PPP Questions? Bring them on.
Because how often do you get the opportunity to pick the brain of the CEO of the nation’s leading non-bank SBA lender? On this webinar, you can.
Join TaxProMarketer CEO Nate Hagerty as he interviews Chris Hurn, CEO of Fountainhead, the nation’s leading non-bank SBA lender. Hurn and his executive team have collectively closed over $24.09 billion worth of projects – including 8,200 PPP loans, totaling more than $767.05 million as of August 2020. They are specialists in the SBA 504 loan, as well as SBA 7(a) and low LTV conventional loan programs.
Because of a longstanding relationship with CEO, Nate Hagerty, Chris has generously offered TaxProMarketer clients and contacts the opportunity to ask him questions, hypotheticals, and get his insight on the PPP forgiveness process — as well as help them discover other SBA programs that can ensure that they are a hero to their SMB clients (and optionally get paid brokerage fees in the process via the SBA).
Highlights
- Insight on the PPP forgiveness process
- Other SBA programs
- Q&A
Connect with Nate Hagerty
This episode is brought to you by TaxProMarketer, a leading marketing agency serving CPA & tax firms. It was established in May of 2007 in response to increased demand for real-world, relationship-building (and profit-producing) marketing tools for use in the tax and accounting industry.
Currently, TaxProMarketer serves clients all across the United States and Canada who use their services to build relationships with their prospects & existing clients, as well as to grow the value of their business (for immediate cashflow and future sale-ability) by utilizing the following tools: a relational email marketing program, social media feed program, local listings management & optimization, and creating full “online marketing machines” for clients (which include SEO-optimized, conversion-centric custom websites).
TaxProMarketer is an Infusionsoft Certified Partner and a Digital Marketer Certified Agency.
Full Transcript from the Podcast
Nate Hagerty 00:02
Alright, everybody, we are live, and I’m gonna let people pile in, and looks like a bunch of people are, we got hundreds registered for this thing, the day after the extension deadline. We’re not going to officially start but Chris is here, I’m here and I’m gonna let people sort of get acclimated to the system and whatnot, and do all the housekeeping. So, as we’re just kind of yammering and chatting, Chris told me that, like, he’s got a really hard stop at 3:15. Eastern. So what my suggestion is, if you have questions, and I know a lot of you do, because I’ve gotten the emails, go ahead and start putting them in the Q&A box now! Don’t use the chat for that, there are two options. Obviously, in the zoom interface, there’s chat, and there’s Q&A. My recommendation is to use the Q and A for this just because if it goes through the chat, and you know, we’re just going to miss it all. But Q&A, we can kind of keep track of what’s been answered and whatnot. So I’m going, you know, here we are at the top of the hour, why don’t we just roll into this, Chris? I am, I’m super psyched that you agreed to be with us and to share your wisdom experience with the tax pro marketing world. So this is being recorded. And typically, when I do these monthly expert interview webinars, I don’t often record the Q and A’s, because I just opening the kimono, my evil plan is that I want you to show up at these things live so that you can, you know, interact with the people that I bring on. Here’s what I’m doing today, just because of the value of what Chris is gonna bring. And because of the emphasis on the Q&A, I’m actually going to be recording this entire thing. So that you can go back and look at the Q&A because I know that there will be a lot of things that are pulled out today that you’re going to want to go back and reference. So this will be set to, you know, our YouTube, all of our content channels, our podcasts, etc. Chris, by the way, just to let you know, because I’m not sure that I made that clear to you. This is being recorded and will be posted publicly. So…
Chris Hurn 02:16
That’s ok
Nate Hagerty 02:16
…you know. Cool. So I just didn’t want you sharing all your trade secrets.
Chris Hurn 02:20
…I don’t want to many F-bombs or anything, so.
Nate Hagerty 02:23
Yeah, no, that’s fine. No. F-bomb away. That’s all right. These are CPAs and Tax Pros, they hear plenty of F-bombs. They see the seamy underbelly…
Chris Hurn 02:23
Yeah, they just got done with their big deadline yesterday. So.
Nate Hagerty 02:37
Yes, they did. So let me get, you know, I’ve emailed, typed up Chris, a little bit over the email but I do want to just before we kind of get into things, explain a little bit about him and about me, just in case, I know that there’s been some publicity of this thing. In case you don’t know anything about Tax Pro Marketer, haven’t really engaged with me or Tax Pro Marketer, I’m not going to go through my whole bio, it’s not about me today. But we run a marketing agency that is all about implementation for CPAs and tax professionals for your marketing. We’ve been doing this since 2007. I got 13 people that work alongside me making your marketing work really well. We’re a Google premier partner, which is that nice level of certification with Google, etc. Again, I’m not going to go into all this because I really want to get to Chris. But if you do want to talk to us now that the deadlines over and you want to get free marketing tools as well if you go to talktotpm.com, that URL right there, fill out quick questionnaire, you’ll get into our calendly, set an appointment, and you’ll get access to some awesome marketing tools that are on that. Okay. Enough about that. Let’s get into it with Chris. Chris is the founder and the CEO of Fountainhead Commercial Capital. They are the nation’s leading non-bank SBA lender, which actually didn’t tell you that I wanted to ask you more about the non-bank designation, why you went that route. He’s got more than 20 years of leadership experience in the lending industry, as you can see on the screen, there are going to be basic slides here, by the way, but they’re just going to guide questions. Chris is extremely scheduled and he hasn’t like prepared this big comm presentation for us today. He’s literally here as a resource for us. He was the Orlando Business Journal’s CEO of the year last year, their company was just voted the best place to work in Orlando. I’ve known Chris for I think, like 12 or 13 years, we did a small joint venture project. It wasn’t related to lending or anything like that back in I think, oh nine. I think it was crazy. I was thinner and I didn’t have a beard. I also had less children. I don’t…
Chris Hurn 04:46
Yes, you did!
Nate Hagerty 04:47
…know. I try to at the time. No, I didn’t have any at the time. It was…
Chris Hurn 04:53
Yeah…
Nate Hagerty 04:53
I had zero! Golly. Life was different. So in the last 11 years, how long is Fountainhead been doing this thing, Chris?
Chris Hurn 05:02
Oh, we’re in the middle of our fifth year in business because I actually, I had my other company that I sold to a bank and then to get back in and start over again.
Nate Hagerty 05:11
So that was the 504. Company. Was that called again?
Chris Hurn 05:14
Yeah, it was called Mercantile Capital.
Nate Hagerty 05:15
Mercantile, that’s right. And you had that cool sailboat logo? That’s right. So fountain has been around for five years or so as Chris said, they as a team and the people there they’ve closed over $24 billion in projects. I think something like almost 14,000 different projects that you guys have closed. And does that include the, what is it? 8200 PPP loans?
Chris Hurn 05:50
Yeah. 8,237. Yeah.
Nate Hagerty 05:52
So that gives you a picture of the velocity of this year for Chris,
Chris Hurn 05:58
Right
Nate Hagerty 05:58
Because I think I remember seeing you say this, just to your friends on Facebook, that you had done more, close more deals, like in the last month than you’ve had in like the five years previous?
Chris Hurn 06:11
Yes
Nate Hagerty 06:11
The insanity of the PPP.
Chris Hurn 06:13
Yeah
Nate Hagerty 06:13
But if you do the math, everybody, they have done at 8,200 PPPs and they had previously done like 5000 or so other SBA loan packages. Obviously bigger numbers, different situations, different processes, etc. But they have been doing this thing really well. And even at the 5000 loan level that made them one of the top on the bank, SBA lenders, which gives you also a picture for how underutilized some of these SBA programs really are the fact that they, you know, just a few thousand of these loans, and they’re one of the top of the country. And I’m excited for Chris to be able to share with us a little bit of the opportunity that small business owners have through Fountainhead and just the SBA in general. You’ve testified before Congress, both Senate, and the House. Probably not recently, and you were not there under subpoena, I reckon.
Chris Hurn 07:06
No, but I get subpoenas all the time for all the fraudsters…
Nate Hagerty 07:10
Is that right?
Chris Hurn 07:11
Oh, yeah. Yeah. Used to be a big shock when I hear from the FBI, but I hear from the FBI about every other day. So…
Nate Hagerty 07:17
Oh, yeah.
