce is here joining us today to talk about the latest on the Paycheck Protection Program or the PPP, which of course is the relief program established by the Cares Act and is implemented by the Small Business Administration and also distributed by the banks and Congress. And the President just passed another $320 billion dollars in round two of the PPP, which started today. So Steve, I'll start with you. What is different about this round of the PPP?

Steve: Sure, the round two, as we're calling it of the PPP does have some differences. Treasury and the SBA came out with some additional guidance. And basically in response to the outrage over many very large companies getting these loans that were intended for small businesses. So there have been some guidance issued that really restricts a lot of these much bigger companies from participating. And in fact, we're seeing some of the companies that got funded in round one are actually returning the money. And we expect more to do that just because more of a PR perception problem for them than anything. They didn't do anything illegal, but it just didn't work out. So, so that's one. Probably the biggest change this time is that Congress set aside $30 billion for what they identify as small community banks and lenders CDFIs, credit unions and that $30 billion is really, you have to be in that small category to be able to access that. Then there's another 30 billion on top of that for what they're calling medium-sized lending institutions. And then the wider $250 billion, which is open to everybody, including the large banks. So that's probably the two biggest things that we're seeing. One of the changes is there is some restrictions being put on the actual application process, in terms of how many loans you can upload because as you mentioned, the program did open this morning, and there was just a tremendous surge and crush into the system. And that is being regulated. So a lot of banks and lenders are having to wait to submit their applications. Because there is a restriction on the number of loan applications we can handle just to make sure the system doesn't totally crash. So those are probably the three biggest changes from my perspective.

Stephanie: Okay. Do you have any idea the timeframe of the funding? Do you expect that it's going to run out quickly or not as quickly as last time? Any thoughts?

Steve: I think it actually will be quicker than last time and here's why. The first round was $350 billion dollars. That was over 13 days it took to use that up and initially we only had about 800 to 1000 lenders participating in the first couple days as there were some hiccups getting a system set up, it was all thrown together pretty quickly. But over around one timeframe that 30 days, every day, more and more new lenders came on. And we here at SBA could just see the numbers accelerating of applications received and the approvals going out. So really, by the last 24 hours of round one, we did almost $60 billion dollars in approved lending, which was phenomenal, but if so, right now, there are 5000 lenders that are trying to access the system. So my guess is, you know, a total ballpark, I would think by the end of this week, that $310 billion is likely to be all spoken for.

Stephanie Peters: Okay. So you are optimistic that some of the smaller businesses will be, will they be able to go to the front of the line? Or how will that work exactly if if some other businesses are still in the queue?

Steve: Yeah, it's a good question to two answers to that, why I am more confident this time. First, is a lot of the larger banks and their product, they have tremendous processing capabilities, compared to a small community bank, a lot of their round one companies that the applications they submitted were for their  larger small business customers as defined by the SBA. So what we're seeing today and what I've been talking to some of the larger banks, their applications are for their smaller small businesses. Now, they're getting to them in this round, I think a lot more. So the average loan size is going down, which indicates to us from what we're seeing even early. Today in the first submissions, that they're focusing more on smaller companies. And then second, because we have so many community banks and credit unions and CDFIs now who really do work with the smallest of small businesses, they're all already engaged as well. We think there's the number of really small businesses will be higher. This time, the average loan size will be smaller, but a broader participation would be our guests.

Bruce: Stephanie, if I could add to that, if I may. Absolutely. I think even in round one, and Steve, I'm going to do this from memory, but there was a press release from Treasury after the funds were depleted. And I think it was 74% of the loans were for under $150,000. And I think round one was like 1.7 million loans around the country. So it is important to note that an awful lot of small businesses were served during round one. In addition, about 60% of the loans made were made by financial institutions under $10 billion in assets. So about $250 billion out of that $350 billion came from smaller banks.

Steve: And that's a great point. I just want I want to pick up on that to the community banks really did a great job in round one, they really stepped up. I mean, it was a tremendous effort for them. And yeah, there was a lot of focus on the big banks, what happened, but the community banks really stepped forward. And were very, they should be very proud of the work they're doing.

