Good afternoon, everyone. My name is Daniel Fisher. I'm AED's Vice President of Government Affairs, and welcome to this afternoon's webinar entitled Beyond the PPP, Crucial Planning and Strategies. Our speakers today are Mark Johnson, Beth Swanson, and Clinton Baker of KCLSM, people that by now I think everyone out there is very familiar with after all these webinars on the PPP and a variety of other government loan programs. Before I turn it over to Mark, I'd like to let those of you who are live with us know that you may submit questions during the webinar via the chat box in the lower left side of your screen. However, we do ask that you hold your questions until toward the end. We've found during as these webinars have gone on that many of the questions do end up getting answered throughout the course of the webinar, so please hold your questions until toward the end of the presentation. The slide deck from today's presentation is available as a PDF in the handouts tab of the webinar homepage. This webinar will also be recorded so that you may watch or re-watch on demand at your convenience. This webinar is just one in a long line of educational sessions. AED has provided free of charge to its members during the COVID-19 pandemic. The situation is changing rapidly, particularly the policy situation, as it pertains to the various government loan programs implemented under the CARES Act, including the Paycheck Protection Program. Continue to stay tuned to AED alerts and the Coronavirus Update Center on the AED website for the most up-to-date and latest information. With that, I will turn it over to Mark Johnson with Keiko Issam to kick things off. Thanks, Daniel. You'll see right away we've already changed our mind on here. We were planning on doing some hot-off-the-press information for you today, and we do have a little bit of hot-off-the-press information, but it's from Thursday. Some of the forgiveness standards that we were hoping or we were told were going to be released earlier got delayed, and we'll talk about that in a little bit. Anyway, we have lots of information today. We'll still talk a lot about forgiveness, but unfortunately we still don't have the official forgiveness standards that have been eluding us now for quite some time. Those are going to come out, and certainly when those come out, AED and ourselves will make sure we get that out to the public as quickly as we can. We didn't wind up drafting a new PowerPoint this morning, and we had it done yesterday as we were anticipating this. We'll start here, though, right now with this disclaimer, and it's even more important today than it's probably ever been. The rest of the information that we're going to talk about today is literally through, actually I can say it's through 12.45 this afternoon Central Time. That was the last time I looked at the SBA PPP FAQ site. So it's through 5.15 at 12.45 this morning, and if you look at this sometime next week, some of the information will still be relevant. Some of the information may have changed, so just be careful of that. We've gotten kind of used to putting these disclaimers out here now, so that's not even the accountants and us trying to hedge our bets. That's just the information changes a lot. We will still get some pretty good takeaways today, though, and you can see here our agenda and our takeaways. We're still going to we will if you don't know anything about PPP and you're trying to decide whether or not to apply, today is going to be very confusing for you. We're not going to go backwards and reexamine where we're at and those kind of things. We're going to specifically talk about where we go forward for those of you that most likely already have a PPP loan or at least have done the diligence around whether or not you want to think about doing that. So we're going to understand those updates. We're going to also then talk about some strategies, and actually we're going to do that by going through an example of how we've been talking to our clients about it. Once they have the loan, now what do we want to talk about as far as what are the strategies for timing and compliance and forgiveness and cash flow and all those kind of things. So we'll spend quite a bit of time on that. Beth Swanson is an attorney with our firm, and she's actually done an amazing job for our firm over the last few weeks of diving into all this information for us. She's going to kind of serve as our professional witness, so to speak, today, and we're going to call on her from time to time to add color and information to that, and then myself and Clinton will kind of walk you through those examples. So with that, I will let Clinton move on from here. Sure. Thanks, Mark. You know, this first slide here is going to look familiar to people that may have tuned in last week. We won't cover it in as much detail today, but it starts a conversation or continues a conversation that started a couple of weeks ago when the Small Business Administration, the SBA, who's administering this program, came out and said all of a sudden we're changing our interpretation of what it meant to have economic uncertainty and whether you should have taken this money, and everybody has until May 7th to give the money back. And so the May 7th date, as you can see on the slide here, has been pushed out a couple of times now, but the SBA had until May 7th to issue guidance about loan forgiveness and what these standards meant, and that's why this date continues to push back is because they haven't done that yet. But the first question is really what did a borrower certify? What did you certify as you went and applied for the Paycheck Protection Program loan? And there's a lot of things in there that are certifications that I don't think there's a lot of questions around in terms of the company is not in bankruptcy, the officers and owners of the companies are not convicted felons, you're not in an excluded industry and those types of things. The real issue that has gotten hung up here the last couple of weeks is was there a need? How do you justify the fact you had a need for this loan? And the reality is there's a lot of guidance out there. In fact, even with two CPAs and an attorney on the phone, if you ask any one of the three of us, you might get a little different answer in terms of how you can show that need, and we'll talk about some strategies around that later on. But really, when you go back to the letter of the law, what it says is that there was an economic uncertainty. It doesn't say you had to have any reduction of workforce. It doesn't say you had to have any revenue that was missing. It doesn't say you had to have any expenses that went up due to supply chain delays or anything like that. It says there had to be economic uncertainty. And so we're going to talk again a little bit more as we go throughout this discussion today about this idea of economic uncertainty and what that looks like. Some of these other questions that are on here, again, are just kind of the common questions we've received. I'll ask Mark here in a minute to talk about the SBA audit team question he got from a dealership. But before I do that, I will say this question about will you be – if you took out a paycheck protection program loan, will you be put on a list that's shared publicly? What we've seen from the SBA would say that they do intend to release aggregated data. There have certainly been some lists that have come out that have included some publicly traded companies' names, also including some non-public companies like Harvard University or the Los Angeles Lakers, Shake Shack, some others who received this. But under the PPP, right now, the latest that I've seen, Beth, unless you've seen something otherwise, the latest I've seen is that they don't intend to release a big long list of everybody who took out a paycheck protection program. Now, I will say that is a little different. Last week, one of the topics in our webinar was the Main Street Lending Program. And you'll remember in that program, they have specifically said they do intend to do it. But for PPP, we're good there. Mark, in terms of the SBA audit team, what was the comment you received from a dealer the other day that they had heard about the audit process, which we'll get into on the next slide? But in terms of the team, what did you hear? I thought it was funny. Well, it was a funny comment just because his particular