Chris Hurn 07:17
All good. On our side, though, I have no problem. They can continue to, you know, subpoenas. We send the electronic records over but there’s been some other folks who did PPP loans who are probably not going to be as fortunate as we have been.
Nate Hagerty 07:29
Indeed. Alright, so let’s dive into that. Okay. Yeah. Sure! Actually, you know, look, I wanted you to tell the story, just give me like the one minute snapshot of Fountainhead, why non-bank, I just, I want to, before we get into the minutiae of questions are being asked in a PPP and the things that I want to ask, just fill in the blanks and what I haven’t talked about.
Chris Hurn 07:50
Yeah. So I just go back a little bit. So, out of grad school, I was in sales and marketing and then get recruited away because I did pretty good in that by GE Capital. This is going back 25 plus years ago. So I was at GE Capital during the Jack Welch days, started getting into small business lending at the time, went and joined, GE was the largest non-bank lender at the time. And I joined Heller financial, which is the second largest to GE then turned around and bought. Then I was a management consultant for a few years, after that, I kind of got out of lending, I was a little frustrated with the large corporations and you know, constant changing credit box and things of that nature. And I kind of got sucked back into it. And I was pretty good. And a buddy of mine over a beer said you got to do this. And so I looked into it, I did my due diligence and launched my company back in ’02. And we were one of the first non-bank SBA lenders to specialize in at the time, which was the 504, which is the second-largest SBA program. So we did that for, well, we did it for almost eight years. We’re on the 4th in the 500 lists three years in a row fastest growing in the country. You know, had a lot of fun, did a lot of great things. And then the last recession hit and we decided to sell out to a local bank, who was our second-largest warehouse lender at the time, and we stuck or I stuck around for almost four years. At the end, they were, which is very common for banks to sell, you know, a lot of m&a. And in the banking world, they were getting ready to sell themselves to a larger bank. And I decided to come in and try to buy my baby back. And then they kind of wasted my time for a couple of months. And ultimately I left. And six months later I started over without ned. And so that’s where we find ourselves today. We started on February 15 and again, we’ve just made the second year in a row, the Inc 5000 list again and growing booming this year bigger than I could have ever imagined. A lot of it due to PPP, but frankly, our small business lending platform was scaling tremendously prior to PPP. And we’ve pivoted back to it and we’re scaling tremendously right now. And our goal is to be the largest non-bank, the small business lender in the country. And I think we’re well on our way probably take me about another two and a half to three years, but I have a feeling…
Nate Hagerty 10:08
So I’m just idiot marketer type, right? I run a marketing agency. I’m not like some Wharton grad. I only went to University of Virginia. I’m, you know, how do you start one of these things? Do you just gather a bunch of investors and have a bunch of capital? I mean, like, what the fat? How do you start this thing? Just I’m purely curious. This is like, imagine we’re having a beer. And then we’re- Yeah, yeah. So this is my second, I guess, my second chapter in the industry, right, starting it from fresh, and not being a depository institution, which is key. And we’ll probably talk about that as it relates to PPP because I think I played an instrumental role in allowing the first-ever non-banks to actually access the Feds discount window, which is effectively the PPP LF, but, we, yeah, I put together, I did invest in a number of commercial real estate deals over the years. And I put together a list of my original investors with that, and we launched my old company Mercantile. You know, non-bank lenders, especially finance companies in general, oftentimes are reliant on the banking community anyway, so they get large warehouse lines of credit. And their friends they fund with capital plus the mix of warehouse facilities, they fund their loans, and then oftentimes, they recycle them through the secondary market to get liquidity. And that’s what I did back then with Mercantile. That’s what we do without Ned. We sell off our government-guaranteed SBA loans, very, very common for most of the small business participating lenders to do that. And we also, we’ve made a market of our 504 first liens, and we also do a low LTV conventional loan as well, that we make a market out of and sell those off to. So that’s how we do. And we recycle the phones and, you know, just kind of like what a bank would do with residential mortgages very similar.
Nate Hagerty 12:00
Okay, so you bring them all into different tranches, and market them? Yep. Okay. All right. So we have lots of questions. I’ve got a few people in the chat…
Chris Hurn 12:11
I see that
Nate Hagerty 12:11
About putting it in the Q&A or in the chat, put your questions in the Q&A, folks. So we’ll get into that I’m going to, again, I’m going to pepper Chris, with questions to give everybody some breathing space and opportunity to come up with their own questions. And minor to be less specific. So again, put your specific questions in the Q&A. But I’m gonna give Chris the opportunity to tell stories and tell us some of the inside stuff on what we should be thinking about in the tax and accounting world, about the SBA and how best to work with it. A lot of, you know, my clients CPAs with their clients are walking, you know, they don’t get broker’s fees. They’re doing this on a side kind of contract basis with a lot of folks. Because these are seven VA loans and PPP. Right? And so they can’t get paid on them. Unless the bank is like somehow generous, right?
Chris Hurn 12:17
Um, yeah, no, typically. So yes, backing up. I mean, no. PPP, which is done now, as I think most everybody knows on this. At the moment, I do think it’ll come back. But it was technically part of, yeah, it actually is part of the seven B reg, which not too many people know, but it’s using the framework of the seven a loan, which is the flagship of SBA. And that was interesting with PPP is they kind of codified the fact that CPAs can be considered loan agents. And while you know, we actually paid loan agents, if they sent us a file that was tracked to them that we approved, that we funded for a PPP loan, we actually paid them a small a loan agent fee. There has been a number of class action or alleged class action lawsuits around the country, from the CPA community or the accounting community at some of the largest well-known writings-
Nate Hagerty 13:06
Right
Chris Hurn 13:11
…who claim they should have been paid, but I guess it was dismissed in Florida a few weeks back. Because that was the first case that was dismissed because they said they didn’t have a contractual relationship. So we did. There’s still a lot of nebulous things in this regard because SBA is probably most of the folks on this know, SBA did the best they could to hustle out regulations, but it was chaotic at best.
Nate Hagerty 14:33
Yes
Chris Hurn 14:33
You know, 25 IFRS, interim final rules, there’s been 52 frequently asked questions. These things have rolled out over the course of six months. We still don’t know certain things in the lending community that we probably should know. It’s just been frustrating and so things like what standard with a normal SBA referral fee, there’s a form called a 159 form. That’s Pretty standard that, you know, CPA can get paid for referring an SBA loan to a lender, but they have to disclose it has to be part of this 159 form. You know, early on in the PPP, we asked SBA if it was necessary or not. And they said no, it took them a few weeks to tell us that. So we got rid of it. So what would otherwise be this contractual relationship we got rid of, but we honored it with a lot of the folks that were close to us, as I said before, you know, and we went through the process of approving these folks, there’s a whole separate thing that you’ve got to approve loan agents or brokers. So, but it can be done, Nate, it definitely can be done. And we certainly we have, we think we have the best referral program in the small business lending space. So yeah, we’re open to it. And we can talk more about that later…
Nate Hagerty 15:50
Well, and that’s one of the reasons why, no, that’s not it. That’s not the main subject of this call. But I do want to encourage everybody, if you don’t have a relationship with a lender, like Chris and his team, I do encourage you to check them out. And it’s one of the reasons why I’ve consistently recommended you over the years actually, but very publicly during this process as an SBA lender, that you kind of stand behind that kind of thing. And you understand the small business world. You’ve been marketing land, you’ve been an entrepreneurship land. You’re not a pointy-headed, you know, Wall Street geek, who doesn’t kind of jive with-
Chris Hurn 16:28
I know, but No, I’m not.
Nate Hagerty 16:29
…Oh, no, no, but you do. You went to Wharton. So anyway, so the point is, I guess that leads into the question, what are some things that CPAs and tax pros should know about the SBA, aside from the fact that it’s a clunky, you know, staffed by a human government agency like the IRS.
Chris Hurn 16:49
Right.
Nate Hagerty 16:49
So, you know, they are any different nuances working with the SBA visa V, what they already probably experienced working with the IRS?