Bruce: Yeah. And and then the second thing is, as Steve said, you know, the number of lenders you know, the, the official number of SBA lenders at the beginning was 1700. But I think Steve about a thousand were actually active. But you know, that's now five times as many or tripled, at least tripled in that two week period. And so yes, a lot I think I agree with Steve, if there's any funding left before the end of this week, I'll be surprised. But the second thing about the average loan size and the reason I completely agree it's going to come down that has not as much to do with the big company thing is that the ways Congress wrote the bill and the rule came out, I guess it was in the interim found a rule from Treasury and SBA, the smallest of small businesses, independent contractors and sole proprietors. They weren't allowed to access until a week two until Friday the 10th of April. The funding was completed by the 16th, and there and it was really difficult for everybody involved to come up with the metrics. How do you do a Paycheck Protection Program loan to someone who by definition doesn't have a paycheck. And so it's a completely separate set of rules. But those typically are the smallest of small businesses. So now they will have equal access. And I think that also will drive the average loan amount down this time to.

Stephanie: Okay. So Steve, can businesses apply for the PPP and still be eligible for other SBA disaster loans?

Steve: Sure, the PPP is really separate. The Economic Injury disaster Loan Program, which we've already received close to 6 million applications from small businesses. That program we are working our way through Congress just authorized some more money. That's a big program. We do think it is going to be reopened soon. We're just trying to knock out some of the applications we already have. Also, in terms of other SBA loan relief, if you have an existing SBA loan now prior to the start of the COVID situation, SBA is picking up for six months, principal and interest payments on basically all SBA loans out there, 7A, 504, micro loan, for a six month period. And that's a real advantage to some small businesses. You know, to really just take a little bit of pressure off paying back those loans and in the longer term, that'll be an advantage as well.

Stephanie: That's great.

Bruce: And Stephanie, I would just add for your for your members that are advising small business owners, in addition to SBA programs, which are so valuable and helpful, any of the any of the small businesses who have a commercial loan with their bank, they should be talking to their banker about payment extensions amount other things. Let's say for example, there's a there's a client who owns a strip shopping center, and has tenants asking for rent abatement, or rent deferral because of their situation, then they can be talking to their banker about okay, what can I do with the loan I have on this strip center because of what's going on and my need to be flexible with my tenants. So we're encouraging that business owners talk with their bankers now more than ever, about a full range of possible ways that banks can help.

Stephanie: Great, great. Um, so Bruce, as far as talking with their bankers, what other advice can you give to CPAs about working with the banks on behalf of their clients in regard to the PPP anything you've learned from the last round that will help them navigate this process with the banks?

Bruce: Yeah, and and I think Steve can probably speak to this too. But there's been a fair amount of confusion about the agent fee and the role of the agent. And the AICPA came out last week with guidance, as I'm sure you're aware, Stephanie, and I commend to that guidance to your member firms. They should certainly engage in dialogue among and between them, the Small Business client and the bank, to make sure there's mutual agreement and understanding of what they will be doing and that the bank is in agreement to pay the agent fee. So that advanced communication is critical.

Steve: Steve, you and I totally agree. It's something we've been hearing about the law states. Congress put it in that it has to be the that the agent fees have to be paid through the lenders and not the borrower's And that's caused a lot of problems because some of the lenders are saying no. And so it is an issue. We really don't have a it's kind of not our fight, sorto speak, not that I want to pass the buck. But really we've been told that something that has to be worked out between the agents and the lenders.

Bruce: And as a creative to the lenders efforts to be more efficient in processing applications. Amen.

Stephanie: Steve, if someone already has an application submitted, can there be modifications made to that application once it's already been submitted is because I know that as new guidance has come out that there may be some changes that some businesses have wanted to make is that a part of the process?

Steve: That would be up to the lender because they're the ones who are actually approving the loans, all of The PPP lenders have delegated authority, which means they basically make the decision based on the information they get from the potential borrower, whether the loan should be approved and submitted to SBA. So whenever there will willing to do, the problem is now there's, you know, we're already in round two, it's going to be tough. I think if you were to pull an application back now, and try and make some changes, you might not be able to get it into the queue again, before the money runs out, as we talked about by the end of the week. So there were some situations like that, that I heard about, but it was really that was for the lenders and the borrowers to figure out if it was worth it.

