Hello, and welcome to this afternoon's webinar on the latest and greatest on the CARES Act and the Family First Coronavirus Response Act. I'm Daniel Fisher, AED's Vice President of Government Affairs. I'm joined today by Mark Johnson, Clinton Baker, and Beth Swanson from Keiko Isom. Before I turn it over to AED's President and CEO, Brian McGuire, 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. We do ask that you please hold the questions until the end. We found that during the last few weeks of doing these webinars that many of your questions do get answered as we're going along, so I do ask that you please hold your questions to type them in at the end, and we'll get to as many as we can in the time allotted. 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. Before I turn it over to Brian for some opening remarks, I do want to make sure everyone's aware that AED continues to engage with Congress and the administration to both continue providing relief to make sure that programs like the PPP program, which we'll talk a little bit about today, are fully funded and are working as well as possible, as well as hopefully expanding more relief to companies that may not have qualified for the PPP for being too large or affiliation rules or other reasons. So AED continues to work with policymakers here in D.C. to provide AED members with the maximum amount of relief possible during these difficult times. So with that, I'll turn it over to Brian McGuire to give some opening remarks. Brian? Thank you, Daniel. As Daniel said, AED continues to touch base with the congressional leadership as well as the administration on both the impacts of the current relief packages that have been sent and discussing what we think future legislation needs to include. There's been a lot of adjustments to the CARES Act since it initially was adopted, and we are very pleased to be joined here today with a panel of experts that should help us all answer some questions as well as troubleshoot some issues that some have encountered. So with that, let me turn it over to Mark Johnson. Mark? Uh-oh, you guys didn't hear a word I said, did you? We did not, Omar. Let me start that over. I apologize. Welcome. We figured you were on mute. I was on mute. I'll try to say that as far as I did the first time when you weren't hearing me. So anyway, I was just thanking you guys for hosting this, and we're glad to host again, and we're even more glad that the people that are attending today are attending another webinar. I'm sure you've attended many of them at this point, and we'll try to keep this to the updates. So the first thing I'd like to disclaim here is this is being presented based on data we had as of yesterday, or last night. And as you guys have been frustrated, as have we, over the past few weeks, this gets updated every single night. So sometimes we can make a brilliant presentation, and the next day our data is out of date. So we do want to make sure that you know that this is as of last night. According to whoever you read, to fill in the blank here, there has been quite a bit of number of these small business loans applications already processed. Larry Kudlow should know, there at the White House, as of 4-9, he said there was 500,000 loans processed, about $128 billion, that's the low estimate, it's also the earliest estimate. The latest one over the weekend was out by Inc.com, and as of 4-12, 725,000 loans and $182,000 billion. That's on our way to giving support to 30 million small businesses, and as you know, the bill was about $349 billion. It's possible, and we'll talk about that a little bit today, that there might be a little bit more funding from that, from the government, if they can continue to get along and pass legislation. Yeah, I think you're right, Mark, that it's interesting to think that we might already be halfway through the 3P program, which is a program that's gotten a lot of the attention so far. Like you said, we're going to spend today really focused on updates, so if you see some slides, if you've watched our presentation or someone else's before, to the participants' day, if you see slides that look familiar, we're not going to read them to you, but we do want to remind people, so far we've had three phases of economic stimulus that Congress has passed and the President has signed, and clearly the first one there was the Coronavirus Preparedness and Response Supplemental Appropriations Act, and it was part of the EIDL program. We won't touch much on that, only because there haven't been a lot of updates that have come out. The Families First Act, we will touch a little bit on, but again, seeing how these updates seem to take place every few days, there wasn't much that came out about that since the middle of last week. So we'll focus most of our time on the CARES Act. We will spend time going through the 3P program or the Paycheck Protection Program. In our graphic there, it would be the orange slice of the pie, roughly one-fourth of the total CARES Act, which was a couple trillion dollars. And then today, we're also going to spend some time talking about the Economic Stabilization Fund, specifically a program called the Main Street Lending Program that was just announced Thursday by the Federal Reserve, by the Treasury, and so that's part of the big component of the yellow part of that circle, and we'll spend quite a bit of time talking about that. Mark, why don't you go ahead and take us through the 3P program, or the PPP program, depending on what acronym different groups are using, on the updates of that. Yes, and surely many of you on the phone have already applied and possibly even received your money. While Quentin was talking, I did see one of the questions pop up there that said, process doesn't mean funded, and that is exactly right. So the numbers I showed on the first page of how many of them processed is not right as far as if you look at funding goes. However, many of the clients that we've processed for, I know, started seeing funding kind of trickle in last Thursday, and Thursday and Friday we got some pretty good funding, and then we've even seen notices from this morning. Certainly not all of them, but I'd say about 25% or so of the ones that we've processed have gone through and got some funding. So as many of you know, this program, you know, it's a pretty big deal. It's a forgivable loan. It's two and a half times your payroll, you know, all the things that you've said. So we just want to focus on some of the updates on here, and some of those have been around who actually qualifies for this, and we focused early on on that 500 number. The less than 500 employees, that's who qualifies for this loan. And that's, while it seems like a simple number, you count the 500, and if you've got more than 500, you don't qualify, and less than that you do. But