Chris Hurn 16:59
Well, I think we should probably demystify it right away. I don’t think anybody’s quite as bad as the IRS. I don’t think it, I mean, I shouldn’t say this, but since we’re recording, but yeah, I mean, there are some folks at the SBA that are a little challenging, to say the least. But you know, you’re dealing with, SBA doesn’t make loans, okay, other than the in case of disaster situations, believe it or not, it goes through SBA and not FEMA, even though that’s debatable of why it goes through private-sector lenders, such as myself. And so in a normal year, there’s about 1800 of us out of the world of about 11,000 total lenders, that’s banks, that’s credit unions. And there’s a couple of hundred non-bank lenders such as myself, not all of which actually participate in the programs. But these are the potential so there’s about 11,000 total, actually, ironically, enough, credit unions now outnumber banks slightly in the first time, I think that’s ever happened. But of those 11,000, about 1800 of us are actually what are called SBA participating lenders. And that’s important right now. We’re recording this and, you know, October 16. You know, the conventional banking lending world, commercial lending world has more or less been shut down now for a good six months, with the exception of PPP. And I don’t expect that that’s going to stop for a little while. Okay, I mean, yes, the residential mortgage market has been on fire and obviously, you know, PPP there was more, what was it $552 billion was done of PPP. That’s more than SBA has done in its entire 56 year history times. I don’t know, times times five or something. I mean, it’s a lot.
Nate Hagerty 18:46
Okay. Holy smokes in the entire history.
Chris Hurn 18:49
Entire history of SBA. Yeah, absolutely. The first 13 days of PPP, which is what you may recall the first round of PPP, the funds were used up were spoken for, I should say, and the first 13 days that represented more funding than SBA had done in the preceding 14 years.
Nate Hagerty 19:11
That’s what I saw you would say. Yeah, you’d said that. That’s insane.
Chris Hurn 19:13
So it’s yeah, it’s been, 2020 has been an insane year. But I think, unfortunately, it’s continuing. So the reason I think back to your question, Nate, I think it’s important that your folks know a little bit about what opportunities exist in SBA what the distinctions are because I just don’t think conventional commercial lending is going to be a very viable option for the remainder of this year, and probably a good chunk of next year, at least certainly the first quarter, maybe in the second quarter or beyond. And SBA has some interesting terms and conditions that in many cases make it much more favorable for your CPA’s clients. And I think that’s something that we can delve a little bit more into.
Nate Hagerty 19:56
Okay, I’m gonna keep an eye on the clock because I want to put a pin in that.
Chris Hurn 19:59
Okay.
Nate Hagerty 19:59
But I do know that a lot of my folks here are like dealing with PPP questions from their small business clients left and right. So let’s just freaking dive into this. What are like, what are some mistakes that you’re seeing? Are you guys are looking at PPP forgiveness applications, right? I know you personally probably are. But, what are some things that you’re saying, give us a broad, kind of like two minutes on the forgiveness process as you see it now, some mistakes you’re seeing, and then we’ll dive into some specifics.
Chris Hurn 20:31
Well, I think what we should talk about first regarding this is that the lending community is just now starting to accept PPP submissions and the reporting.
Nate Hagerty 20:44
Yeah
Chris Hurn 20:45
And the reason for that is there’s been so much discussion, debate, negotiation arguments, whatever you want to call it in Washington about, will they or won’t they provide some level of blanket forgiveness?
Nate Hagerty 21:01
Right and up to $1,000? They just did. Yeah,
Chris Hurn 21:03
They just, literally eight days ago. I mean, it was last Thursday night, not last night, but the Thursday night before. About nine o’clock at night, Eastern. They released the administrator who has the power to do this per the regs and per the cares act law. She came out and said that if a PPP loan is less than $50,000, that they were going to further simplify it. Well, that’s well and good. But you know, things like this have unintended consequences. So one of the unintended consequences was SBA loans, its forms, so they had to create a new form. And now, now we not only have a 3508 forgiveness form, which is sort of your standard, we also got a 3508 EZ form, which was supposed to be easy, right? That was from whatever, a couple of months ago, when now as of eight days ago, we’d have a new form called the 3508 S, which is supposed to stand for simple.
Nate Hagerty 21:59
And from what I understand all of them had the due date of October 31.
Chris Hurn 22:05
Yes. I pointed that out to a few folks at SBA, and they’re working on it. So embarrassing, of course, yeah. Especially when you release this on what was it? What would it have been? It would have been October 8 to the eighth?
Nate Hagerty 22:16
Yeah.
Chris Hurn 22:17
And it’s gonna expire at the end of this month. Yeah. So there’s a new form the 3508 S, which is just for 50,000 and less, it’s now a one-page form. And it wasn’t too much of a refinement from the 3508 easy form, other than there was some kind of worksheet type stuff that they took off. So okay, that’s fine. And that’s great.
Nate Hagerty 22:39
It happened a bit from what I can gather, right? That’s essentially a certification.
Chris Hurn 22:42
That’s right. That’s exactly essentially what it is. And the responsibility is on the borrower to say that they’ve used the proceeds, how they were incentivized to use the proceeds, which is still at the moment, it’s still a 60/40 mix, meaning 60% towards payroll 40% for non-payroll like facility expenses, rent or mortgage insurance, or should the mortgage interest, I should say, and utilities, those are the categories, right? And then, but then what they did was, I don’t think they’ve quite went far enough. And that’s what’s frustrating to a lot of folks, not just the lending community, but even borrowers, which is they still have to upload all the documentation that supports this. So it’s not like the IRS whereby, right, you’re submitting all your information to file your return. And you have to retain the supporting documentation for the most part for up to seven years, I believe. In this case, it’s up to six years, and they have to submit it to their lender who made their PPP loan. And so I guess the lenders like myself, are going to be, you know, data storage folks and holding on to this. That’s how it’s currently. And unfortunately, this where I’m getting to is-
Nate Hagerty 23:51
I didn’t realize that. That’s fascinating.
Chris Hurn 23:53
Oh, yeah. So it’s a little frustrating, but whatever. What’s interesting is, I think the lending community in general, and obviously, I talked to a lot of folks in it, and I do weekly webinars and talking to a lot of SBA lenders around the country. I think it was starting to thaw. In other words, I think most folks are starting to say, Okay, here, we’re in mid-October, you know, technically the earliest PPP loans were made six months ago in mid-April, we should probably start, we should get started on this, right. Even though we know SBAs have kind of been all over the place and who knows if Washington is going to come around and do this extra simplification with just as we were getting ready to start all this, that’s when they release this 3508 S form. Now, where it relates to me is we actually were getting ready to launch Monday of this week, we were actually going to start our forgiveness, acceptance we’ve taken a bunch of beta testers I would say and we’ve had some of our earliest PPP forgiveness submissions have been in with SBA for about six weeks at this point. We still have not got a response yet, even though SBA started responding, making decisions on these things about a week ago, but we can half ago actually, so, but then they threw us this curveball with this new form. And now we’ve had to have our tech folks recode things. And of course, the SBA’s portal, which has an API that connects to like a tech platform, like what we’ve built. They haven’t accounted for the new form yet. And they’re still working on it. And it’s supposed to get done next week. So all this is to say, we’re still playing a little bit of a wait and see the game unfold.
Nate Hagerty 25:32
So not holding you to it-
Chris Hurn 25:33
Frustrating to everybody. Yeah
Nate Hagerty 25:34
Not holding you to any kind of declaration here but what’s your sense of their stringency by which they’re accepting or, you know, denying forgiveness on this stuff?
Chris Hurn 25:44
Well, as of about two weeks ago, they’d only gotten about 100,000 submission applications or submissions, I should say,
Nate Hagerty 25:52
Out of a couple million, right.
Chris Hurn 25:54
About 5.2. Yeah. Which is sort of just fractional, I mean, just a very, very small percentage. I have started to hear as of last week, there are other lenders that are starting to get the forgiveness is accepted or decision, I should say, I don’t know that monies have started transferring yet. But that’s should be forthcoming I would think so. So we’re still in the early days in all this. And I guess that would be my message to folks, Nate, which is don’t get too worked up. I know, there’s plenty of your clients that are probably really concerned and want to get this done, if nothing else, just to get it off their plate. But you know, everything PPP is a mess. Oh, man, why should we expect it to be any different?
Nate Hagerty 26:36
Yeah
Chris Hurn 26:37
Unfortunately.
