Month: April 2020

By CFOconnections

What to Expect from the Second Round of the Federal Stimulus Package Funding?

The first round of the $350 billion opened for application on April 3 and in less than 2 weeks, the SBA announced that it was unable to process additional applications from small businesses because funding has lapsed. The second round of the PPP funding of $484 billion is expected to hit the President’s desk for his signature this week. This second round of funding is expected to replenish the PPP and the EIDL loans. After the first round of funding, here is what we heard and what we can expect from the second round.

What Happened in Round 1?

  1. 74.03% of all approved PPP loans in the US were $150k and Under

2. 0.27% of all approved PPP loans in the US were over $5M

3. Over 95% of all loans approved under the PPP loan program were $1M and less

Despite the statistics, some large companies with liquidity also received the PPP loan and a few had to return the loan amid public pressure, such as the fast food hamburger joint Shake Shack.

Community banks came through for small businesses during the first round of the PPP funding since they are a bit smaller but more nimble. Large financial institutions such as Bank of America, Wells Fargo, JP Morgan, among others, have been accused of prioritizing larger loans and shutting out smaller businesses from getting the much needed financial relief.

When it came to processing PPP loan applications, banks were making their own rules, with some accepting the standard SBA application form and the certifications on the form, some required additional certifications from business owners, some wanted owners to certify that they did not or would not apply for the EIDL loans, etc. Some not only required businesses to be existing clients, but also added requirements such as certain types of accounts or a credit relationship.

The SBA originally set out to provide a maximum $50,000 EIDL loan with a $10,000 immediate advance to small businesses but due to funding drying up faster than expected, it revised its approach to providing only a $15,000 EIDL loan with a $1,000 advance.

What to Expect from Round 2?

Round 2 will allocate around $60 billion of PPP funds to smaller financial institutions which is good news for smaller businesses. We expect to see banks continue to supplement the standard application and required documentations with their own required certifications or require additional documents, depending on each of their own risk evaluation.

Since the first round of funding has been exhausted, small businesses who submitted their applications but did not receive funding from the first round should contact their banks to understand whether their application will be put in a queue for the second round of funding. This does not necessary mean though you are guaranteed funding by your bank. It all depends on how quickly your application is being submitted. It is estimated that the second round of funding could run out in 48 hours once the application process opens. If you are one of those businesses, our recommendation is to stay in close contact with your banks. Since bankers are busy processing applications, most of them are not answering their phones. E-mails would be the best way to communicate.

For independent contractors and self-employed individuals – you also qualify for PPP if you meet the requirement. The recommendation for these individuals would be in line with those for small businesses – continue to stay in contact with your banks and inquire about the status of your application.

If you’ve already applied for the SBA’s EIDL loan during the first round and did not receive funding, you should not need to reapply since the SBA will continue to process applications that are already in its system.

CFO Connections success stories: Clients who sought our help in preparing their PPP applications, computing the amount of the loan, and receiving advice on the appropriate documents to include with their applications, were able to secure the funding they needed during the first round with no adjustment by their banks on the requested loan amounts. We have a 100% success rate. Contact us for assistance with your funding needs.

By CFOconnections

Staying Compliant with PPP and Cash Flows Management

The government’s Paycheck Protection Program (PPP) from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides much needed relief to small businesses across the nation to keep workforce employed and businesses afloat. You may have already applied for the loan and are currently waiting for your bank to fund it. Now would be a good time to get up to speed on the requirements of the program, the credits available to businesses, some questions to ask your accountants, and our recommendations on how best to handle the funds. We also have recommendations on ways to accelerate cash flows from customers and defer payments to vendor during this crisis.

Paycheck Protection Program (PPP)

When the loan is funded, it is best to have the proceeds deposited into a separate bank account so that disbursements from the proceeds can be easily tracked and substantiated.

When figuring out the loan amount for the PPP loan, any salary over $100,000 per employee is excluded. This is crucial because it affects how much of the loan proceeds can be forgiven. For the highly compensated employees (mainly the business owner and senior management), what does this mean for their compensation?

The essence of the PPP is to keep workers employed so keep an eye on your head count as it would have an impact on the amount of the loan that can be forgiven.

