Knowledge and Insights

Mercadien Managing Directors Kyle Neeld, Lee Boss, Sherise (Sherry) Ritter and Frank Pina all sat down online and had an open discussion answering frequently asked questions as it relates to the COVID-19 crisis and the impact it is having on organizations. Below are the highlights that came out of that discussion.

Frank: What prompted Mercadien to form a COVID-19 task force?

Kyle: I was getting a lot of questions from friends and family initially just asking about the programs. I felt that as professional service advisors, we really needed to fully understand the program and be able to adequately serve not only our clients, but the other members of the community, our friends, and our family members. COVID-19 is so far reaching and the information was coming out so rapidly that we really needed to form a group of people that solely focused on this to make sure we were aware of everything that was happening, the changes that were occurring, any new guidance that was coming out, and how it would impact our clients or the types of businesses that we frequently work with. I think that’s why I personally wanted to get involved and I needed to understand more in order to properly inform my clients.

Lee: COVID-19 has impacted every business and organization in some capacity. There are so many relief and incentive programs, through the CARES Act, SBA, various federal and state loan programs. There’s a lot of complexity and misinformation out there, that we needed to form a task force within Mercadien to really get our arms around it to properly advise our clients.

Frank: Describe Mercadien’s service offerings that we made available to our clients as well as financial institutions in response to the COVID-19 crisis.

Sherry: We saw the need and we wanted to get ahead of the curve. We had two distinct opportunities; one was consulting out of need and also the opportunity to help people do what they couldn’t do on their own (which was to figure out what the best course of action was and also to take advantage of the PPP loan program and helping them with their application and answer their questions). Then, on the banking side, the banks are in as much distress as the consumers are to set up these loans. Everyone had to act very quickly but with very little guidance.

With respect to the PPP loan program, we knew people would have to make an application, and if they needed help, we would help them. We can answer questions on the application, we can prepare their application if they feel as though they are unable to do it themselves, or if they want to do it themselves but would like another set of eyes on it, we can review their application. Once that application is done, there is going to be this time period between the day it is submitted and when we can all go back to some level of activity in our business, where we have ongoing expenses.  We have to figure out what we’re going to do with those expenses and the impact that each type of expense has on the business through cash flow management and projections. There is also the grant management process. After you’ve managed your grant successfully, you need to go back and prove to the bank that you’ve managed it successfully, you’ve met your outcomes, which is to either maintain or increase your headcount, and you’ve spent the dollars in a certain way. Next you have to make a separate loan application for forgiveness. Our job becomes, how can we help our clients successfully convert their loans to grants so they don’t have to repay them.

Frank: How adequate do you think the PPP funding will be for your clients in terms of long-term needs? Are you helping your clients evaluate other relief options including the federal reserve’s main street lending program, which some of your clients may or may not qualify for?

Kyle: It depends. I think each client is going to be different. For them a lot of it’s a business decision of what they’re going to do. Do they furlough their employees? Have them collect unemployment? Do they continue to pay their employees? Will their employees be better off on unemployment rather than continuing to pay them what is normally paid? All of this is a whirlwind of information and there’s a lot of factors that businesses need to consider before making these decisions.  Having a sounding board to talk through these decisions and how its going to impact them, their business, their employees and their goodwill with their employees is important.

Frank: Do you see a noticeable difference in working with large banks as compared with community banks? Have you worked with alternative lenders such as non-banking financial institutions or the FINTECH’s that have now gotten approval to lend under this program?

Lee: My experience so far has been that the community-based banks have been much more responsive than the large national banks. They seem to have been able to get their process up much sooner, at least accepting interest from their customers and then getting back to them with the detailed request items that they need. Regarding the nontraditional bank SBA lenders, we’ve had several clients submit applications through those. About 50% have been successful at this point, with the rest still waiting to hear back. This isn’t necessarily bad about the nonbank SBA lenders, but I think it shows how much interest business owners had in the PPP, that lenders just got flooded and overwhelmed. I think that’s true for all banks. The magnitude of this program is huge. So many people submitted applications trying to get funding, knowing it would be pretty significant to their business.

