The government has made $349 billion available to entrepreneurs through the Paycheck Protection Program. If you're a sole proprietor, freelancer, and/or business owner, you can get a forgivable loan amounting to 2.5X your monthly payroll. Jeff & Rachel cover the details: Who can apply, where to apply, which banks are best to go to, and how much time you have left to get a forgivable loan.
The government has made $349 billion available to entrepreneurs through the Paycheck Protection Program. If you're a sole proprietor, freelancer, and/or business owner, you can get a forgivable loan amounting to 2.5X your monthly payroll. Jeff & Rachel cover the details: Who can apply, where to apply, which banks are best to go to, and how much time you have left to get a forgivable loan.
Rachel (00:00):
Welcome to self-directed life. I'm Rachel Nabers.
Jeff (00:08):
I'm Jeff Nabers.
Rachel (00:09):
It's time to take control of your money, your health, your time, and your life. So welcome back. Episode three. And what are we talking about today?
Jeff (00:18):
We're talking about the paycheck protection program where the small business administration is giving out for big forgivable loans to small business owners.
Jeff (00:30):
Right on. And why is that a big deal?
Jeff (00:33):
Well, first off, it's a forgivable loan. So basically it's not a loan. It's free money. Yeah. and it's also a big deal because in this financial crisis. We have a much bigger problem than we had in the 2008 financial crisis, and that's that our economy is largely shut down. Unless you're a grocery store or a delivery driver, you're probably not working. And if you're a small business owner, you've probably had to lay off your employees or you can't pay your employees. So this is where they're actually taking some of the bailout money and putting it into small business owners hands. So that is a big deal because we pay a disproportionate amount of attention to a tiny, or not tiny, but a smaller piece of our economy, which is publicly traded companies. And what most people don't know is that publicly traded companies don't do the majority of the economic activity and they don't do the majority of the hiring and employing. So who does the majority of the hiring and employing that is small business owners, small business owners. The people that don't show up on the financial news shows are the biggest players, collectively the biggest players in the economy. So if you really want to help out the economy and avoid a really nasty situation where you can have social unrest, you need to give money to small business owners.
Jeff (02:12):
So then who qualifies as a small business owner, how do you qualify for this type of loan?
Jeff (02:17):
Well, when they first opened it up it was for sole proprietors and it was for, how did they classify?
Jeff (02:28):
Well it was for any business that has 500 employees or less, small sole proprietors, single member LLCs. The structure of the business doesn't matter. But what they wanted to do is be able to give money to business owners that have 500 employees or less. And they want you to use the money for a specific purpose.
Jeff (02:47):
Right. And so a week ago, on Friday, they started it out for people who have W2 payroll, right? Okay. So now they, as of Friday, April 10th, they are opening it up for people who don't have W2 payroll. So if you don't pay yourself a W2 paycheck, but you're the owner of an LLC that counts you. If you're a freelancer and you receive 1099 income that counts you if you're an independent contractor and receive 1099 income that counts you. So as of today all the different kinds of business owners from sole proprietorship all the way up to formally organized corporations and S corporations and everything in between qualify.
Jeff (03:36):
Now, but it's important, first of all, you know, you need to understand that it's not just free money, forgivable loan, no matter what. You have to designate that the money is going to be used at least 75% towards payroll. So the whole idea behind the PPP is the government wants people to remain employed and remain receiving paychecks. So they are giving money to these small business owners so that the small business owners can pay their employees. So what, what do they get in this at this SBA PPP loan?
Jeff (04:15):
Well, the maximum amount is $10 million per business. And now of course the vast majority of small businesses are gonna be smaller than that. And what they get is you take your payroll, you take your payroll, and then you take your utilities and any rent or mortgage interest that you're paying, and then you multiply that by 2.5 X. Now the payroll itself is limited to $100,000 per employee. So if you're a small business person and you make $100,000, then you get 2.5 X that, which is a little bit over $20,000. If you employ five people and they each get $100,000 then you would get five times a little over $20,000. So you get a little bit over $100,000 and so on and so forth, all the way up to $10 million
Jeff (05:15):
And how do you, I think the real question people also want to know is when the government says they're going to give a forgivable loan, which means that they're not going to tax you on this money, you might not necessarily have to pay it back. How does it get forgiven?