attorney contact reference that he was referring to was his workers' comp attorney. Who, if you think about the, you know, not to lodge any bombs or anything, a workers' comp attorney, but it's just a different world. You know, they are in constant litigation. They are kind of the, they are, the company's been sued over something. It's a worst-case scenario. So, they are the ultimate at preserving risk. And this workers' comp attorney was convinced that there was already teams in place. Their bags were packed and they were ready to show up at the dealer. And he even mentioned that he knows the three people that are on the list, which my response was, if they are, I don't know if they've hired them yet. Because from my understanding, the SBA has not ramped any of that up yet. So, in fact, I'm not even convinced it's an audit as much as if the word that they used was there will be additional scrutiny that was going to be placed on loans over $2 million and some others, which has changed a little bit. But it was the word scrutiny that then got translated into audit, so. Right. Right. It's something that I think the SBA has done, you know, if you think about the way the funding happened, the initial tranche of money that came out, roughly $350 billion, that money got claimed pretty quickly. I don't remember the exact number of days, but I'm going to say somewhere around, you know, three weeks or so, plus or minus. And so when the second batch of money came out, there was a lot of speculation. This is going to go in a day. And it was about that same time that some of the notion of the audit or, like you said, the additional scrutiny, can't say that word, and the economic uncertainty standard started to get talked about. And it almost seems like that was a little bit of a bluff, Mark. You know, I've never played poker against the SBA, shall we say, but it seemed like that was a little bit of a stare tactic to slow it down a little bit and to encourage borrowers to really think, did we need this money or not? And so I'll address this question about the May 7th, 14th, 18th, or later date and the repayment on the next slide. So the last point on this slide I want to share with everybody is, is this now taxable income? You know, when this program was first rolled out, it was claimed that this would be a forgivable loan program and you would not have to pay tax on the loan proceeds. And what's interesting, that statement in and of itself is still true. However, the IRS issued some guidance a couple of weeks ago that said, yeah, we don't deny the fact that the income, the loan forgiveness is not taxable income. However, consistent with very longstanding guidance in the Internal Revenue Code and revenue procedures that have been issued since then and regulations that have been issued since then, expenses that are related to non-taxable income are not tax deductible. And so it was one of the situations at first, I know the night that I got that, I think I got it at the same time Mark and Beth did and I think we were all texting it to one another about, can you believe this, can you believe this? And then a couple of minutes later we were all like, actually, this is actually a really good thing because the IRS is forcing Congress to address what the SBA is saying. I'm sorry, not what the SBA is saying, but the IRS is forcing Congress to address what the IRS is saying and say, hey, give guidance. If the intent was for this to not be a taxable event and exclude the income from tax as well, then we need clarification because that would be inconsistent with what's happened in the past. So Mark will talk a little bit later on. We're going to do a brief update at the end about the HEROES Act and there's some other discussions in Washington about Congress's intent to clarify that the loan itself, the forgiveness of the loan will not be a taxable event and yet the deductions related to it will still be tax deductible. Now, Beth, I'd like to ask you to talk about, I forgot to put it as a bullet point on here on the slide before here, but I'd like to ask you to talk about there was some recent clarity issued by the SBA about partnership income and seasonal employers and how some of those, with this new guidance, the SBA has said if you are eligible for more money, you might be able to go back and ask for more of a loan that can be forgiven. Could you talk through that for us? Excuse me. Sorry about that. Yeah, earlier this week, the SBA issued an additional FAQ and some interim guidance about the changing definitions and the changing guidance that they've given late in the game. And their guidance says that if a seasonal employer received a PPP loan or a partnership received a PPP loan before the SBA issued their guidance expanding the ability of those types of business to get additional PPP funds, that those businesses can go back and request that their lender modify their loan upward to take into account that changing SBA guidance. So what we mean by the partnership income specifically is that when the SBA first released its guidance, it was unclear whether partners and partnerships could include their guaranteed payments as part of the PPP loan, and so many partnership employers did not include that income. So when the SBA released its guidance saying that partners can include their self-employment income in their PPP loan, it would have increased the amount of loan that many partnerships would have been eligible for. Similarly, with seasonal employers, employers had two different time periods, two different 12-month time periods to calculate their average monthly payroll costs. And the SBA recently came out with some guidance for seasonal employers that says that if you're a seasonal employer, you can use any consecutive 12-week period between May 1st and September 15th of 2019 to determine what your true monthly average payroll is. So if you think about especially farming businesses who have their highest employment numbers during the summer, it could dramatically increase the amount of PPP funds that they would be available for. So as long as your lender hasn't already submitted their Form 1502 to the SBA, basically finalizing the loan paperwork with the agency, you can request an upward modification of your loan. The good news is that Form 1502 is not available for lenders yet, and so if you act now, you can at least get on your lender's radar and have hopefully an additional couple of days to recalculate your PPP loan and ask for an upward adjustment. Got it. And, Beth, when I hear seasonal employer, I mean, I typically think of like you said maybe a farming operation or maybe a construction company who would be the customers of a lot of the dealers that are on the call today. But really they didn't give guidance even as to how you define that seasonal employer, right? So is it possible that any of the dealerships on the phone right now, if they went back and took that 12-week period between May and September of 2019 and it gave a higher monthly compensation that then when multiplied by two-and-a-half is more than their 12 months divided by 12 times two-and-a-half, there's nothing that says they wouldn't be considered a seasonal employer then, is there? Right. As far as we know right now because the SBA has not, as they were instructed to do, issued guidance about the definition of seasonal employer, if you can demonstrate that year over year you have higher employee counts over the summer, then we think that you can with a straight face say that you're a seasonal employer and utilize that definition to increase your PPP loan amount. Okay. Well, I think that's something, candidly, that every dealership or distributor ought to at least go back and look at. Now, it doesn't necessarily mean that they would then go through the process of going to their bank and making sure that that Form 1502, I think you called it, hadn't been filed or maybe the loan amount just wouldn't be a significant amount to go through some of the headache of doing it, but I think everybody at least ought to look at that. On the next slide, then, we want to talk about some more guidance that came out from the SBA regarding a safe harbor as it relates to this idea of economic uncertainty and the SBA doing these audits or increased scrutiny of the loan applications themselves. And so there's a bright line test that was issued that said any borrower who borrowed less than $2 million is deemed