even that number has gotten a little complicated. Part of that is because there has been, there was old SBA language and there's new SBA language as far as this Triple P program goes, and we can get hung up in some of the details for those. This one, there's sentences out there that say the affiliation rules can be waived. That one opened up a host of questions early on, particularly around the terminology on franchises. Most of our dealerships don't like to be called franchises, and most of the OEMs have shied away from calling them franchises, because the franchise law and dealership agreement law by state is quite a bit different. In most cases, dealerships wouldn't want to be considered a franchise just because of the rulings or the laws that govern that are a little more restrictive. However, last week or the week before now, some of the OEMs did file franchise indicator codes with the SBA, which meant that affiliation being waived rule was even bigger. That actually maybe caused even maybe some more confusion as some OEMs wound up having them and others said they were going to and wound up not having them. Let's just walk through what that actually means, that the affiliation rule is being waived. First off, we know that right now, Agco, Case, Case Construction, New Holland and Volvo Construction, they have all filed their indicator code with the SBA. That means not only are they a franchise, but they are listed on that all-important code. They're not the 7-2 code, which is the franchise code that we talked about early on. The hotels and restaurants and those FEIN codes that started with 7-2 were allowed to have more employees than that. This is a different one. This is just a franchise indicator code. It says we can waive the affiliation rules and these companies have done that. Not to worry though, if you're one of those companies, you're still a dealership, you're not a franchise, you're just considered franchise for this affiliation rule. What that affiliation rule essentially means though, and we did a lot of follow-up with this one, Daniel was instrumental in getting us hooked up with the NADA, which is the AED for auto dealerships, because they came out with some language that many of our dealers were referring to that said, okay, so if I'm now a franchise, then it doesn't matter if I have 1,000 employees as long as I have less than 500 employees per rooftop. That got us pretty excited, made us think that maybe several of our dealerships could be that way. We got in touch with NADA and got to the root level of where that was coming from. The auto dealers, particularly the auto dealers themselves and the small truck dealerships, not the large truck dealerships, they actually are organized quite a bit differently. Essentially every one of their rooftops had a separate OEM, a franchise agreement with their OEM. What that meant was each one of those franchise agreements dictated that, so as long as none of those, which we had translated and others had translated to be rooftops, every one of those could have up to 500 employees. That's not the case with most equipment dealers. Most equipment dealers have one agreement per entity. Even though they've got multiple locations, that won't, this ruling that the NADA was talking about, would not apply for most equipment dealers because of that. Unfortunately, it's still good though if you have the franchise indicator code, if you've got more than one entity and you've got lots of locations, then we can qualify you even though you've got more than 500 employees. There was some other language that came up that again was part of a, sometimes we see the law and sometimes it was passed and sometimes we see what SBA has been talking about in their press releases. One of the things that we see out there also is additionally a business can qualify as a small business if it meets two other tests. We call it the alternative size standard. Those are two that a lot of our dealerships wouldn't have the ability to meet because of the size restrictions, but some of you on the phone here might be that way. The first is maximal tangible net worth of the business can't be more than $15 million. Remember, that's a net tangible worth number. If you've got, for example, $20 million of inventory, but you've got $14 million floor plan inventory debt against that, then you're, in that case, less than $15 million. We're looking at net tangible worth of $15 million or less and it is an and, not an or, and the average net income for the last two fiscal years was less than $5 million. That is federal, that's net income after federal taxes. Depending on what you've done with depreciation and things like that, it could be that even a large dealership might have been able to get in underneath that $5 million net income, but not everyone on the phone, certainly. Beth, do you want to walk us through the headcount, actual terminology? Sure. For figuring out if your business employs not more than 500 people, we look at an overall headcount. Full-time, part-time, temporary, interns, anyone who is on your payroll counts as a person. This includes only employees whose resident is in the U.S., so if you have any H-2A labor, you get to back those employees out of your numbers. If you have a total headcount of 200 employees, but 50 of those employees are H-2A seasonal workers, you really only have 150 employees in your headcount. The SBA guidelines that were released on April 6th indicate that you can calculate your average employment based on the same time period that you used to determine what your average payroll costs are, or you can use SBA's usual calculation, which is the average number of employees per pay period in the 12 months prior to the date of the loan application. You'd be looking at all of the pay periods between April 1st, 2019, and March 31st, 2020. The SBA requires that applicants certify four things, that the uncertainty of current economic conditions makes the loan necessary, which doesn't mean that you have to see a financial impact at the time that you make the application, but rather that you're accepting it. If you are concerned about what your revenue stream is going to look like in the coming weeks, and you're expecting that you need additional cash flow in order to make sure that you make payroll, you can certify in good faith that the economic uncertainty makes the loan necessary. You also have to certify that the funds will be used to retain your workers and maintain payroll, make mortgage payments, lease payments, or utility payments, that you don't have an application pending for a PPP loan for the same purpose, or an EIDL loan pending for the same purpose, and you're not double dipping and including the same amounts twice. So essentially, you can't apply for an EIDL loan that covers your payroll costs and also apply for a PPP