Jeff (05:28):
Right? The issue is in taxes, the issue is is it free money or is it alone? Now the interest rate on the loan is 1% but that really doesn't matter if it gets forgiven. So the big question is, okay, if I can get this hundred thousand dollars check, do I have to pay back $101,000 or do I get to keep it not have to pay it back? The key to the forgiveness is to demonstrate two things. One, I have seen clearly in the laws and regs that have come out and that is that you can't count the people that get the payroll, take the money, and then fire those people. Obviously.
Jeff (06:13):
You have to maintain the same number of employees, right?
Jeff (06:16):
The purpose of giving small business owners this money isn't to bail out small business owners, period. It's to bail out people who work for small business to bail out everybody, right?
Jeff (06:30):
So if the average person is an employee and they get maybe a $1,200 check, you know, that's not going to be that great. But if they work for a small business owner, which most employees do, then that means that their next two and a half months of payroll are going to be covered. And it behooves the business owner to keep them on board because that's the main requirement to get it forgiven. I did see some other information this morning. I haven't fact checked it yet, but I think the other element to show to get it forgiven is you may after eight weeks to show the bank that you have been able to just continue doing business, right? So if you if you take the loan and then you pay people but then you don't have any customers or revenue, there's some questions there.
Jeff (07:25):
But again, I think, you know, we've got to be able to come out of lockdown. And so the one thing that's really, really clear, his main thing is keep your people, pay your people. If you keep your people, when you pay your people, you're probably going to get the loan forgiven.
Rachel (07:39):
And how much money did the SBA say they were going to give to the PPP loans?
Jeff (07:44):
Yeah, 349 billion. And they also, there's been some communication saying, look, if that runs out we'll do more. Another thing that happened is that the federal reserve stepped in and said, Hey, listen, we're willing to fund some of these loans to.
Rachel (08:03):
Why does that matter?
Jeff (08:05):
Well, that matters because banks can only lend money that they have on hand. And different banks are in different financial positions. They themselves could be in trouble right now.
Rachel (08:16):
So like if a bank gives out, if they lend out too much money for the PPP, but they don't get paid back by the SBA, the bank could go under. Is that a, is that a concern?
Jeff (08:29):
Well, it's a, yeah, that's, that's possibly a concern. The bigger concern, I think the more pragmatic concern is that a lot of banks just didn't want to do this because they were going, Oh, I don't know, this is not very clear yet. I'm calling the SBA. They're not answering the phone. I'm emailing the SBA. They're not replying to my email cause they only have 12 million emails coming through an hour on this big $349 billion free money programs. Pretty popular as it turns out. So I think the fed stepped in to encourage banks to do the lending because the fed is the only one in the world with the big magic checkbook, which means they can literally just invent money out of thin air and deposit it wherever they want. So to the extent that banks might have been going, Oh, I don't know if we want to spend the money that we have on hand loaning to people, you know, if they'd have, if the banks did have a lack of confidence in the SBA, then the fed aimed to solve that.
Rachel (09:35):
Right on. So how do you actually go about getting the PPP loan?
Jeff (09:43):
Yeah, great question. So the first thing to understand here is that, you know, the banks are a business and so they're gonna obviously prioritize applications in their own best interest and you kind of would want them to, right? If the, if the banks themselves are not thinking about how to stay in business, then that's bad for you. Cause if they go under, then you lose your deposits. And I know a lot of people right now are going but isn't an FDIC insured. And yeah. There is papers that say we at the FDIC insure this, but the FDIC doesn't have the money to insure it. They have only about they have less than 1% of all of the money that they would need to ensure a widespread banking crisis.
Rachel (10:31):
That seems like something terrifying that we should probably come back to an another episode.