to have made this loan in good faith, and the SBA has said we're not going to look at that. The thing we want to remind people is, as you can see on the slide, is the thing in parentheses there that says this is together with their affiliates. And so I think a number of businesses out there thought, okay, well, I'm not affiliated, I've got my dealership, and yeah, some of my other owners may have some other businesses, but we don't have enough common ownership here to really be concerned about the affiliation rules. I mean, clearly the dealerships we worked with, we dove into affiliation rules with all of them. I just want to encourage people, you may feel like you have a get out of jail free card here or whatever because you're under the $2 million, but at the same time I want to encourage you, if you didn't spend the time thinking about the affiliates before, you ought to think about it now, because the SBA is using the same affiliation rules to determine this $2 million bright line test. Now, for most of the dealerships that we helped go through this process, they were over the $2 million, and so they are still subject to this additional scrutiny, or we'll use the term audit loosely. And really what the SBA has said is that they have not issued much guidance yet at this point, but what they're also saying is if you return the money by May, it was May 7th, then it became May 14th, then it became May 18th, as long as you return the loan proceeds by then, they were saying there's nothing for us to look at. You're deemed at that point to have taken it in good faith, and now you've paid it back, and we'll move on down the road. What they've also said, though, is, and I found this a little contradictory, Beth, what they then said was, but if we go through and do this scrutiny, this additional audit process, and we determine that you did not take it in good faith, we're going to ask for this money back. And as long as you pay it back, then we'll have no further enforcement or legal action against you. Now, what they've left out is, what's the timing of the repayment? So the question becomes, well, we have a, I mean, these borrowers have legitimate loans with their banks that go for a two-year period of time. And so if the SBA comes in and says, we don't think you took this in good faith, you have to pay it back, I suppose the dealership or the borrower in any industry here would lose the forgiveness part of the program. But does that mean they still have two years to pay it back? So did they really, with this guidance, did they really take the teeth out of the enforcement side of this in terms of they've already said, we're not going to have any other enforcement or legal action as long as you pay it back? Is that what you've heard as well, Beth? Yeah, it is. I think that this is probably the biggest part of the safe harbor that's giving us a little bit of heartburn right now is just not knowing what the repayment period is going to be. However, the fact that the SBA said that the determination about the good faith certification won't affect its loan guarantee leads me to believe that they're hinting that the repayment period is going to be longer than 30 or 60 days. That said, we just really don't know at this point. Right. Yeah, that's a good point. I hadn't made that connection that you made there, but I think you're absolutely right in terms of the SBA saying even if we determine you're not eligible for loan forgiveness, that's not going to take our guarantee away from the bank. We're still going to honor the guarantee that we gave the bank. On the next slide here, I won't go into a whole lot of detail on these bullet points because I want to leave time. Mark's got several different examples that I think are very beneficial to understand this. But these are some of the other topics that we are still looking for as it relates to distributors from the SBA. There's been a proposal here that has said instead of the eight-week covered period calculation date starting on the day the funds are received, since most of this money is supposed to be used for payroll, there's a proposal out there that has said why wouldn't it start on the first payroll after funding to try to match the timing of the use of the loan proceeds with when the expenses will be paid. There's also some clarification that is being sought in terms of just the timing difference of, again, of when payroll happens compared to the covered period. Are you allowed to cover more than eight weeks of payroll? So, for example, if you wind up and have a pay period, clearly the first pay period in the covered period is going to be work performed before that period started. And so as we go through the eight weeks then, if a company were to accelerate a pay period at the end of it to pull it inside the eight weeks, still only being paid for the time people worked up to that point, all of a sudden now we could have more than eight weeks of payroll rolled into that eight-week period. I think it has been very clear that they do not anticipate allowing prepayment of compensation. So, in other words, if your eight-week period ends, let's just pick a date, June 15th, while you might be picking up more than eight weeks of payroll in the past, you're not going to be allowed to pay forward June 16th and after. One of the other, this next bullet point is clearly very near and dear to many of the distributors and dealerships on the phone here, and that is the clarification of the interest that's allowed to be included as a forgivable expense. The law says mortgage interest and any other business interest. The SBA's guidance, though, so far, every time they have issued guidance on this, they keep limiting that loan forgiveness eligible expense to just mortgage interest. Clearly, floor plan interest is something that most dealerships, obviously, that would be their larger portion of their interest expense, and so we're looking for clarification on that. Anytime I see reversal in what's being asked for, I always get a little nervous here, but current guidance would say that 75% of these forgivable expenses have to be spent on payroll, 75% or more. There's a call out there to say, well, when you do the math, we used a two-and-a-half-month period to determine the amount of the loan we could get, but I have to spend it in eight weeks, and when you break that down into the number of days, it essentially comes out to 75%, so almost by default, unless you allow me to deduct something more than those eight weeks, there's a lot of borrowers that if they had any decrease in head count, which is another limiting factor, but if they had any decrease in just compensation, whether it was overtime work or whatever, all of a sudden, they're not going to meet the 75%, so there's clarity being sought there. Certainly, the definition of transportation costs is an eligible expense, and so seeking clarity about what's included in that, so far, the SBA has been silent. They really have not even addressed transportation costs at all, and then finally, there's this last one. It has to do with the fact that in the SBA's interpretation, if the borrower had access to other capital or credit, then that may run against the necessity standard that we talked about earlier. Clearly, when you look at it, there's some other loan programs that that was aimed at public companies. PPP was never really designed for public companies, but traditionally, the SBA has been a, I don't want to call it a lender of last resort. I wouldn't quite go that strongly, but has been an organization or an agency that is there for people who cannot get credit elsewhere. That was really not the intent of PPP from Congress's perspective, and so we're hoping the SBA will bring out clarity to back off of this other credit and capital elsewhere. Again, in some of the examples, late in the examples, we're going to talk about a couple of ideas in terms of being able to show that there was a necessity for capital and some things dealers can do. Mark, why don't you go ahead and walk us through the examples. Actually, I'm sorry, we're not at the examples yet, but I'll turn it over to you to talk about some of these forgiveness standards. How does that sound? I was also going to add, because maybe it's my own stupidity, but I just figured it out the other day. I keep hearing Beth and others in our firm talk about, I got the update from the SBA last night, and I finally figured