Stephanie: Gotcha. So you had mentioned a little bit about this earlier, but do you have advice regarding the self-assessment of need prior to applying for the loans, as far as if you know some of the biz, the big businesses that have been in the media and folks questioning whether or not there is that need? Is there some guidance that businesses can use in order to assess that need?

Steve: And I'll definitely want to get Bruce's take on this too, but the way the law was written, it was very general that basically it states that if your business was impacted adversely by COVID-19, any part of COVID-19 that you are eligible for the program, and the way SBA and Treasury, Treasury set up a lot of these rules, the way they set it up as you really, it's really a self-assessment to your point, and as long as the lender agrees That yup, that makes sense. They can submit that application. And it really is, you know, and the way it was also stated in the rules is that the banks are going to be held harmless here, because they have no way to really tell we don't at the SBA. So, I don't know, Bruce, is that makes sense from your perspective?

Bruce: It sure does Steven. Here's what I'll say Stephanie about it. The as Steve said, the law the bar in the law is very low. And it really makes sense that it is because in reality in many respects the employer the bank is kind of a pass-through for SBA to get the funding out. And the ins particularly when it comes to the forgiveness portion, and then the employer really is a pass-through to keep employees on the payroll. And so given that it's called the Paycheck Protection Program, not the Small Business Survival Program. It's intended to keep payrolls going. So the bar was very low and ended the law and in the rules, the bar is very low. Is there a business out there that has not been affected by this crisis? I mean, there are some small segments doing way better. We know that you know, segment categories. With those exceptions. Everybody else has been affected. Right. So that's, I think that's the legal answer. The issue that has been stirred up. Because of these very large, these larger than small businesses, publicly traded companies who were able to access because there were some affiliation rules, waves, and let's, let's also be fair, they're pretty much in those categories. restaurants, hotel hospitality, that are that were first and worst impacted. And so, you know, that's that exactly. That is exactly why those affiliation and size rules were amended away for the sake of this program. But the public perception has been very negative and understandably so, to the extent that the most recent guidance on this from Treasury in addition to or outside of the law and the rule, the guidance now suggests, hey, if you have other means, maybe you shouldn't be attesting that you need this loan. That sets up a question that's purely hypothetical today. As to how much Monday morning quarterbacking might occur in the future, about who did and did not truly need the funds. The test is not are you on the verge of bad Cropsey, the test is not. Do you have other means the test is are you affected? Right? But the test and the reality of public perception are going to be two very different things, I believe.

Stephanie: All right.

Steve:  Well stated.

Stephanie: Yeah. So moving on to the forgiveness and the calculations. I know there have been some questions about the eight weeks and some concerns from businesses that have employees that are now unemployed and on unemployment. But they've gotten this loan is is there going to be any flexibility with calculating your pay role, other than in that eight weeks from when you get that payment?

Steve:  I'd say we'll have to wait and see. Obviously, right now with the guidance is the eight weeks that starts from the data borrower receives the first installment of of the loan. I, my guess would be the lenders in particular, and probably SBA Treasury would like to hold it to that eight week period. So we're not dragging this out into the summer. And it just, you know, extending things out, because that's, you know, there's consequences to that as well. So, as Bruce mentioned earlier, it's really designed that program is designed by congressional intent to keep paychecks going over that eight week period. And so I would say, until we hear otherwise, that's the rule on the books.