Jeff (10:35):
Yeah. Let's talk about that legacy can of worms. Right, right. But, you know, suffice to say that the FDIC's guarantees are essentially an illusory comfort blanket in reality. The vast majority of deposits in the United States are actually not even covered by FDI. C insurance either. Like if you think about, you know, maybe there's a bank and they bank Apple and Apple has billions of dollars in you know, war chest of cash, well, billions of dollars. That's over the $250,000 FTC limit or thinking about a hedge fund with $20 billion in a cash position right now. That's obviously over, over the FTC coverage. So all of these big, large cash deposits are not covered because the limits are so low. So anyways banks will, if your bank goes under then that's bad. So if you go to your bank and you want a PPP loan, you want them to be proceeding in a way that protects the bank so it protects your deposits.
Jeff (11:41):
The way that they're doing that is they are prioritizing first customers who owe them money, right? So a bank owner, and I've heard this from multiple banks, this has been published in news articles as well, said, well known fact. If a bank has, let's say, a mortgage on an office building that they've lent on, and then the borrower on that loan who owns the office building and owes the mortgage all of a sudden can't pay the mortgage, then you're going to probably want to go ahead and process their PPP loan first.
Rachel (12:21):
Because the money for the PBP loan should be used to pay the bank for part of the mortgage, right?
Jeff (12:26):
Part of it should, right? Let's say you own the bank in this scenario and your biggest loan is a giant office complex and you're, you know, expecting $100,000 payment on this office complex and the borrower reaches out and says, I don't have $100,000 to pay you this month, then you're going to go, let's take a look at that PPP application and get that approved and loan you the money so that you can pay the mortgage, which is one of the three things that the PPP is for payroll, mortgage or rent and utilities, right?
Jeff (13:03):
So banks are prioritizing people who owe them money and if they're smart, they're probably also prioritizing people who owe money to their borrowers. So let's go back again. If you own the bank and then I am a tenant at Joe's office complex and Joe needs me to pay the rent so that he can pay the mortgage back to you, then you probably also want to extend that PPP loan to me. So what does this mean for you as a business owner? How do you get your PPP loan, your forgivable loan? Well, plan a, if you owe, if your business owes any bank's money, then you should probably go to that bank and say, Hey, can I please get that PPP loan? And let me remind you that I owe you some money and I'll definitely be able to make my payment right after you give me the forgivable loan.
Jeff (14:06):
Now, if your bank does not owe money to a bank, if your business does not owe money to a bank, right? That'd be cool if we all had banks that, I misspoke. If you're a business, doesn't have any loans out to any banks, then your next step is go to the bank that you are business banks with. So even if it's just a checking account or a savings account, then having those accounts also makes you a bit more of a priority because essentially what we're saying here is we've got, you know, tens of millions of small businesses that all at one moment essentially are trying to get more loans than have ever been originated in any, you know, two to 12 week period of time ever in history. We're trying to jam a number of loans through the entire banking system that have never happened at that volume or timeframe before.
Jeff (15:07):
And then we're trying to process those between on the back end, the banks and the SBA at a volume that's never happened before.
Rachel (15:17):
And Wells Fargo I think was one of the banks that even came out and said that they, at least initially, I know things have changed a lot since the PPP was first announced, but Wells Fargo said, I think initially they were only going to be accepting applications for people who are already existing customers of the bank. So you can't just go down to your local, you know, bank of America or something and open an account just to try to get the PPP.
Jeff (15:39):
Yeah, it was actually quite interesting on last Friday they said, we're not ready yet to take these applications. And then on Monday they said, Oh, we've already gotten too many applications. So before they quote unquote open their applications, they already went to their priority customers and opened applications for their priority customers.
Jeff (16:04):
So basically the whole thing is if you are a priority customer, meaning that you have alone, that's your best bet. If you're not, then if you are just a customer, then that's your best bet. You know, obviously it helps too. If you go to a bank that you have an account because when it comes to funding the account, we'll just put it in there so it's very easy for you and for them. All right? Plan B is if the bank that your business banks with isn't doing these loans or,
Rachel (16:35):
And not all of them are. Not all banks are offering the PPP.
Jeff (16:39):
Then plan B is to go somewhere else. And I would say the two resources that just seem, you know, widely open and I don't have confirmation on the back end of, of how inundated they may or may not be, but one is cabbage with a K, Kabbage.
Jeff (16:56):
Google that right? When you land on their homepage, right on the top in front line center PPP loan, you click the button, you get going. Number two is Fundera, same thing, right on the top of the homepage. Get your PPP loan. So I would say that's plan B. If you can't go to the bank that you bank with, awesome.