out where to go and get that myself. Since we know there's not any webinars scheduled next week, I just thought I'd maybe share that information with you. Right now, the safe harbor was FAQ number 46 on the SBA's PPP website. Next week, if you're waiting for information to come out on some of these questions like we are, you can really just go on to the SBA's website, go to the PPP section and their FAQ document and scroll to the end. The safe harbor was 46, and moving the date to the 18th was 47. If you scroll down, you see something past 47, and that means it's new. Otherwise, questions 1 through 47 have been covered through all the webinars you've been to through today. I just thought I'd share that with you. Again, maybe it's my own stupidity and everybody else on the phone knew that, but I figured it out today, so I thought I'd share it. Anyway, forgiveness standards and what are some of the best practices. What we did here is we're going to just walk you through some of the real conversations I guess we've had with our dealer clients. As they're starting to track this, obviously we can't sit here and wait for the SBA forever. Many of our dealers got their funding early. I think about the first date you could get it was about April 6th, if I remember right, which means there's only a couple weeks left, a couple, three weeks left for some of the dealers on their eight weeks. It's like the longer you wait on these standards, you could completely forget to go grab some stuff. We've been working through as if we know what those standards are going to say, or when there's some confusion, we say let's track it anyway, and then we might just not show it on the final forgiveness document. Anyway, so we'll walk through this. On definitions, for instance, Clinton touched on interest. Right now as we talk to dealers, we're saying track all of your interest. Floor plan is going to be much bigger in most dealership cases than their mortgage interest. In fact, many dealers aren't going to have a mortgage at all. They're going to have lines of credit. They're going to have other funding mechanisms other than a mortgage that they're relying on for their debt. So we're having them track all their interest as if it will count. Now, again, if it winds up not being countable, we might have tracked some information that we don't need, but at least it's there. If nothing else, if your interest is going up, as many of your interest might be because inventories have increased and sales are going a little slower right now, that is one of the economic impacts that you could point to is look at my increased interest expense. On transportation, this is one of those that, yeah, we're waiting on the guidance, but, frankly, more guidance might not come out. So then you've got to figure all the Congress or the SBA have said is literally the two words, transportation expense. So then that leaves it to us to figure out where that's at. If you kind of go back and think through what transportation expense would be allowed on a tax return or for GAAP financial statements, that's what we're relying on. And in that case, transportation expense for a dealer really is any cost associated with getting your product to customers or getting the customer's stuff back to you so you can service it and then get it back to them. So really shipping, freight, gas, fuel, oil, all those expenses could be lumped into transportation. Without further guidance, we're saying track it all. For some of our bigger dealers, that number can be a $200,000, $300,000, $400,000 number when you start tracking all that shipping and freight. So track it all right now. Again, it might be the last expense we put on your forgiveness application, but we need to know what it is nonetheless. Included in utilities was also the word internet expense. So, you know, that's obviously we can think about connectivity charges and things like that, what you're paying. I keep wanting to say what you want to pay AOL, but that shows how old I am because I don't think AOL exists forever. So it's what you're paying to AT&T or Sprint or whoever to have internet connection. But it is also, for instance, if you're a John Deere dealer and you sign up with JDIS or Equip, you know, the connection charges that are built into that fee, if you're Caterpillar, any of those that your OEM has got some kind of forced connection charge that you're pushing data to and fro, I mean, that is a connection charge that we would lump in. And, again, for most of our dealers, that's a pretty good number, much more than if you think back to the AOL days, the $12 a month or whatever it was us paying. The other one is qualified disaster relief payments. Now, so some of these we've been talking with our dealers about these and understanding what they are. Now, they are really good for showing economic impact, but they don't count towards forgiveness. And what they are is I believe, Beth, you can tell me if I'm wrong on this, I think it's section 139 payments I think is what it's under. She's shaking her head at me, so I got that right. So I'm glad. So it's basically a payment that it's an expanded notion of, you know, you could always give your employees a de minimis expense, but it was $25. You know, you could give them a gift card, and it wasn't going to be taxable to them, and it would still be deductible to you. They've expanded that notion into this qualified disaster relief payment that you can give your employees. I believe it's up to $300. At least that's the number I've been making up, because that's what our firm gave our employees, so I figured as an accounting firm we'd probably max that out, but maybe not. Beth, is it a $300 limit? There's actually no limit. You just have to be reasonable about determining. Oh, darn it. I know. I think so, too. So I was proud of our firm for doing $300, but evidently you could do more than that. But essentially you can pay your employees or a subset of your employees expenses that you can fully deduct, but they don't pick up as taxable income. So what we've seen some of our dealers doing with this is, for instance, their parts counter people and their service guys that are still interacting with the public, even though the rest of their company might be working from home or in some version of lockdown, they've got their own what I'll call frontline workers that are interacting with the public, and it's stressful. So they might be giving those guys some extra money, or they might be giving everybody the fact that they're working from home and they're stressed and there's extra cost of working from home, a little bit of money just to ease the burden and the stress of that. And so that's really, like I said, it doesn't count towards forgiveness, but it does count for when you're trying to document later the fact that we had economic impact. Number one, our employees were really stressed. Number two, we actually had out-of-pocket costs to deal with that, so that's good for there. And then the start date, like Clinton talked about, there was confusion early on about what the actual date, what the start date was for the eight weeks. And then it became clear, they actually released something that said, your eight-week starts on the funding date. And then as we did that, we saw a lot of people in their hurry for get it, and then some of the delays and the banks shutting the program down from time to time. There wound up being, you might have got, for instance, your funding on April 10th, and you had a payroll on April 9th, and now you're not going to have another payroll for two weeks. And so there were some dealerships that it looked like they could wind up having less than eight weeks payroll paid during that time period, just from the standpoint of they literally had a two-week period at the beginning of that that was not going to be covered. So that's why we're hoping that the lobbying effort works on that, and they move that start date back. But if it doesn't right now, that is still very clear. It is on the date that you got the funding. As far as documentation, what we're talking to with our dealerships is, you know, documentation isn't just, you know, you can think about the documentation of all the expenses, and definitely that's there. You need to make sure that you've got, you know, receipts and backup for the expenses that you're paying, and particularly around what dates did those receipts and expenses