Nate Hagerty 26:38
All right. So then, look, instead of just saving all the questions to the end, let us dive into some PPP questions now. Because I do want to leave some room for you to talk about the other SBA programs. And I’d rather not kind of like get distracted by PPP while we do that, right? Because I know that, again, all these people are dying here. So there’s a chance we might have to just cut off questions. In which case, you know, I’m gonna send people to, hopefully, there are people on your team or what have you. I don’t know if there are resources that you can provide where I mean, I think your answer will probably be asked your lender for a lot of these questions.
Chris Hurn 27:20
Yeah.
Nate Hagerty 27:20
If we don’t get to them today, but I do want to just put them in-
Chris Hurn 27:25
If I’m the lender for their client. Sure. Ask me.
Nate Hagerty 27:27
Yeah.
Chris Hurn 27:28
I don’t know what Bank of America is going to do. I’ve already been asked that question by several people this week, like a kid?
Nate Hagerty 27:33
Yes.
Chris Hurn 27:34
I don’t know what the process is gonna be.
Nate Hagerty 27:36
Okay, so prediction, I’m just gonna take these in order of putting them in here. Mark Degnan wants to know, is there still any chance that the loans that are 150 K, as rumored, you know, a month or two ago, will be streamlined as well?
Chris Hurn 27:49
I think it may happen. I mean, there’s one-
Nate Hagerty 27:52
Rational act, right?
Chris Hurn 27:53
It is, there’s wide bipartisan support for doing this. There’s actually already a bill about this that is supported, sponsored by both parties. But you know, the problem is, were, what, about two and a half weeks away from an election and everything has ground down in Washington right now. Because of that, because both parties are thinking that there’s, you know, political calculations for holding things up, look, you know, left or right. So this is a simple thing. It is a standalone bill that’s been proposed. It wouldn’t shock me if it got through after the election. But I don’t think anything is going to happen between now and November 3. And the number is, in fact, 150. Although I will tell you that some of the banking associations have been really pushing to get that number up to 250. I always think it’s ironic because 350 was sort of the cap on the lower tier of PPP loans. So why would they have to make up new numbers why not just go with 350. But I think there’s a lot of concern about fraud. I know there’s been a lot of media talk about the EIDL fraud, which I’m going to tell you right now, that’s the tip of the iceberg. There’s so much fraud and PPP. It’s staggering and there was an article in Bloomberg earlier this week that talked a little bit about it really called out the fintechs where they said that 15% of all PPP loans were done by the fintechs-
Nate Hagerty 29:15
Like cabbage, PayPal, those guys.
Chris Hurn 29:17
Yeah. But 75% of the fraud that the Justice Department has so far identified, comes through FinTech and a lot of that, and I’ll tell you reason, it won’t shock any of the folks that are watching or listening to this, which is, you know, these folks, because if you go back to mid-March, research, panic, there’s such hysteria. You know, everybody had great intentions, they want to try and get the money out the door as quickly as possible. I mean, Congress literally approved the cares act in about nine days from idea to passage. It was incredible and that was the biggest piece of legislation ever. But because of that, it caused a ton of uncertainty, a ton of ambiguity, a ton of chaos. They wanted to get some lenders who had not normally participate in these programs because of course, you know, they’re always telling people how sexy their software and their technology are and all that other stuff. And it is, but turns out maybe it’s not as meticulous as it needs to be, perhaps, because that’s what’s occurred here, which is some of these FinTech guys did not. I used to joke with the media back in March, I’d say, you know, these guys don’t know how to spell SBA. But okay, if we’re gonna let them in, I guess, I just hope that they have the kind of checks and balances the kind of oversight that the prudent lender would. And it turns out, it doesn’t appear that they did. And I actually know several instances, where because it’s been such flagrant abuse of the PPP programs. You know, it’s the kind of story about the guys buying Lamborghinis and things like that with the proceeds. I just read those articles where it’ll actually mentioned that Fountainhead and Bank of America and maybe some other folks turn them down yet they got their PPP fund through bluevine, or PayPal or whoever it was. So I’m very aware of what’s going on. And is ironically, right before this, I was actually writing up an op-ed where I talked a little bit about this because they just didn’t deploy the kind of, you know, thoroughness that I think, hopefully, most of us on this call would have done, and you’re going to hear a lot more about it. Now, what I hope is that that doesn’t taint Congress from trying to do another round of PPP, because there are quite a few small businesses out there that are still hurting that really do need another round of this.
Nate Hagerty 31:36
I think my sub position is that there was so much hype and just franticness, about round one, that they wanted to open wide the gates in round two, and they just didn’t have the controls that they should have. But that’s pure sub position on my part.
Chris Hurn 31:53
You’re right.
Nate Hagerty 31:55
All right, Debbie Herman, this is kind of specific, but not too crazy. She said self-employed individual, one employee, all PPP loans use for payroll, how should she decide eight or 24 weeks how to decide? Also, when will the banks begin to accept the form 3508? Which I sort of feel like you’ve already kind of answered, it’s just the beginning. But go ahead and speak to that.
Chris Hurn 32:19
Yeah. So I mean, self-employed with one employee? I mean, it’s pretty basic. And you’re using it all for payroll? I mean, it’s just a function of, you know, did you? Do you fully cover them the loan amount, you know, the two and a half times the monthly payroll? Do you cover it in eight weeks? Or do you need to decide in 24 weeks to determine if your budget, but it should be fully forgiven if they’ve done everything else right? In terms of when the banks accepting I mean, every bank is going to be unique, there were about 5400 banks that participated in PPP. And, you know, as I said earlier, as of two weeks ago, there was only a couple hundred thousand submissions that had even been sent into SBA yet, now, I do think there’s going to be a surge, probably partly because of you all, that you’re now past the October 15 date. So you’re probably going to start encouraging your clients to start submitting things to their lenders. And so I would expect that we’ll have a good surge, you know, the rest of this month, and then probably, again, toward the end of the year, and probably again in January, and then we’ll just kind of see what happens. And of course, that means it’s mad, you know, maddening for somebody like me to try and staff accordingly for that because we have no idea-
Nate Hagerty 33:29
No doubt
Chris Hurn 33:30
Whar the demands gonna be
Nate Hagerty 33:31
Well, I’m sure, I feel for all my clients who also who are having to deal with tax treatments of this stuff, it’s just insane. Some of it.
Chris Hurn 33:40
Yeah, some of the states, I think, are really going to look at this or have looked at this as a bit of a land grab to this-
Nate Hagerty 33:47
Yes
Chris Hurn 33:47
…tax revenue. Now, I don’t think the IRS, I think they’re still arguing a little bit with SBA about a couple of nuances. But I think ultimately, the intent of the law was for this to be effectively a forgivable grant. So-
Nate Hagerty 34:01
Right.
Chris Hurn 34:01
I think that’s what’s going to ultimately will be the decision-
Nate Hagerty 34:05
That’s an interesting question. So you think the IRS is going to rule that dealt the expenses will be deductible? I mean, that’s not your area, obviously. And that’s…
Chris Hurn 34:12
No, you know, what I’ve, actually, I’ve commented on this, and my analogy is, which I think is a good one, you guys can correct me if I’m wrong I’m not an accountant. But, you know, if your next-door neighbor saw you struggling in your business, and said, You know, I’ve got an extra hundred grand lying around, maybe you could use, I’d like to be an equity owner in your business. Could I invest? And you said, Yes. As a business owner, you said, Sure. Yeah. And it will let you invest. That doesn’t do anything to the deductibility of your expenses. But if your Uncle Sam, on the other hand, ie the US government says I’m going to do this, why would that somehow change it? You know, it’s really what we’re talking about. And I would argue that the intent of the law was never to trigger this, actually this extra taxation that could come out of this.
Nate Hagerty 35:04
Yeah, that’s interesting
Chris Hurn 35:05
So we’ll see. Yeah
Nate Hagerty 35:07
All right. So Meryl, my old friend, she’s asking if the PPP borrower owns, pretty specific so we can call this the PPP borrower owns part of their rental property, but the rental property is used by the borrowers busy and other non-related businesses. What do you use for mortgage interest you use only a percentage of the total rent or the square foot of interest as part of the forgiveness process? Does that make sense to you? You want me to get her to-
Chris Hurn 35:35
A little bit, yes.
Nate Hagerty 35:36
..raise her hand and ask more directly?