Rachel (17:23):
That's really helpful.
Jeff (17:25):
So yeah, this is this is really interesting because and I've got to say first off, philosophically what's going on is just absolutely not capitalism. I'm very philosophically opposed in general to redistribution of wealth. But the 2008 crisis taught us that, look, guys, wake up and smell the reality. We don't have capitalism. So if you are running a giant institution, that means you could probably do whatever you want, include, do very stupid things and you're probably going to get bailed out.
Jeff (18:06):
So that's actually one of the problems they call that moral hazard. But if you're a regular person who doesn't have a direct line of text messaging to Jerome Powell or the CEO of Goldman Sachs or anything like that, then the other thing to learn from 2008 is just, okay, look, there's going to be bailouts. Obviously just accept it. I had a big, I had a hard time with it last time. This time I'm just like, okay, you need to balance what's going on here. And so a lot of people are like, but you have, aren't you? You know, upset and furious and yeah, of course I am, but what am I going to do about it? Okay. Nothing moving on. Right? What am I going to do? Living in reality? Yeah. Now that we're back to reality, what are we going to do about it? And if you just kind of look around you know, we've learned very quickly that our society is a lot more fragile than we thought it was when we were saying happy new year in January of 2020.
Jeff (19:01):
So, you know, this is the most, I would say this is the biggest shock to our society that we've probably had in decades, probably in anybody's lifetime alive. Because we're further removed from our food, we're further removed from being self-sustaining. Right? so we're the most vulnerable we've ever been and lots of people have been scrambling to try to just nail the survival, right? So when we were going in the boom times, survival was just a given. You know, even if you're homeless, you can survive and you'll probably get some money and be able to have the overpriced latte from Starbucks if that's your financial decision. Survival was in the bag for a long, long time this month and last month grocery stores were running out of food, so survival was not in the back. So a lot. So a lot has been scrambling just to provide for our survival last month.
Jeff (20:11):
But now we've had roll over to April 1st. Lots of like tens of millions of rent weren't paid, staples didn't even pay their rent. Or you can look it up. There's a list of even giant corporations who aren't paying their rent. May 1st is just around the corner. Probably even more rents are going to become not paid. We've had the most dramatic record set of unemployment, 17 million people filed for unemployment the last few weeks. And that's not even counting. The bigger piece of our workforce is independent contractors. They're not counted in the unemployment statistics, right? We have less employment and more independent contractors happening as compared to the last crisis. So if you were to try to come up with how many people have lost their work, even though there's not an official statistic that tracks this, you know, we're probably going to end up with over 30 or 40% unemployment, which is depression over 20%.
Jeff (21:13):
Yeah, we're probably going to be at that level by may. So you know, we're at a point now where it's a real question. It's a serious question. As to are we going to have like riots or are we going to run out of food? Like BA, you know, the food has started to show up on the shelves again, but we a lot of times don't really realize how many trucks drive, how many big pallets full of food to how many stores every single week. And then all the way up the supply chain, there's been all kinds of strains. So I bring this all back to the bailout issue because this SBA PPP bailout, the money has started to hit accounts. My sources say about a hundred, 104 billion has already been lent. Of the 349 billion. So you know, the rest of the 349 billion, we'll certainly be lent here in April.
Jeff (22:09):
I would guesstimate that they're gonna do another one right behind. I mean, these figures are meaningless. There's no cap.
Rachel (22:14):
And people need, and I mean with what you said at the top of the episode, that there's so many small businesses in our economy. 350 billion can't possibly cut it for everybody that needs to be able to pay their employees.
Jeff (22:27):
We'll see. But a week ago there was a question as to, you know, how long was it going to take for money to start hitting accounts? Everything was jammed up. Now money's moving and it's hitting account. So that's a very good thing. And I would say that the SBA programs, there's PPP and there's others as well are probably going to be more impactful than this. You know, what does that $1,200 check that just hits everybody's account? Well, that's only $1,200. So you know, most people who are involved involved in the payroll of this PPP program get more than 1200 a month and the PPP program gives just front loads, two and a half months of payroll and the business owners are only to get the forgiveness if they pay that payroll.