cover, you know, so that you're not showing that you prepaid something or you just willy-nilly paid something out that's not going to be used until next September or October. It actually is something that was incurred and paid during this time frame. So that's the easy part of documentation. But there's other documentation that we want to talk about, too, around, you know, I'm going to make the assumption for a little while here that dealers on this call are over $2 million. So all of a sudden this economic impact and showing that, that's also something that we need to document. And so what we've been suggesting is some notion of journaling, and journaling not keeping a diary, so to speak, but almost it's asking your sales managers or your store managers as well as yourself to keep track of if a customer or a group of customers is coming to them and saying, hey, I need to renegotiate a sale contract that we already had pre-sold, or I need to get some forgiveness on my accounts receivable, or can you not charge me, you know, a finance charge on that because I'm going to be 10 days later, whatever. That's something to keep track of to understand what your economic impact is. Some of the things that our dealers actually suggested to us, and then we started suggesting it to others, is the notion of creating a COVID expense account in their chart of accounts that they literally are tracking in that the extra cost of sanitizers and cleaning supplies and extra janitor visits, you know, anything that they're spending extra that they would not have spent for other than this pandemic notion, you know, even if that only comes out to be $20,000 or $30,000 or $50,000 for the year, it's still $20,000 or $30,000 or $50,000 that they wouldn't have spent on something otherwise. And all of a sudden, if you think about a $50,000 expense, that's an employee. And that's exactly what we were trying to show during this economic impact stuff is that the only lever we could pull that was substantial enough to push off disaster for us is headcount and employees and $50,000 of expenses and employees. The last part on documentation that we've actually picked this up on a webinar just like you. We were listening to AED webinars all along, and there was some attorneys that did one earlier this week, and they walked through how important it would be to do a corporate resolution actually officially documenting the fact that, hey, we've looked at the balance of the year. We think there's going to be a decrease in sales of this. We think there's going to be a challenge in expenses or supply of this, and they're documenting that as a corporate resolution of saying officially we're noting in our minutes that we're going to have a challenging year. There's economic impact to us from COVID, and we're going to respond accordingly. And we took the additional steps to obtain this loan through the SBA to do so. And then on tracking, you know, some of our dealers put their funds in a separate bank account because the bank told them to. Oftentimes we were using a bank for the PPP loan that we don't normally use. And so because our bank was already out of funds or they were behind and couldn't get to us fast enough, so we used another bank to do that. And because of that, they're sitting out there in a separate bank account. And some dealers have said, well, I'm going to leave it sitting in that bank account until this is over in case I've got to pay it back, or I'm going to take it out as slow as possible or I'm going to take it out just to match up with my payroll or whatever. One of the concerns we have in that is if you don't move that into your operating or show that you're using it kind of along the way, if all of a sudden at the end of the eight weeks then you're moving it over to your normal operating account or whatever, it all of a sudden starts to have the feeling of a reserve account. And if all this PPP money that I got is sitting over this reserve account, and I actually never tapped it during the eight-week period, all of a sudden it feels like I don't need it. And so when we're trying to document need and trying to document that we have other resources to go get capital, if it was sitting in that bank account all along, that might be something that was not good. So we're suggesting that we're keeping track of why we're transferring it from one bank account to another and also that we're trying to make sure that that is somewhat consistent with the same timeframe so that we need it all along. Similarly with the FTE movement, and, Beth, I'm going to surprise you on this one and ask you a question on this one to make sure I got it right. The FTE movement, as that goes down, I'm going to walk you through an example here in a second, if that goes down during the timeframe, then you can get dinged on how much forgiveness that you actually get. But from my understanding, Beth, when that is a termination or a layoff or a furlough, definitely that dings me because I made a decision to have somebody go. If that's an employee that's saying, hey, I'm scared to come back. There's a virus out there. I'm going to stay at home. I don't want to come back. In fact, I'm going to quit. Or if somebody might just quit because, you know, whatever, they've got another opportunity, what do we do with those FTEs, and do they count against us? You know, there are a couple of things, a couple of different questions that you ask there. First, if you have laid off or otherwise terminated employees due to your financial outlook or a decrease in business, then if you offer to rehire those individuals, those FTE changes won't count against you. As to the other question about employees who choose to quit, we really aren't sure what the SBA is going to do with this. They're going to need to clarify that in their forgiveness guidelines. We think that based on the purpose of that calculation, that if you have an employee who quits and you've attempted to rehire or you can show that there's no one else that is willing to onboard at this time, we think that that at the very least should not count against you. And the HEROES Act, which I know we'll get into in a little bit, the HEROES Act does clarify that, that if you are unable to hire somebody with similar experience and skills, that that won't count against your FTE calculation. That said, that's not currently technically the law, but it does give us a sense of what Congress intended. Okay, thanks, Beth. I think the other thing I hear is compensation changes and tracking. I doubt that very many dealers, after they got the PPP loan, are purposefully changing compensation because they realize that if we decrease someone's compensation, then that is going to have a direct impact on the forgiveness. But there's some unintended compensation changes that might happen there as well that either you need to track and or maybe you rectify. So, for instance, if you've got a high-performing salesperson that might have got really big commissions during the initial period and now, because sales are down, those commissions might not be coming in as fast, one of the things you might want to do is not prepay a commission, but if they've already earned a significant part of that commission and it just wouldn't be paid, for instance, until July, it might be good to track and document the fact that, hey, through my forgiveness date might be June 8th. Through June 8th, the commission that they would have earned was X, and let's get that dumped into an early payroll on June 8th, for instance, instead of waiting until July so that we don't have a compensation change on that particular individual. So that's some of the definitions, documentation, and tracking that we're talking about. And there's also this notion of timing. So on this first bullet here about cash versus incurred, I talked about that a little bit. How I understand this is for sure payroll is mostly a cash issue. It's when it's paid out. On the other expenses, it's pretty clear that that's in cash and incurred. And so there's definitions on both of those. But as we look at timing, for instance, on some of those cash payroll expenses where we might usually not have to pay in, for instance, our retirement benefits until something that's more on a quarterly basis. Again, we need to have those paid out during this eight-week period so we've not only incurred it, but we've also got the cash payment for that. On payroll and