Chris Hurn 35:37
I mean, I think what she’s saying, I mean it, I’d have to ask some more questions. There there isn’t, I think what it’s getting towards is, there was nothing in the regulations about the percentage of, you know, the square footage, like with a regular SBA loan, for instance, it’s typically owner-occupied owner-operated, you know, simple majority 51% or more, there was nothing, no sort of, you know, stipulation regarding PPP in this. So, you know, Merrill, I think I would submit, you’re gonna have to submit your mortgage interest statement as part of the PPP forgiveness process. If you’re probably, I’ve seen differing things that you may have to actually even submit a copy of your note itself, so that the lender has that problem, just to keep it again, data storage, unfortunately, I guess we’ll see. And the lender will probably take the position that they are merely unless it’s over $50,000. Well, let me back up, if it’s under $50,000, there is nothing that the lender has to review other than they’ve collected the documents and the borrower is in fact certifying that they’ve followed the program rules and that they’re certifying it that they get full forgiveness. If it’s above $50,000, the lender is supposed to do some sort of cursory reasonable review. But you know, ultimately, the lender is going to submit to SBA with whatever the forgiveness percentages, and SBA is going to decide, you will still have the opportunity to appeal the decision. And there’ll be a whole process involved with that. So if you’re not happy with how much you were granted forgiveness on you can go back to it. I’m not saying you’re going to win, but you can certainly go back to them and try to appeal for more.
Nate Hagerty 37:27
That’s interesting. That opens some other questions that go the process-wise, but that’s good. All right. Trying to just restrict these to the PPP, we have other questions related to the Main Street lending program and other things out there that Main Street lending program, again, we’ll put a pin in that one.
Chris Hurn 37:51
That’s a mess So for the, well, I can, it’s too lengthy for me to go over what you need for the regular certain 3508 form. It’s pretty lengthy for the 3508 easy form. But I think the answer she wants to know-
Nate Hagerty 37:51
Yeah, it seems like it. All right. Again, we’re gonna get a little bit more granular here. Actually, Patricia Dixon asked for you to repeat the details on the 3508 S form, like what’s submitted along with it, and can you just go over that again, for the sake of the recording? It sounds like some listener maybe didn’t hear you on that. She asked the streamline, right? Yeah, let’s talk about the streamline of the simplified, which they just announced a few days ago. So that one, remember, there’s sort of two categories of allowable or usable proceeds of the loan, which is payroll and non-payroll. So payroll is supposed to be 60%, of what you use the proceeds for, to be at full forgiveness, whereas non-payroll is supposed to be 40%. That, by the way, that used to be 75/25, before they changed it back in June. So for payroll, you’re going to have to submit, believe it or not, your borrower is going to have to submit even for the 3508 S, they’re going to have to submit to their lender, their payroll reports, okay. They’re going to have to submit canceled checks or wire statements, bank statements that all support that and justify that, I know, this is a pain, that’s on the payroll side of things. They may have to submit a 941 as well. Anything that supports that they actually spent 60%. Okay, and if they just submit 940 ones, I wouldn’t be shocked if most lenders say well send me your bank statements as well. So I can see that, so I can track that. You know, send me, you know, if you use a PEO send me your ADP, your paychecks report so I can track that. Okay. On the non-payroll side, if you, those basically fall into two categories, which is the facility expense and the utility expense. So for utilities, that’s probably the easier although the money much more of a pain in the butt, you’re gonna have to submit copies of your invoices, your utility statements, and your canceled checks, and your bank statements again, so people can track it. For the facility expense, you’re either going to have to submit, you actually, it says this in the instructions of the 3508 S, you’ll have to submit your lease, which is a bit shocking to me, because, you know, leases can number you know, 50 60 80 pages, you have to submit your lease to your lender, you have to submit your lease statement, your canceled check that you paid it and again your bank statement. The same thing is going to apply for, we already talked about if you have a commercial mortgage, you’re going to have to submit your interest is what is expendable in this case are forgivable, I should say. So you’re going again, you’re gonna have to submit your bank statements, you’re gonna have to submit the canceled check or wire statement or whatever it is. So, this is where it’s a little bit of a hassle and that’s why I said earlier, I don’t feel like, they went far enough in this regard. And I know that the reason they didn’t go very far, probably is because of fear of fraud. Right, like that NFL player that just got arrested. Right.
Chris Hurn 41:07
But as I’ve said to many people on Capitol Hill throughout this whole process, I didn’t see too many PPP applications that were fraudulent for such small dollar amounts, you know, but the penalty of going to jail and fines. I mean, it’s just, it’s crazy. The ones that I saw from the fraudsters were, you know, those usually numbered in the hundreds of thousands, if not millions of dollars, you know, I guess if you’re gonna commit a crime, you might as well go big and- Right
Nate Hagerty 41:24
That was funny.
Chris Hurn 41:27
Hopefully, that answers her question.
Nate Hagerty 41:41
Yeah, I think you did. Yeah. And Patricia, I actually typed out some notes on what Chris was saying. And I put it in the q&a box in the answered question area. So hopefully, that works there. Let’s see. Annie wants to know if a lender garnishes the PPP loan money. Is there recourse to retrieve that money back? Back? That’s an interesting question.
Chris Hurn 42:06
That’s an interesting question. I don’t have an answer for her.
Nate Hagerty 42:08
Yeah.
Chris Hurn 42:09
I don’t know. I have no idea.
Nate Hagerty 42:12
Annie, I’m curious if you could clarify ‘coz I’ve not heard of garnishments happening on these PPPs yet. Have you heard of that sort of thing happening?
Chris Hurn 42:19
No, no. Normally, garnishments are on payroll, but not-
Nate Hagerty 42:22
Right.
Chris Hurn 42:24
…on a PPP loan. So although I will tell you I mean, there’s, you know, this, not to pick on that person but there is, again, back to what I said before there was such chaos with this program. And there still is, to some extent that, you know, lenders had to make up the rules, in the absence of rules, you got to make stuff up. So, there were all sorts of interpretations from various lenders. I mean, it was all over the board. I mean, I can recall, our, you know, I’ve had people, for whatever reason, they didn’t work with us, but they work with some other lender, and they’ve sent me copies of the notes, because the lenders themselves were either able to use the official standard SBA seven a note, or they could use their own. And when they use their own, a lot of times, they had clauses in there that were just, you know, just strangling. I mean, and just, and just things that you wouldn’t expect, that really kind of went against the spirit of the program. But I’ve heard just all sorts of crazy stories about this. So it wouldn’t shock me, if from one lender to the next people are interpreting things and doing things differently. And that’s where some of this frustration comes in. And this is why I also think the agency is having a tough time dealing with some of these things. Because, right, you know, they normally, you know, they just, they just changed in the middle of all this on October one, it did decide to update the SBA’s standard operating procedure, the SOP, they decide to release that they’re really gonna release that back on April 1, and they delayed it, thank God, but then they still laid it out on us on October 1. And, you know, these are the types of things that happen over the course of, you know, a year, year and a half, two years, they take their time to write these things to try to consider all the scenarios, they didn’t have that time for PPP. And that’s where you see some of these problems coming out.
Nate Hagerty 44:16
Right. Okay. Yeah, so another specific question here, that might be a little bit too specific, but wage calculations and owners take, etc. So, you know, if you’re required to this is for an S corp, shareholder, you calculating the wages for 2019, you know, two and a half times over 12 months, whatever. You take the smaller of that or the 2020 wages up to the cap, right, for the forgiveness, if the payroll amount paid in 2020 has to be reduced because the 2019 calculation is lower. Are you still able to claim 100% of the SUI paid on the owner’s pay in 2020?
Chris Hurn 45:00
Well, it depends if the loan is over $50,000 or under if it’s under the reductions in the number of staff and or the reductions in the staff wages no longer are applicable. So I guess that’s the answer is if it’s above 50,000, then yes, you may have an issue here. I’m not sure. But, if it’s less than 50,000, you shouldn’t have that problem. And the other thing, just to clarify, and I’m sure a lot of folks know this already, but remember, in the monthly payroll calculation, you can only count compensation up to $100,000.
Nate Hagerty 45:40
Right, per employee
Chris Hurn 45:41
…$800 and 8,333, or something like that is most on a monthly basis as you can count.
Nate Hagerty 45:49
Right. Okay, another full-time equivalent, like payroll question, employee leaves at his own discretion, the employer does not want to fill that position again, does that still result in the reduction of full-time equivalent numbers?
