Wrapping their arms around the Paycheck Protection Program has been a mind-boggling experience for Mark Bosswick and Elliot Levine, two veterans of New York City’s accounting industry.
With hundreds of billions of dollars up for grabs from Congress, rapid-fire rule changes from Washington and bewildering responses from the banking system, the accountants and their colleagues have been trying to make sense of it all for clients.
Appearing Wednesday on The Real Deal’s webinar series TRD Talks Live, the number crunchers from Berdon LLP and Levine & Seltzer zeroed in on some key facts:
- It’s not too late to get a forgivable PPP loan for businesses yet to receive one. The deadline to apply has been extended to Aug. 8.
- Skip the big banks. Small, even obscure lenders are often nimbler. Ever heard of Kabbage.com? Neither had Levine — until it scored money for one of his clients in mere days.
- Businesses that could not reopen before exhausting their PPP are SOL. For folks who have been living under a rock (quite a few of us, actually), that stands for Shit Outta Luck.
- Gaming of the program looks inevitable, a fact Bosswick and Levine attributed to Congress’ failure to consult accountants when designing it.
Accountants tend to be exacting people, which may be why Bosswick and Levine — a managing partner and managing member at their respective firms — were flabbergasted at how the federal program was slapped together. Officials just seemed to make it up as they went along.
But one thing became clear to them: The program was not intended as a stimulus or economic development.
“Ultimately, PPP was a form of unemployment compensation that put the burden on the employer,” said Bosswick.
“It was a way to keep unemployment numbers low,” Levine added. “It didn’t help businesses.”
Rule changes flummoxed business owners, who were first asked to spend 10 weeks of payroll in eight weeks, then later given 24 weeks, the accountants said. Different rules were applied to applications filed on different dates. The initial money came from banks, but many only helped customers who had borrowed from them before.
That’s how Levine ended up at Kabbage.com, which he said had been “phenomenal” for his clients, unlike giant institutions such as Bank of America and JPMorgan Chase. Terms that make PPP loans friendly to businesses — notably an interest rate of 1 percent, payable over several years — make them less attractive to giant lenders. Many don’t want such piddling accounts lingering on their books. But other banks are drawn to the fee Congress provided.
“For small banks, a 5 percent fee for making the loan plus 1 percent interest isn’t bad,” Levine said. “And maybe they’ll get a client out of it.”
They noted that the program was hastily created, and probably necessarily so. But the money would have been more useful for scaling up after a prolonged closure, rather than as a passthrough to idle employees of shuttered shops.
“If there’s another round of PPP, give more capital to businesses, and let them spend the money once business has returned,” said Levine.
“Employing people just to give them money doesn’t make sense for businesses,” Bosswick added.
Because the program made loan forgiveness conditional on spending no more than 25 percent of the funds on rent — an amount eventually increased to 40 percent — real estate owners saw little support despite losing substantial rental income, according to Bosswick.
For businesses that have taken loans unsure if they will be forgiven, Levine said it’s best to think of them “as 1 percent loans which you may have to pay a portion of back.”
“One thing not many people understand about PPP is that banks are lending their own money,” Levine said, noting that banks prefer the loans to be forgiven so they can book federally guaranteed revenue. For loans neither forgiven nor repaid, the federal government will make the lender whole.
Although banks must examine how businesses used loans before declaring them forgivable, questions about accountability naturally arise for such a novel and hasty solution.
“To me,” Levine said, “the government took away a moral compass” by announcing a 1 percent penalty for companies found to have broken rules.
“That’s a very weak penalty,” he said.
To stay on the fair side of regulators, Bosswick recommended putting PPP proceeds into a separate account and using it exclusively for payroll and rent.
For businesses that miss out on PPP, Levine noted that the government renewed its Main Street Lending Program, which he said could provide a loan of six times EBITDA at 3.7 percent interest payable over five years, and interest-only for the first two years.
“The whole thing is just a numbers game,” Levine said. “I wish they had gotten accountants involved in the PPP from the start.”