How do you make sure that your PPP loan is forgiven? What documentations is a business required to provide to substantiate the use of proceeds?

The program provides for deferral of employer’s share of the payroll taxes. If a business received a PPP loan and paid its employees with the proceeds, when is it required to remit the employer’s share of the payroll taxes? Have you reached out to your payroll processing company to understand whether they have the capability to remit the correct amount of payroll taxes on your behalf?

The CARES Act also provides for an employee retention credit at 50% of the first $10,000 wages per employee. Am I eligible to claim the credit?

Can a business use tax-exempt income (e.g. forgivable PPP loan) to generate deductions (e.g. payroll, mort int, rent, etc.)?

Cash Flows Management

Be proactive and contact your vendors. Those who were rigid in their payment terms in the past may be accommodating due to current crisis. It is important to maintain supplier relationships, avoid unnecessary turnover and continue to meet customer demands.

Contact your customers to ask for payment even though most businesses have been negatively impacted by this pandemic. Accept partial payments and offer payment discount to entice customers to pay in full if they have the ability.

Call credit card companies to inquire about delaying payments and interest accrual. Most credit card companies are willing to make accommodating during the current crisis.

Consider reducing discretionary expenses, such as certain advertising and marketing expenses when your target customers are also negatively impacted by this crisis, client meals/entertainment, etc.

Consider pay cut to ownership and senior management instead of reducing workforce so that you are able to meet customers’ demands when the turnaround occurs.

Having a trusted advisor on your side could mean keeping the train on the tracks and avoiding surprises. Contact us if you have questions on your mind.

By CFOconnections

How to Survive in Unprecedented Times

We are living in unprecedented times right now. Many aspects of our lives are drastically changed, businesses are facing difficult decisions of preserving and prioritizing cash flows and maintaining a level of workforce to continue to meet customers demands. Therefore, having a good pulse on your cash flows requirement is extremely important, especially during the current crisis. Let’s take a look at what a cash flows projection entails and how it can help business owners see the reality and forge a logical path forward.

Traditional accrual basis income statement are often unhelpful when it comes to cash flows management. It can especially be misleading during a crisis. The concept of a cash flows projection is relatively simple… tallying all your sources of cash and uses of cash during the period of the analysis. The nuances of how to build a cash flows projection is more complicated. It requires looking at your customers and suppliers and your relationships with them. A well crafted cash flows projection will provide a road map for running business while it becomes a critical tool in managing cash flows during unprecedented times like this.

At the beginning of the projection, business owner will need to consider making certain assumptions. For example, when will we receive payments from our larger customers? What payment terms do we have with our essential vendors? Will our relationships with our customers and vendors allow us to accelerate receipts and defer payments in difficult times, such as the current COVID-19 pandemic? Answering these questions will have a drastic impact on the timing of the cash flows.

During the current COVID-19 crisis, business owner should also consider whether there is any government stimulus financial assistance available that should be factored into the cash flows projection. On the other hand, any restricted use of the assistance should also be included in the projection. If the financial assistance is in the form of a loan, business owner should also consider the timing of the principle and interest payments in the projection.

In addition, small and medium size businesses has been depending on using credit cards to pay certain expenses in order to defer cash flows. This practice will have an impact on cash outflows and should be considered when crafting a cash flows projection.

A cash flows projection is a tool that sets the foundation and the basis for reviewing the assumptions made. Business owner should use this tool to compare to actual results and determines whether the assumptions are realistic. Are we being too conservative on projecting cash outflows but too liberal on estimating cash inflows? If we identify gaps in cash flows, business owner should begin exploring options for alternative source of capital. Perhaps a discussion with its banking partner to review available options.

A cash flows projection and its assumptions should be reviewed and updated on a weekly basis. When adjustment to the projection and its assumptions is necessary, it is imperative to make those adjustments on a going forward basis so that the going-forward projection is not skewed by timing differences. Monitoring the projection on a weekly basis will give business owner the opportunity to correct course timely when traditional accrual basis financial statements will not. It allows business owner to see whether the company will survive in the immediate and long-term. It is an immensely valuable tool for business owner during ordinary time, and especially in distressed situation.

If you want to know the survivability of your business, please contact us for a complimentary consultation.