Chris Hurn 46:05
Well, again, it goes back to this issue of the size of the loan, is it above 50,000? Or not? You know, there’s also, if it was in one of the IFRS, early on, it talked about if you laid off staff, and you wanted to bring them back, and you actually had something in writing where you tried to bring them back and they refuse to bring them back? You wouldn’t get hit with the reduction of forgiveness for that particular employee, for instance. Which mean you have to prove it-
Nate Hagerty 46:32
Which is not always easy to get that kind of documentation, right?
Chris Hurn 46:33
Well, you can make the offer, and then you can state that they refused it. And here’s my offer. Yeah, I guess you’re right date. I mean, if they verbally refuse it, I don’t know what you do. I guess you try it and see what happens. I have a hunch that SBA will probably be somewhat reasonable in those situations, so long as you actually are producing the written documentation that you tried.
Nate Hagerty 47:01
Right
Chris Hurn 47:02
Don’t hold up to it, but I think that’s what they’ll probably come down on.
Nate Hagerty 47:05
Oh, just to return to that garnishment question. She did clarify. This is an interesting one that said the company owed a creditor that garnish the client’s bank account, which contained the PPP loan. Okay, so is there any recourse through lenders? Typically, obviously, every lender is gonna be a little different here, but probably not. Right. I mean, that’s an interesting scenario.
Chris Hurn 47:30
Yeah, I don’t know.
Nate Hagerty 47:33
How would they account that in forgiveness? I mean, that’s really funky.
Chris Hurn 47:39
I don’t know. You got me
Nate Hagerty 47:41
That repayment, I guess.
Chris Hurn 47:43
I mean, if they’ve used the funds for what they’re supposed to, and then I guess, and then you’re saying the garnishment is debt repayment? I mean, in early versions of PPP, there was the ability to be forgiven if you’re using it for existing debt that was in place prior to February 15. But the final passage did not include that so yeah, that’s a nuance. I think you’re going to need to, there is a way and I don’t think it’ll take long for somebody to look it up. I don’t remember off the top of my head. But if you do a Google search on the forgiveness forms, the 3508, in the instructions in several of them, it’ll actually tell you that there’s a special email that you can actually email SBA directly, I don’t expect to get a response like you would in normal situations, okay. They’ll, you know, they’ll hopefully get back to you within a week. But I think this is one of those questions that rise to that level that you should probably submit directly to them because it’s unique enough. I mean, you know, maybe there’s a couple of dozen situations like this out of 5.2 million.
Nate Hagerty 48:47
Yeah.
Chris Hurn 48:47
But that’s what I would probably do, and or, you know, encourage them to hire counsel to look into it as well.
Nate Hagerty 48:54
Right. Yeah. So there’s a couple of questions that are similar to this, that I’m just gonna kind of pull all together. So, I know the answer to this. But I want to get confirmation from the expert, if there’s no blanket forgiveness, all of the PTP money was used for payroll because there’s no render utility. I mean, that’s the point of the PPP, right?
Chris Hurn 49:15
Right
Nate Hagerty 49:16
It’s the paycheck protection program.
Chris Hurn 49:18
That’s right
Nate Hagerty 49:18
So if it’s all used for payroll, that should be 100% forgiven if they submit the documentation properly, right?
Chris Hurn 49:19
Yeah
Nate Hagerty 49:20
Because the 60/40 rule is 60 and above, like, there’s no-
Chris Hurn 49:30
That’s right
Nate Hagerty 49:31
It’s got a stick in the 60/40 window.
Chris Hurn 49:34
Right
Nate Hagerty 49:34
It’s minimum 60%.
Chris Hurn 49:36
That’s right, minimum
Nate Hagerty 49:36
100% use for payroll,
Chris Hurn 49:39
You should be fine.
Nate Hagerty 49:40
You’re good,
Chris Hurn 49:41
Which is why the earlier question about should we use the eight weeks or the 24 weeks covered period? Most of the time, assuming there’s not some, you know, a situation I don’t know about I mean, I would suggest that they should choose the 24 week cover period, which is something we didn’t expect originally. The whole reason they had the eight week cover period because, again, they’re trying to give the money out, if you go by the two and a half times monthly payroll, that’s 10 weeks technically, and they were trying to have everybody spend it within eight weeks to stabilize the economy. And then come June after, you know, they came out with round two and extended it to August, and all this other stuff, then they were allowing people to go out to 24 weeks, the whole purpose of that, because I was in some of those discussions with SBA and Treasury, is that they wanted to see people get full forgiveness to whether they used it wholly on payroll or not. That’s where the 60/40 comes in, as you said, but they wanted to give them enough time to be able to spend it all on the payroll. So there was no issue about whether it would be forgiven or not. Make sense?
Nate Hagerty 50:41
Yes, that does. Thank you. All right. So we’re actually getting down to some, there are a few questions that I’ve left hanging out there related to other programs. And I know you’ve come prepared with a little bit, we’ve got about five minutes left with you. At the most, so, let’s get some specifics. Again, small business owners with related to spouse and children, working and drawing wages, those are generally treated like as employees, right? I mean, from a tax standpoint, it’s a different thing, but from the PPP forgiveness, you know, calculation, or what have you. I guess they want to know, will they be part of the compensation to the owner or be treated like any other employee? Should we consider the compensation based on 2019 wages, just like owners? And will their salary be capped at? You know, 20,000 833, whatever it is?
Chris Hurn 51:31
Well, I think it comes down to how are they treating the spouse and the children if which I would hope they’re-
Nate Hagerty 51:40
doing it? Right.
Chris Hurn 51:41
…yeah, exactly. And so, therefore, there will be, you know, they’re part of the 940 calculation and annual basis, for instance, if they’re doing it that way, I think you should be fine. You know, if there-
Nate Hagerty 51:51
There won’t be part of the owner, yeah,
Chris Hurn 51:53
No, no, no, they shouldn’t be. They shouldn’t be. Now, if they’re, you know, the argument is, if they’re getting paid in cash, you know, come on, I got those questions early on in the program, and I’m like, You got to be kidding me. I mean, this is what I always tell people, when you want to do some big event in your life, whether it is to get financing or sell the business or, you know, take advantage of a once in a lifetime government program, like PPP. This is where it helps to have been doing things correctly and reporting things quickly. And you know, so-
Nate Hagerty 52:24
That’s right.
Chris Hurn 52:25
Yep
Nate Hagerty 52:25
Okay. Ryan wants to run the policy. Are there any restrictions on business owners? An S corp, a spouse that was not working during COVID? I again, the same answer, I guess.
Chris Hurn 52:35
I think so. Yeah
Nate Hagerty 52:39
Yeah. Okay, all right. Captain Henderson put it in the chat. But I thought this was an interesting question. How would you handle it? So again, folks put questions in the QA, we’re able to kind of vary those a little bit more, I’m able to see those more, because Chris has been looking, he’s just paying attention to me, how would you handle a business that received more PPP funds than was appropriate? Right. So there was a misunderstanding for this business owner? Or whoever calculated it on how to calculate the original amount available for the PPP? I mean, my answer before you answer would be, look, just take the 1% interest and go with it. But what would you say?
Chris Hurn 53:15
Well, it really depends on why right?
Nate Hagerty 53:18
Right.
Chris Hurn 53:18
Why they got the overage, I would probably say, well, I mean, you can take it your approach, Nate, that’s certainly a possibility. It’s, you know, 1% loan for either two or five years, depending on when they got it, you know because the program changed.
Nate Hagerty 53:35
Right
Chris Hurn 53:36
With no recourse and no personal guarantees, and no collateral pledged. That’s extraordinarily attractive financing. On the other hand, you want to make sure that it wasn’t your fault. You know, it was the lender who screwed up. You know, if you think it’s your fault, or maybe you made a mistake, or something or one of your people made a mistake. Again, there’s a way that you can contact SBA you can you just Google this, and there’s a way that you can reach out to SBA and talk to them about your unique situation, and repay the funds. That’s what a lot of the public companies did, when they realize this, even though technically a lot of them qualified. But it became a PR disaster for them, in which case, they wanted to be paid some of the funds. And I’ve had, I’ve seen several situations, we’ve probably had, I don’t know, 50 to 75 of our PPP loans actually paid back in full. And I suspect some of it might be because people are worried that, you know, if they’re audited, maybe they did some things a little. Yeah, you see, they should know, so they just want to pay it off and be done with it. So
Nate Hagerty 54:38
Yep. Okay, we’re getting down to it. Let’s see. All right, big picture question from Brian. I like it. Why would I encourage a client to apply for forgiveness now? Why not wait as long as possible? Okay, wait until six months after the end of the covered period.