Bruce: And here's what I would say. I think congressional intent was the eight weeks and I think that's why Treasury has been firm on not backing off of that. I also think that at the time that this crisis has been moving so quickly are learning about the crisis and its impact has been moving so quickly, that at the time Congress passed the cares act, we still were of the belief that that we might be able to have a V-shaped situation a V-shaped recession and quick recovery. And in just a span of a few weeks, we've come to learn that it's going to be much more of a U and hopefully not a W. And it's going to be a more gradual, incremental return to a more normal economic operating environment. So, Congress might have made a different call now than then. But the thing that's really come out of this Stephanie is it's almost like you needed the Paycheck Protection Program, as is for everybody except the industries that have been shut down by state and local government orders, particularly state orders, restaurants, orders. And so when a restaurant owner has employees that are doing better on enhance unemployment than they would earn coming back during this eight week period, it is indeed a catch-22 because the restaurants can't even reopen until after the eight week period has ended. So, so it in a perfect world, maybe there would have been a just a slightly different design just for those who just really need to have their people on unemployment right now. But I think it's a it's a it's somewhat related to how circumstances keep evolving very quickly.

Stephanie: Right, right.

Bruce: I don't look for I don't look for relief from that though. I really don't.

Stephanie: Yeah. Okay. So, Bruce, as far as determining forgiveness of the loans and the calculations, I mean, there are certainly a lot of questions or Round how to a lot of the definitions in the calculation. Do you think at least there will be some consistency among the banks in how this calculation is determined?

Bruce:  Well, yes, let me say that we are waiting for guidance from SBA and Treasury on forgiveness. And, again, it's what has been accomplished in a few weeks is monumental and 90-days ago, none of us would have taken the other side of that bet. We all would have bet bet against the ability to do as much as we've done. So there's a lot to celebrate here. But moving this quickly, you know, we've had this rolling guidance. And that's the only way that this really could have gone. So we're waiting on guidance with specifics about loan forgiveness. And one of the things that's in the and Steve mentioned This, but it's in the law and in the guidance or interim final rule is that as with the application where the borrower attests to the need, and the lender is not responsible for validating that, with forgiveness, it's the same. The borrower provides the documentation. The lender ensures completeness of the information and says, this is all the information SBA that you need to then provide this percentage of forgiveness on this loan. Here you go. And the lender is not unless the guidance suggests something different than the rule and the law say that which is would be a whole other conversation, the guidance, the lender is not going to be the judge and jury over the forgiveness calculations. Now yo be sure, they will look at the calculations, they'll see if they make sense, given the information the borrower has provided. But it's up to the borrower to provide the documentation of the payroll expenses over that eight-month period plus the other permitted expenses. Okay. Steve was out about right?

Steve: I totally agree. Well stated. And, yeah, I mean, when you really think about it, we're gonna have close to, by the time round two is over 3 million separate businesses, separate loans out there, of over $600 billion more coming due for forgiveness within sometime in the month of June or early July. So that's going to be a real interesting period. There's no doubt but I would absolutely concur. And because it has been stated, really in the rules, that if there is something wrong, if there is a fraud here the answer SBA really has to go after the borrower, because the lender has really no way to independently verify this the way you would normally verify a regular loan with statements and collateral required, you know, all the things this is as far from a regular business loan as it gets, really. So I would I would agree. And I really think that the majority of these will be forgiven very quickly.

Stephanie: Well, Steve, I know you have to hop off very soon. Do you have any final thoughts you'd like to share with our CPAs?

Steve: Well, just appreciate the work you're doing. We do want to get that guidance. We know how important that guidance is going to be on the forgiveness. I think, as we're all just we're like sprinting from one thing to the other here at SBA Treasury. If we get through this round two, then I believe unless there's around three and who knows, right? I was like, come back with the you know, Because there's certainly not everybody's going to be funded that needs the money. So But either way, I think you're gonna see the focus on that shift to that providing that new guidance and get out there to everybody. So as we get closer to, to the eight weeks ending, I'd be happy to come back and give an update on that if that's helpful, but appreciate, really appreciate what our lenders are doing in our CPAs. Because you, we couldn't have done this without you at SBA we really could not have. So my message is one of thanks to everybody.

Stephanie: Well, thank you, Steve. Thank you, Bruce. I know everyone is doing an incredible job trying to help these businesses. And I think that's what our members are out there trying to do as well. So I know good is being done, and we will get through those. But I appreciate both of your time today. And all the efforts that you put into this. So

Bruce: Thank you very much, Steve. Great job.

Steve: Yeah, you too. Thank you so much thanks, Stephanie. Byebye.