commission dates, I'm going to run through an example here in a second that will make this clear. But there's a lot of times where your last payroll might be a day or two after the end of your forgiveness. And so in that case, obviously, it would make a lot of sense to push up the last date and pay your payroll a day or two early, if that makes sense. Payroll tax deferrals. Now, this is one that at the beginning of all this, the guidance felt like it was saying that if you got a PPP loan, then you couldn't utilize any of the payroll tax deferrals that were out there. Some updates came out that made it clear that actually if you've got a PPP loan, you can still do the employer side of FICA with 6.2%. You can defer that up until the time your loan is forgiven. And you can do it backwards looking from March 27th on. So as we look at this, there are some of our dealers that have some significant payroll tax deferral, $30,000 or $40,000 of payroll, that if forgiveness doesn't happen until September, so all of a sudden we've got five or six months' worth of payroll to tax deferral that we could have done. And if that's a $400,000 or $500,000 number, my first conversation with some of our dealer clients, they're like, well, we've already borrowed $3 million. We don't need to borrow anymore. To which my answer then is, well, but let's think this through. If we could have borrowed $400,000 more on a 0% two-year loan, which is effectively what this payroll tax deferral is, and we chose not to, did we need that $400,000 extra that might be included in our PPP loan, or is that one of those necessity standards that we need to be careful of? And then finally on the loan forgiveness application, I think it's clear that on the timing of that, it's probably going to be 60 days or more after the date of the end of your term before asking for forgiveness. You definitely don't want to be the first one forgiven and walk through all of the problems that we've had with the early PPP adopters. We want to make sure that as people start going through the forgiveness standards that all those questions are answered. We want to make sure before we go through all this to understand the tax impact, and if Congress hasn't, for instance, passed something that says something different on the deductibility of those expenses that we've paid attention to that. So there's a lot of timing strategy around when do we actually ask for forgiveness. I'm looking at the time here, and I'm seeing we're running a little bit late, but I'm still going to walk through this example. I might go kind of fast. What we wanted to show here was let's have an example here of a $3 million PPP loan that was on 4-16. Literally what you need to look at at that point is where are my payroll dates going to be. In this case, you see that they had four weeks of payroll. They lucked out, so they got their whole eight weeks in there. But if the forgiveness standard comes out and moves the forgiveness period to the first payroll date versus the funding date, then we actually might be able to get another payroll on here. Now, all of a sudden, that means we could accidentally have ten weeks of payroll versus eight weeks of payroll on there, and so then there's some questions about that that we also need to understand for forgiveness. So that's why I want to walk through this example real quick to show you why it's so important that we understand this really well. So in this example, the loan was based on about $415,000 for each payroll. So those four payrolls listed as $1.6 million. We've got the fifth one that's $2 million. The other definition of payroll is that we get state unemployment taxes we can add on as well as the retirement and health benefits, the employer side of those. And those, for this dealer, was about $65,000 for each payroll, or $320,000 for those four payrolls, or $400,000 for all of them. But then we have a deduct on there. We've got 10 employees that were over $15,385, and $15,385, if you kind of follow that through, is literally just $100,000 divided by 52 weeks times eight weeks, and that's what the SBA guidance has been so far, is we've got $15,385 during that eight weeks that we get to cover. So that's $175,000 that would come out of our computation, or $265,000 if we go on further. Interestingly, the way we're looking at that is $15,385 would be our total, even if we got that extra payroll on. So that last payroll would probably cost us more because somebody that was already over or approaching over would have all of their over on there. One thing, and I'm seeing a question on here so I'm just going to answer it real quick, is some of our dealers actually borrowed a little more than they were probably supposed to at one point. Because at one point we understood that commissions were not supposed to be included in our payroll computation when we were looking at the $100,000 overage. So if somebody made $80,000 of salary and $40,000 of commission, that's $120,000. So we would normally say they were $20,000 over. But your early guidance said that they weren't over because the $80,000 was what counted, not the extra $40,000. So that's okay. You just maybe borrowed a little bit more because now the standard clearly says commissions are payroll also. So that 120 person was $20,000 over. So it just might mean that you have some amount of loan that's not forgiven. So in this case, you take the $1,060,000 and add the $320,000, deduct the $175,000, and we have a total of somewhere between $1,805,000 and $2.2 million. Towards that $3 million loan would be in our payroll. Then we look at that 75% calculation. So we divide the $1,805,000 by 75%. That says $2,406,000 is really our total amount that could be forgiven. If we spend 25% of that, at least of the $601,000 on the other stuff. So in this case, the forgiveness thing either when we get the standards right now, I think that they say that there would be $593,000 on this particular PPP loan that would not be forgiven. If we get some of the great benefits that we're hoping for, it might be as little as $53,000 on there. So that's why this is pretty important. Keep in mind then that that 25% calculation of the $601,000, then we look at that here. So 25% means we can spend $601,000 on other stuff or maybe $736,000. Rent is $175,000. I don't think we have any question on that. Interest on the floor plan for these guys, $125,000, may or may not wind up being counted. Water utilities, those things are clear. Internet is pretty clear. Transportation, that could be if we limit it and say that it's only these limited amount of expenses, it could be anywhere from $15,000 to $350,000 for this dealer if we look at it all in. So somewhere we're between $470,000 and $805,000 of other towards this 601. If it's $470,000, it's under that. So we've got an additional unforgiven amount of $131,000. If it's not limited, we get the whole $108,000, $105,000, with the $350,000 from the transportation, then there would be zero additional unforgiven. So a pretty big change there. Then finally on headcount, if our baseline was $202,000, we're down to $199,000 and we don't rehire anybody, the way the calculation works then is that means there would be an additional 1% reduction on the total amount of unforgiven PVP at that point. So again, an additional $22,000 to $30,000 that could be unforgiven on this loan. So that's why the forgiveness standards are really important to us. It's real money at this point. For this dealer, it could be a half a million dollars or more, and so it's worth waiting to find out what that looks like, and hopefully the SBA will tell us soon. Yes, so this last part we have it labeled as an example, assuming a $3 million PVP loan. It's kind of a continuation of the example Mark just worked through, but we wanted to hit it twice. You know, in the intro, Mark mentioned this idea of dealers taking advantage of this payroll tax deferral. We wanted to just reiterate that because most of the conversations we're having with dealers is this is a good idea. So in this example, this dealer would have $35,500 of the employer side of FICA per payroll. Let's say their covered period starts – well, actually, you're allowed to go back to March 27th. So if we go back to March 27th, let's say they delay asking for forgiveness, even if they're eligible for that, at the end of their eight-week period. And again, they say we're going to use some of our six-week – or I'm