Chris Hurn 54:58
Yeah, so SBA recently I think was about three weeks ago, they issued some clarification on this, which is, there is supposed to be six months of deferment on all PPP loans. But then they basically said, because they didn’t have their stuff together, they basically said, Well, actually, we can go, we can actually go an extra 10 months. So it’s technically from the time you got the PPP loan, until the time you would have to start paying principal and interest is 16 months at this point. And oh, by the way, you don’t have to make the lender does not have to make a modification to the note which believe it or not, a few weeks ago, lenders are starting to make modifications to thousands of p2p loans, which was just… So I guess, I mean, there is one school of thought, yeah, that you just want to hang on as long as you want, as long as you can before you need to submit for forgiveness. And so long as you’re within that 16-month window, you should be fine. There shouldn’t be a required payment for you. Now, interest is accruing, but of course, the government is paying that and you know, selfishly as a lender, I mean, you know, it’s not much, but I’ll take the 1% I guess. So yeah, it just, but you know, some people are neurotic, as you all know, want to get things done off the table, and not have to mess with this. And you may have any issue and this is just based on proposals, if there is a second draw PPP program, okay, most of the proposals up to this point, and I think it’s logical, require the borrower to have already gotten their first PPP loan-
Nate Hagerty 56:35
Interesting,
Chris Hurn 56:36
…and be in process of getting forgiven on their second. Doesn’t mean that they’ve actually had their first PPP loan forgiven, but they’re in the process, they’ve submitted it. So that may become something that would change my answer to this gentleman who’s asked this. Yeah.
Nate Hagerty 56:52
Yes, that is an interesting possibility. It’s obviously probably not something that will get resolved until November and beyond, I reckon.
Chris Hurn 57:01
Yeah.
Nate Hagerty 57:01
Yeah. Okay, I think that we are pretty clear of a lot of these PPP questions.
Chris Hurn 57:10
Probably, I mean, I’ve done webinars just on PPP, for months
Nate Hagerty 57:13
I’m sure you have, and I’m so thankful for your generosity here. I know there are other SBA programs that I want you to talk about, like, 504, and other seven A things. But before we do, any quick insight into the main street lending program that Stephen wants to know, you know, they’re like, he said, some of his larger clients have been asking about these loan programs and hasn’t had any time to do the research on this. Any quick insights on this? It seems like a mess. I only hear numbers in like the hundreds of applicants.
Chris Hurn 57:47
But yeah, there’s only been a couple hundred of these loans closed,
Nate Hagerty 57:52
right,
Chris Hurn 57:52
It technically launched, I guess you could say, middle to end of June, with 600 billion total,
Nate Hagerty 58:01
Occasion
Chris Hurn 58:02
…availability, yeah. And of those couple hundred that have closed by now might have approached a billion, billion five at this point, maybe. The issue is there’s a whole lot of hoops to jump through for it. It’s not terribly attractive to the lending community, in terms of some of the limitations on origination fees, it’s attractive because you can immediately have the Federal Reserve by 95% of the loan amount. But other than that, you know, it’s the interest rate on the loans have to stay within a certain range, which is relatively low, the origination fees are relatively low. There’s a payment back to the Federal Reserve based on what you collect, which also sort of disincentivizes the lending community from the borrower standpoint. You know, it’s some of the biggest, you know, this gentleman said about he said, some of his larger clients looking at it, the problem with the larger clients oftentimes is that it’s kind of the Federal Reserve in Boston is who’s managing it effectively and they haven’t been real direct about situations where they would require recourse, for instance, personal guarantee and a lot of these larger clients, as you know, feel like, you know, because they’re doing 30, 50, hundred, hundred 50 million a year and in sales that they shouldn’t have to personally guarantee any debts anymore and in normal times, that’s probably right. But so you have that coming into play. You’ve got restrictions on executive compensation, you’ve got matters about, you know, mezzanine financing, you’ve got to prove that you’ve got accessibility to other debt, but not have tapped it. I mean, it’s just a mess. I mean it’s really complicated and what they probably should have done is if the Federal Reserve was so interested in pushing another 600 billion through the economy, maybe they should have done it through PPP because you already had the distribution channel. They’re now granted, the lenders were fatigued because, you know,
Nate Hagerty 1:00:03
right
Chris Hurn 1:00:04
I think I worked an average of 16 hours a day for about nine weeks straight without taking a break other than Mother’s Day. So it was brutal. But, you know, that would have been one way to do it. And I’ve encouraged some of that. But, you know, again, you just have competing fiefdoms as well with some of this stuff, too. So that’s part of the problem too. But-
Nate Hagerty 1:00:23
yeah
Chris Hurn 1:00:23
it might get it fixed but so far, it’s looking like an abysmal failure. It’s-
Nate Hagerty 1:00:28
So in other words, lenders-
Chris Hurn 1:00:29
I tell you it’s gonna be dead on arrival as well, based on how they structured it and, you know, it is what it is.
Nate Hagerty 1:00:34
Yeah. Right. So lenders like you are just not hots to try to like, get through all the way
Chris Hurn 1:00:40
We’re not participating. There’s actually one lender in the country who is responsible for about half of all Main Street loan programs. Not entirely sure why. But, everybody else is very, very particular. And really just generally not comfortable. I had a loan that actually they wanted to do it and we were able to restructure it and do it as a seven A loan actually, so
Nate Hagerty 1:01:05
Wow. Okay. All right. That’s a good segue. First of all, I got a question from Kelly. It doesn’t matter what state any of my clients and their clients are in to use fountainhead right?
Chris Hurn 1:01:17
No. We’re a national lender
Nate Hagerty 1:01:19
National, right. Yeah, I just want to make that very, very clear and before we get into this stuff, what’s the best way that if people wanted to connect? I mean, just on your website? Yeah. I mean, I know, you didn’t come equipped, like a landing page or an application or anything like that. But if people wanted to get in touch with you and your team, maybe more realistically, what would be the best way they would do that?
Chris Hurn 1:01:41
You know, info@Fountainheadcc.com is the email, you can go to Fountainheadcc.com it’s the website. I mean, we’re on all the social media stuff you can follow us. There are tons-
Nate Hagerty 1:01:52
Sure, okay. Straightforward so there’s nothing, nothing. Yeah, it’s easy. Okay. I just sent that in the chat
Chris Hurn 1:01:57
…behind me is the telephone number. Actually, so
Nate Hagerty 1:02:01
So let’s talk about why they should because you guys have been running, I know the 504 thing with Mercantile before. What’s your focus now with Fountainhead? It’s the seven A stuff. Right? Talk about that.
Chris Hurn 1:02:13
So well. Let me distinguish between the two programs so that the SBA has two primary programs are the seven A, and the 504. And SBA lending is highly specialized that’s why when I said earlier, there was you know, there are 11,000 potential lenders in the country, but only about 1800 of them actually do have made an SBA loan in the preceding 12 months. That’s an important distinction that everybody needs to understand. This isn’t something you just, you know, because you pass a bank branch on your way to work in the morning, you should go down and talk to the loan SBA, it’ll be a stupefying experience for you, you know, you don’t want to do that. So you need to work just like probably a lot of you, you all focus I imagine some of you specialize in certain niches. That’s important, this is the same thing this is just in the lending space in the commercial lending space. So this is our niche. 504 is mostly used for owner-occupied, owner-operated commercial real estate. It can also be used for heavy equipment, but in general, it’s for the business owner wanting to buy their office, buy their warehouse, you know, franchisee wanting to, you know, open their new flagged hotel or buy their franchise, restaurant, or friend-
Nate Hagerty 1:03:25
Why would they use a 504 instead of going to a bank and doing like typical commercial financing?
Chris Hurn 1:03:30
Typically, the biggest reasons are the downpayment is usually half as much as what conventional banks are requiring for ordinary conventional bank financing. And the terms are usually longer. In the case of a 504, there’s a portion of the loan that is a government-guaranteed bond that’s about as cheap of money as you could ever have right now, that portion of the 504 transactions are fixed at about two and a half percent for 25 years. So good luck finding that in the ordinary
Nate Hagerty 1:04:00
Right.