Frank: What are you doing to advise your clients in the gray area, where things are subject to interpretation and they need to act now? What are they doing to mitigate their risk and how are you advising in that capacity?

Sherry: In terms of PPP and the loan application process itself, there’s been a lot of clarification. I’m more concerned on the back end, on the forgiveness side. What exactly are eligible expenses? Do they cover equipment leases or auto leases? I think there’s a lot up for interpretation for allowable cost. The big question I have on the forgiveness side, is how are they going to have us measure if someone is receiving less than 25% of what they were earning prior to the crisis? So, there’s the headcount rule. Let’s assume you’ve got your $100,000 loan, you have to spend 75% of it on payroll costs, so you already have your $75,000 spent on payroll costs. But you have to get your employee headcount back to where it was over the Jan or Feb period. So, let’s say you had 6 people working, you’re now at June 30 and have 5 people working – are they measuring that just as of a point and time? Let’s make sure that we have the 6 people on June 30 and making sure that if you had those 6 people and each of them earn $1000 a month, have you been able to afford to pay them at least $750 for May and June? How are we computing that? There are a lot of unknowns and a lot of questions out there.

Lee: I think there’s even questions on rent and covering utilities. What does that include? I know there’s going to be more guidance coming on the forgiveness component, which is challenging because applicants have already received the money. They’ve started their 8-week window of time, but they don’t know the rules.

Our experience has shown us that the more support you have with your package, the better off you are. I expect the same will be with the forgiveness. The better the detail you have that you can submit to justify the forgiveness, the better off you’ll be as a result of that.

Frank: What are you advising your clients to do differently to make sure they are tracking this money properly so that they maximize their opportunity for forgiveness at the end of the day?

Kyle: I’ve advised people to put it in a separate bank account and every time you disperse money related to the PPP loan, transfer it over from your PPP account to your checking or operating account, and have something to substantiate the transfer. Have a payroll report which shows your gross wages as well as your employers’ portion of state or local taxes. Have a spreadsheet to track all of this – most people are not accustomed to having to track the expenditures like they will have to for forgiveness under the PPP loan. I think it’s in most clients’ best interest in my opinion.

Lee: I think there’s a lot of different tools organizations can use. I think the ultimate goal is to try to maximize the loan forgiveness and use the loan proceeds for eligible purposes. Setting up a separate bank account can be one of those tools if that gives them the discipline to help better monitor it.

Frank: Now that the money’s gone, what should people be doing? If a person is eligible for forgiveness, what should they be doing?

Lee: My advice to clients who still have applications pending, or want to get the PPP loan, but haven’t been accepted is to still proceed as if there may be an additional round of funding. Gather your information and respond to the application as if there will be another round and we’ll cross our fingers and hope for the best.

Frank: It’s been almost three weeks, what do you view as the most rewarding experience and what were your most challenging situations?

Sherry: Being able to work in teams has been the most rewarding part of this. Working with people I don’t normally work with and getting to know them. The benefit that comes out of working as a team compared to just working on your own is that there are so many diverse thought processes coming together. 

Lee: From a challenge standpoint, providing guidance to our clients when there is very little to no guidance is very challenging. Secondarily, I think the big challenge and frustration has been assisting clients on a program, like the PPP, and getting everything in order, but it is up in the air of whether or not they’ll actually get approved or not. This could set up a lot of disappointment, which is unfortunate given that everyone is working hard to set up the loan application and help secure a loan for their business.

Kyle: What I find most rewarding is making a difference. Because I have accumulated so much knowledge and I feel like I am able to service my clients really well by helping to advise them correctly or inform them on matters they don’t know about. This is the biggest takeaway for me knowing that I am able to help somebody or help further them along.

As the COVID-19 situation progresses, we will continue to publish valuable resources and give advice and insights to our clients and the community. We have been and will be keeping our ear to the ground for any new information that comes out, and work to help our clients get through this difficult time to the best of our abilities. If you have any questions or would like further information on how Mercadien’s COVID-19 Task Force can help you, contact us through our Coronavirus Contact Form, located here – https://www.mercadien.com/contact-us-with-your-coronavirus-questions/.

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice, and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.