sorry, our six-month deferral on the loan. We're going to use some of that period to wait, and we're just going to keep deferring the employer side of this payroll tax. And let's say they do that through mid-October. Well, they would have 14 payrolls that occur during that time. And so that's almost half a million dollars. And again, Mark and I, when we set this up, we said let's hit it before the examples and at the end of the examples because we think it's really important so we want people to hear this is a real strategy to, one, get what equates to an interest-free loan because that $497,000, half of that will be deferred and has to be paid – or delayed, I should say, will be delayed and being paid until December 31st of 2021. And the other half will be delayed in terms of it doesn't have to be paid until December 31st of 2022. And so all of a sudden this becomes an interest-free loan. And to Mark's point earlier, this to us seems like a really good arrow to have in your quiver in terms of trying to show that you had economic uncertainty. If the government were to come back and say, hey, you could have deferred $500,000 until the end of next year and the year after that and you didn't, maybe you didn't really need the PPP loan. And so we really think that's very important. On the next slide here, we're going to touch this really quick. We're coming to the last five minutes here. But there's been a proposal out there. It's called the HEROES Act. I joked with Mark. I said maybe they should have titled this the DOA Act instead, dead on arrival, and I don't mean to be disrespectful. But this has been proposed by the Democratic side of the aisle, and the President has already said basically he would not support this bill. Many of the Republicans have also said they would not support the bill. You can see some of the headlines here. Although it is interesting, you know, when we look at the Republican Representative Peter King there, he's from New York, and he says he would essentially have no choice but to vote for this bill. A lot of the $3 trillion would go to state governments, state and local governments, and there are many states obviously that are going to be struggling for money. I know what we're about to cover in these next two slides pretty quickly. It really doesn't have a chance to become a bill, but it does begin a lot of conversations. And not all the conversations are against what many dealers and distributors would want. In fact, there are some things in here that many of the people on this call probably would want. And so, Mark, how about you cover some of those that you think are the most relevant here as we wrap up? Okay. Yeah, and I broke it into two slides. One is how the HEROES Act actually affects the PPP, and then how the HEROES Act would affect the tax stuff. And I didn't search too hard to find all the hidden stuff, and I also took out some of the stuff that I could see pretty easily but knew it didn't apply to dealers. And so one of the things on here is actually it keeps the availability of applications for PPP open until June 30th, so if it would pass, more people can get in. Again, it's important to look at some of this stuff because it might speak towards Congress's intent as we look at some forgiveness standards. But this one increases that minimum loan maturity from two years to five years, pretty big deal. It extends the eight weeks to 24 weeks, which, you know, if you couldn't get your payroll in in eight weeks, you know, think about 24 weeks, half a year for what you already borrowed. So unless they let you borrow more, that would be extremely easy to get it 100% forgiven, which speaks to the fact that Congress must not care if people have their loans 100% forgiven. It expands the forgiveness to include all the interest on the debt obligation. So, again, they're making their point. That's what we wanted all along. It clarifies that there should be no limit on the nonpayroll portion, so it could, you know, be 50-50 at that point. It could be 50% payroll and 50% other expenses. So that was, again, not their intent on the original documentation. They're clarifying it here. It permits the ERTC participation, which right now that was an either-or. You could either do the PPP or that, and that would let people go back and participate in that program as well. And then the loan deferral program currently on the PPP is six months, and that takes it to a year. So, again, speaks to their intent and their desire to help the community. So those are all good. Again, I skipped some of the bad stuff, but those are all the good stuff on the PPP. On the tax side, there's some really good stuff on here. One clarifies the PPP expenses are deductible, even if the loan is forgiven. So their intent's clear there. Again, the ERTC allows that. It creates a credit. This one's interesting. A credit for mortgage, rent, and utility payments. That's a big one. Up to 50% of your mortgage payment. That's principal, right? Yeah, it is. So that's interesting. Creates a business interruption credit. This one's even more interesting because this is for self-employed people. So this would be your customers. Good for your business. Ultimately, your customers would be able to exclude up to 90% of their income when they're self-employed. Interesting. Extends the Family First credit and the leave provisions to the end of 2021 instead of 2020. It permits a payroll tax deferral for the PPP forgiveness. A payroll tax credit for that QDR that we talked about earlier. So the program that we said you can get a deduction for something that your employees don't have to pay tax on. This makes it even better. It says that they'll turn that into a credit. And then, finally, a really big one for some people and something that other people would really not like is the repeal of the $10,000 state and local tax cap, which probably most people on this call do have that cap and hate it. And so others don't and don't care. But anyway, so those are some of the things on the HEROES Act. And I'll turn it back to Daniel right at 3 o'clock. I apologize, Daniel. We took longer than we thought. Yeah, no problem. I thought we were going to have trouble filling the time, but I guess that was not an issue. I think as far as – I just do want to touch on the HEROES Act a little bit just because you did bring it up. I mean, that really is not going anywhere. While some of those provisions in there may make it into a next kind of – it won't be a HEROES Act, maybe whatever, the CARES Act, next CARES Act, because they do have bipartisan support. I don't want anyone to get too excited that any of those provisions in the HEROES Act are anywhere close to being law at this point. And it's very unclear when Congress will actually consider seriously the next COVID-19 type package. We're hopeful it will happen in the next couple of weeks. But Democrats and Republicans, Senate and House are very, very far apart right now on that. So with that, there are, I guess, a couple questions out there. I think you answered one of them already. I believe you answered this one, but maybe just clarify. Are rent, utilities, and health insurance covered? Yeah, it's all covered and all forgivable. Be careful on that one. It's for rent agreements that were in place before 2015, so you can't come up with a new lease agreement. But yeah, if it was in place already, then you can definitely use it. All right. And then the commission question, I know you answered that one. Are, let's see, federal, Social Security, ER, FedMedCareER, FedFTA covered? So I think the question on that one, there was some confusion early on about how to calculate payroll. And that got much clearer to say the payroll that we're going to cover is basically the gross payroll we pay the employees plus state unemployment. The rest of the employer side of the FICA and the Medicare, we're not making additions to that, and we're not making subtractions for the employees. We're just doing gross plus the state unemployment. Federal unemployment, not covered. So interesting why. I don't know. But from our reading, it is gross plus state unemployment. All right. A follow-up question to one of the earlier questions. So those employer taxes are covered under PPP forgiveness? No. Again, it's gross payroll plus only the state unemployment. The rest of it, it depends on how you look at the definition. You know, you can kind of, you could just say that the