Chris Hurn 1:04:01
So those are really the reasons on the seven a space. Seven A is we kind of call it the general it’s used for everything. For the most part meaning, we do business acquisitions with seven As. We do we can do commercial real estate financing with seven As reifies acquisition construction renovations, just like when the 504. We do equipment financing with seven As, we do partner buyouts with seven As, we do working capital with seven As. We do a lot of debt consolidation refinancing, especially, you know, higher interest rate debt with a seven a, so it’s very versatile. Again, the same thing applies what often and this is kind of a general comment about SBA lending versus conventional lending. Oftentimes, the down payments are much less and the amortization and the terms are much longer. The interest rates are not as divergent as perhaps they have been in the past. They’re typically fairly competitive. And if you work with a specialist, then you can get an answer, oftentimes faster than an ordinary conventional bank will give you answers on commercial lending. And that’s why this is a good tool for all of you to have in your toolkit. If you don’t have it, you’re at a disadvantage when that business owner comes to you as a trusted advisor to talk about, you know, what are some of the options out there?
Nate Hagerty 1:05:20
That’s right, so I’m reading between the lines that some of these seven A interest rates are classically a little bit more because of the generosity of the terms, you know, related to the downpayment, and the length. But that’s pretty standard. I mean, that’s
Chris Hurn 1:05:39
Yeah, I would agree. And the other thing is, I mean, you’re not gonna, you know, this is, again, to demystify things, good luck doing your business acquisition, conventionally. It’s not gonna happen. Okay, business acquisitions in this country, which is a great growth strategy, even for small companies, and I’ve written a lot about it over the years, you know, buying your competitor, or somebody down the street, that’s, you know, can improve your margins, or you get their customer base, and, you know, double the size your company or whatever, I mean, these things are doable, okay. But they’re not going to be doable with ordinary bank financing. Okay, they’re gonna be doable with cash, with seller financing, or with an SBA seven a loan, so long as the loan is less than $5 million because that is the cap on seven A loans. Okay. But that’s a pretty broad net to catch. Business acquisition. So some of these things are just not, it’s just not gonna happen with ordinary conventional bank financing. And remember what I said at the beginning of this, conventional bank financing is pretty well shut down right now. And if anybody doubts me, you know, go ahead and try if you want, but I can’t tell you how many folks I talked to on a weekly basis, who were told what their banker thought they wanted to hear. And their banker, of course, and trying to keep their job in this pandemic, is a confusing activity with results and looking busy and bringing them down, you know, putting them on the pipeline and sort of doing all the right things. But ultimately, that banker probably doesn’t have any decision making authority. And ultimately, no, they get to the credit committee, that’s when they get turned down. And of course, it takes about a month from start to finish, at least before they find out. Whereas if they just would have gone down a different path, maybe with SBA lending, because it is partly government-supported, you know, you can get a quicker decision, and you might be actually able to get a deal done, which I think it’s going to be a struggle for a lot of folks. And I’m actually getting a lot of deals getting kicked out of banks right now. Because banks are trying to mitigate the risk, and they’re using every technical default stripping of covenants that they can to try and get certain industries out of their portfolio. So that’s another issue.
Nate Hagerty 1:07:47
Yeah, I’m so on the seven A topic. Diane wanted to know, is there any information about the EIDL being forgiven? And I want to, what would you say to that?
Chris Hurn 1:07:59
Well, first of all, the EIDL is only through SBA directly. Okay.
Nate Hagerty 1:08:05
Right.
Chris Hurn 1:08:05
Not through private-sector lenders.
Nate Hagerty 1:08:07
Right
Chris Hurn 1:08:07
And my knowledge on the EIDL, frankly, Diane is a little bit limited. But I would research it, and I don’t believe those are forgivable loans. By the way.
Nate Hagerty 1:08:18
That’s a $10,000
Chris Hurn 1:08:19
$10,000 grant. That’s right, that’s taken off as part of the forgiveness process. But if you have a regular EIDL, yeah, that’s the long payback turns, and you may have had pledged some collateral for it as well. And that program has been a bit of a mess, as well, because, yeah, you know, starts and stops and different sizes and everything else. But, yeah, I don’t believe that’s meant to be a forgiven loan.
Nate Hagerty 1:08:44
Right. Okay. Well, Chris, you’ve been so generous with your time I want to, you had a hard stop in eight minutes, I want to give you some breathing room so that you can take a breath because you’ve been so generous. I’ve got his website up on the screen for everybody, I put it in the chat. I highly recommend you guys connect with Chris and his team a little more deeply other socials or things like that, that would be the best way for them to follow your information that you put out because I know you’re a thought leader in this space. And I know that they like, looking like they know what they’re talking about to their clients. So
Chris Hurn 1:09:18
Yeah, you can follow us on LinkedIn, or me personally on LinkedIn. We have our own YouTube channel. There’s, you know, a couple of hundred videos up if you really want to dive into some of this stuff. We’re on Facebook. We’re on Twitter we’re on
Nate Hagerty 1:09:32
it’s all just under the fountainhead brand rock.
Chris Hurn 1:09:34
Yeah, just look for Fountainheadcc or fountainhead504 or my name. Google me. I mean, I’m pretty prolific in writing and being quoted in a lot of national media, particularly with PPP, so you can probably find a lot of stuff out there on that as well.
Nate Hagerty 1:09:51
Yeah, thank you. So question before, just gonna try to get this in so that I don’t have to have a client who applied for reconsideration of the EIDL but has not heard anything for two months in terms of connecting with the SBA, anything you’d recommend there to talk to them about it?
Chris Hurn 1:10:12
No. Good luck. Yeah. I mean, it’s just, you know, they got overwhelmed with the idea, those are the disaster loans that they normally make, you know, when a, you know, Hurricane flattens a town or something, those are the types of loans that they come in, and they just, they weren’t staffed up for this.
Nate Hagerty 1:10:30
Right.
Chris Hurn 1:10:31
And that’s why it’s been a bit of a disaster. Yeah. There’s, again, there’s a lot of proposals in Congress to authorize more funding, not just for staffing for SBA to handle these but also to give more funding to the ADL program itself. So you may see that, I don’t know. I’m getting a little nervous, Nate with some of the, you know, we’ve been pleasantly surprised over the last few months with the economic statistics, but last few weeks, it’s I’m getting a little nervous because they seem to be going the wrong way and-
Nate Hagerty 1:11:03
Right seen that
Chris Hurn 1:11:03
…they’re lagging indicators. So which is why I’ve been pressing people so much for the last two and a half months to get the negotiations done and actually get a second draw program and simplify forgiveness and refund, you know, restock some of the EIDL funds. But it’s frustrating because it’s an election year. And, you know, I need everybody to make sure they’re talking to their representatives and their two senators to push this type of stuff. So,
Nate Hagerty 1:11:31
Man, okay, gosh, Chris, I’m only doing this because this guy who’s asking is one of my favorite clients, and I, oh, you sort of already answered this, but he just came in at the end. So the numbers were miscalculated by the SBA lender in giving the PPP loan, okay, obviously not you. And they provided half the amount that should have been allowed. Under the terms, can anything be done with that? And if so, what?
Chris Hurn 1:11:55
As of right now they cannot submit to SBA and get the bigger amounts, because the program is literally shut down, the lender would have to go into each one and change it and justify it everything else. So there’s nothing you can do right now. Although again, some of the provisions, the proposals for the second draw PPP would allow for if there were mistakes, because there was a lot of these mistakes that are able to come back and appeal and get the amount that you should have gotten in the first place. But again, we got to get that legislation passed in order to actually be able to help and that’s the problem. That’s the sticking with both sides.
Nate Hagerty 1:12:36
Okay, I’m gonna let you go, Chris. God bless you, brother. Thank you so much for your time.
Chris Hurn 1:12:41
No problem
Nate Hagerty 1:12:42
Everybody uses Fountainhead, just, you know, show the love for him and his team. You guys get out of here. Take a breath for your next thing, brother. Thanks, man.
Chris Hurn 1:12:50
Thanks for having me. Take care, everybody. Stay safe. All right.
Nate Hagerty 1:12:53
All righty. Bye-bye.