Jeff (23:17):
So so this is, I think the, you know, probably the number one thing that's going to keep social unrest at bay hopefully and keep, keep the supply chain flowing for just our basic needs. So here's what to do. If you're a business owner out there and you haven't submitted your PPP loan. As of today, even if you are an independent contractor and don't pay yourself or others at W2 paycheck then freelancer is sole proprietor, a single member LLC, multi-member LLC, S Corp, C Corp, any kind of business. As long as you have 499 employees or less you should try to go out there and get your PPP so that you can continue to pay yourself and your employees.
Rachel (24:01):
And the application is really easy. It's, I think two pages. It's nothing challenging. You know, you, each bank might have different requirements of what they want you to provide, like w two pay stubs for your employees or 10 99 or things like that. But it's an easy application. You can complete it on your own.
Jeff (24:18):
Yup. And there's some good YouTube videos and if you Google it, there's a lot of good guides. We'll throw some of those in the notes here on this episode. So yeah, next up and our either the very next or one in the next couple of podcasts is we're gonna really explore probably what a lot of you were thinking when we were just talking about a couple of those matters a moment ago, which is, okay, great. Let's say we fast forward to, you know, lock down is off. We're, we're coming out and game on, right. What does that really look like? And and do we just, does the whole economy just, you know.
Rachel (24:59):
How do you restart in this economy?
Jeff (25:01):
Right? It's never happened before. What are the odds that it's really gonna restart and when they go to restart it, what's gonna happen to investments, to markets, to real estate, to stocks and bonds, to financial institutions.
Rachel (25:20):
Or personal relations even.
Jeff (25:21):
Yeah, yeah. In our lives, we know how I, I think well spoiler alert, it's not just going to be like, now it's January again. Everything's completely back to normal. Everything's not going to become, go completely back to normal immediately. So we will be exploring what we'll go back to normal and what won't go back to normal. And what are some of the possible scenarios and let's remember, right? So a lot of our audience we know are entrepreneurs. So, if you are an entrepreneur, awesome. If you started becoming an entrepreneur a long time ago, then you had courage to go out and self-direct your stream of income. And it was risky. Well, today I would say that it's risky to not be an entrepreneur because our whole economy is decentralizing. And it's kind of like the fall of big organizations.
Jeff (26:24):
And the rise of small organizations, the fall of centralized structures in the rise of decentralized structure structures. So at this point I think everybody really should be an entrepreneur. Just about and when you, when you're an entrepreneur and you look around at, we're going to have problems like you think we have problems in the lockdown, we're going to have bigger problems when we come out of the lockdown right now. Right now we're scrambling to make the lockdown just work so that everybody's safe and sound and we're minimizing the health issues with the virus and health care workers and, and all of that. But when we come out of lockdown, there's going to be more and new economic problems and there's probably going to be more and new health problems too. Cause we still are just barely beginning to learn about the virus itself.
Jeff (27:21):
And what does that longterm triumph over the virus going to take and look like and how long will it take. But on the economic side and just the whole picture, we are, we have problems ahead of us. And I think in the old way of thinking, then it's like, Oh no, we have problems ahead of us. But a problem is just an opportunity for an entrepreneur. Entrepreneurs solve problems. If you're an entrepreneur and there's no problems in the world and you can't sell anything, sales and revenue only happen when problems are solved. Big problems require big solutions and big solutions make a lot of profit. And that's a good thing. So despite the lack of capitalism involved in the bailing out of Boeing and a lot of these other corporations you still can do your own capitalism by doing business without any crony buddies.
Jeff (28:19):
And so when we, when we look at the future posts lockdown, I hope that you'll be thinking in terms of, you know, how can you have your problem solved? How can you help other people solve their problems? How can you turn those problems into opportunities and help other people and make a profit? So that's it for today's episode. Thanks for joining us. And as always, make sure you go to selfdirectedlife.com and use the form there to reach out to us. Let us know what you want for future episodes. Any questions or requests, put them through there.
Rachel (28:54):
Thanks so much everybody.
Jeff (28:55):
Bye.