employer side is and the employee side isn't, but they're equal. And so if you just do gross, it's picking up one of those. But you do not make additions for employer taxes other than state unemployment. What is the guidance on accruals on commissions, bonuses, payroll during the period that doesn't fall under the paid date? I might let you grab this one. I think it's clearly cash and incurred. So I'm going to let Beth answer the question for sure. I'm just going to tell you what my dealers are asking me is, can we pay our bonus early? And my answer to that is, yeah, you could pay a bonus early as long as you don't tell your employees, hey, this is really your Christmas bonus that we're giving you now. We just want to max out our PPP loans. You would really want to avoid statements like that. If you're paying a bonus, it's a bonus. If you're paying commission, it needs to be incurred and just paid at that point. But it is cash basis. Any different way to answer that, Beth? Nope. I think you got it exactly right. We really, again, because the SBA hasn't given us any good guidance, we think that it's the cash basis. So amounts that you pay, that you incur and pay during the period would count. If you decide to pay bonuses during that period or anything else, as long as it's not a dramatic acceleration of an employee's income, you could probably make additional payments within reason. But if these are large, completely out of the ordinary expenses, we don't think they'll count. All right. Received PPP funds on date paid payroll, which is after payroll period ended. Can this payment be used? That's what it sounds like. I'm sorry. It sounds like the PPP funds were received on a pay date is what happened. My thought would be if the covered period, at least the guidance right now says the covered period begins on the day you receive the payroll. They don't distinguish between the beginning of the day or the end of the day. I would say if you had expenses that day that you paid, those would qualify as covered expenses. That's also something they're going to have to address if in the clarification they actually do define that the covered period begins on the first date of a payroll after that. Because that's exactly the scenario that this person asked about. So my initial thought is it would qualify today. All right. A couple follow-ups here, and then we'll probably let everyone go. So they have a monthly draw and commission earned over that? Yeah, I think the question there, this monthly draw idea would be what I would say is if it's a monthly draw as in like a base salary and then they earn commission on top of that, to me those would both qualify. If that monthly draw is something they have to earn a commission against, then the question really becomes is I would think about it like this. If that person left employment before they ever earned the commission to pay up that amount of the draw, you have no way of getting it back and you're going to include it in their gross income, in their payroll. And so to me those would both qualify, although I've not seen anything specific in the guidance that gets down to that level of detail. So kind of Mark and Beth, have you guys seen anything different in that level of detail? No, I would agree with that. Okay. It's based on that you paid them the money, it would be included, so covered expense. All right. And one more follow-up and then one more new question, then we'll cut it off here and let everyone get to their happy hours or work or whatever they're doing. The federal – this is a follow-up to the question earlier. These federal Social Security, federal Medicare, and FETA are under employer liability on my ADP report. Yeah, I think the question there, again, is it probably depends on how your ADP report is. If you're trying to figure out what your payroll cost is, again, you simply look at the gross. Now, if the report is such that you never see gross, you're seeing net, and what do I got to add back? And so what you would need to do is if you only have net, you don't have a gross to look at, you would add back either the employee or the employer, Social Security and Medicare, because they're going to be the same amount. We split, you know, the employer pays half and the employee pays half. So if you're starting with a net, that's all you can have, add back one of them but not both of them, so that you're only getting 6.2%, 1.45% added back and not double that amount. I think that's the question. And federal unemployment is clear that that does not count at all. And so, again, the intent is to go to gross payroll. So, in other words, if I pay somebody $10 an hour and they work 10 hours, that's $100 that is my gross payroll, even though the net of that might be 92 after I take out the 7.45% or 7.65% in Medicare and Social Security. So 10 times 100. $100 is our gross amount that we would look at. Let's see. For a 401K contribution, it's normally after a year, after the year. How can we get funding to count in the eight-week period? So I think that question, there's two kind of years to look at in that question. One is, for distributors that are paying $10 an hour, they're paying $10 an hour. For distributors that have not contributed the employer side of the 401K contribution for 2019, maybe they've extended their tax return so they have until the extended due date to make that contribution and still get to deduct it back then. Our position and everything we've read in the guidance would say, if you make that contribution, the employer side of that contribution, during your covered period, it meets the definition of a qualified expense. So, therefore, on a 2019 contribution, if you make it here in 2020 during the covered period, we would count that as a qualified expense for the loan forgiveness calculation. Now, for the 2020 calculation, you've got people working right now, and you may have a match, and so you're accruing a contribution that you will pay for them in the future. Most employers wouldn't be making that contribution, the employer side of it, as they go. I believe employers could go ahead and say, hey, through my covered period ends June 15th. I'm going to go ahead and sometime before June 15th pay whatever I've accrued up to this point in the year. I think, again, the key is it has to be paid. Things that are compensation related have to be paid during the covered period. I do not believe what you could do is project out and say, well, we think for 2020 for the year, it's going to be this larger number, and, therefore, we're going to go ahead and pay that now because that time period has not happened yet. I would not go forward with it. I would keep it. If you're going to do something for the 2020 contribution, I would limit it to year-to-date, what you've incurred and accrued, and you actually need to pay it before the end of the covered period, before the end of the eight weeks. All right. I think, Net, you answered the last question here, which is the final question. We accrued an employee match for 2019, but it would not normally be paid out in April, which will be during our 60-day window. Will that be included in the forgiveness? Yes, it would. Yep. Yes. All right. Well, that is it. So if there are any other questions, I know Mark, Clinton, and Beth have been excellent about replying to questions after the webinar, and this webinar was recorded, so you may watch it again, listen again, or pass it along. But with that, I'd like to thank Mark, Clinton, and Beth for, once again, another excellent and informative webinar. I really appreciate the partnership that AED has with KCOISM, and thank you to everyone out there. So I hope everyone has a great weekend, and we'll talk very soon. And I actually would say one more thing, that once this loan forgiveness guidance, if it does come out next week, we will get that out to everyone as soon as possible, and we'll plan on a webinar at some point thereafter as well. So it's not the last you'll hear from us on loan forgiveness. With that, Mark, Clinton, and Beth, I don't know if you have anything else to add, or can we release everyone? Thank you, Daniel. We appreciate the opportunity. All right. Thanks, everyone. Have a great weekend. Bye-bye.

Paycheck Protection Program

PPP

forgiveness standards

Small Business Administration

SBA

documentation

loan forgiveness application

good faith

tracking requirements

HEROES Act

professional guidance