loan. Additionally, you have to certify that during the period between February 15th, 2020, and December 31st, 2020, that you haven't received amounts under the subsection for the same purpose. So if you applied for an EIDL loan between February 15th and the date of your PPP application, it can't cover the same payroll costs that you're applying for the PPP for. Mark, can you tell us about the maximum loan amount? Yes, I can. I'm sorry, I was on mute again. I was actually asking you a question. I've seen some of the questions pop up here, and we've seen them at other presentations we've done as well. The last bullet point on there in regards to if a bank like Wells Fargo or Bank of America or one of those banks that had shut down processing early, if they went ahead and said, oh my gosh, I've got to get funded, I've got to get processed, and so they've applied at two or three different banks, trying to find one that was still processing that day, how does that relate to your last bullet point question there? Sure. So we've seen this quite a bit, and our understanding is that as long as you don't have multiple banks processing your applications, the fact that you've been bank shopping to someone to process the application won't disqualify you from making that certification. Okay, perfect. All right, so the loan amount, again, it's two and a half times your payroll. That hasn't changed. What has maybe changed on that that we've seen is the definition of that payroll, there's been some language that came out that said that commissions weren't part of that payroll, and so while you're limited to $100,000 per employee, you can't go over the $100,000 when you're calculating the two and a half, you can go over $100,000 per employee when it comes to the commission. So an example is they've got a $50,000 base salary and a $60,000 commission from last year, that would have put their total compensation at $110,000, and so we would have had $10,000 over the $100,000 computation if we looked strictly at compensation, but the commission, because that component of it is what took them over $100,000, then that wouldn't count. We could still use $110,000 for their number. So that's kind of important, especially for dealerships that still have a pretty aggressive commission base and their employees are still performing under that and selling and getting lots of commissions. So that's an important update. The other, I think, is that, again, we still can't go over the $10,000,000. That hasn't changed. We did see some loans bump up against the $10,000,000 as we were getting those processed last week, and so it's important to remember that that is still out there. Other than that, not a lot has changed, but, Beth, you might go through some of these, again, some definitions of payroll costs, some of the instances we came across. Sure. So, essentially, the definition of payroll costs is the employee's net pay plus benefits. It, again, only includes your employees whose principal residence is in the U.S., so you'll exclude any payroll costs that you have associated to foreign workers, like H-2A workers and those employees. Employee benefits includes costs of vacation, parental, family, medical, or sick leave, any allowance for separation or dismissal, payments required for maintaining group health care benefits, including insurance premiums, payment of retirement benefits. On this bullet point in particular, we've seen a lot of questions around what really does health care benefits, and particularly group health care benefits, mean. One thing in particular to know is that the law says that you can include any payment that's required for maintaining your group health care. If you are a self-insured employer and you have payments that you're making to your third party administrator in order to cover claims that are made against that insurance, premiums for stopgap coverage, and any other sorts of payments that you're making in order to cover your group health benefits, those are all included in your payroll costs as costs of maintaining your group health coverage. With the payment of retirement benefits, we've seen a lot of questions about, okay, so I accrue amounts every month for my 401K contribution at the end of the year or my profit sharing plan. What do we do? The law says that payment of the retirement benefits is what triggers the inclusion in payroll costs. So there has to be an actual deposit into the retirement account in order to count that amount as a payment of retirement benefit and include it in your payroll costs. Additionally, state and local taxes that are assessed on compensation are included. One common question that we see here is, well, what about workers' comp? In many states, it's an insurance-based system rather than a true tax. And so we really haven't seen any good guidance from the SBA on whether to cover or rather to include workers' comp in that calculation. But we certainly see that there's a reasonable argument to make that that's really a tax that should be included. For sole proprietors and independent contractors, you include wages, commissions, income, net earnings from self-employment up to $100,000 on an annualized basis. So those are the things that payroll costs include. Yeah, Beth, I think a couple of others that you might want to talk about a little bit that, again, have come up in the past is, at first we were getting phone calls about applying for the PPP loans and people had already laid off a lot of workers. And we were like, uh-oh, that's basically a problem. But there is clarification on the ability to rehire and even give raises during this period as well. Is that correct? Right. So as long as you rehire employees by June 30th, you can include those payroll costs in your calculation. So if you laid employees off in the middle of March based on the decrease in demand for products or really any reason, you can certainly rehire those employees and continue to pay them. So that's really what the program is designed to cover. And again, when we look at forgiveness, and I know we'll talk about this in a little bit, but when we look at whether your headcount remains stable, we're also looking at you can include employees that you've rehired between the time that you get your loan and June 30th. So a double benefit there. Right. And also our S-Corporation dealerships that are paying their owner wages and where they might typically pay those owner wages in December. So they were included in our loan amount, but we might not be paying them monthly. To that extent, that might be something that we want to pay those owners as long as they don't go over the maximum number during this period as well. Correct? Correct. Okay. All right. So let's talk a little bit about, if I can get this slide to advance here. Uh-oh. Liz, I can't get this slide to advance. There we go. All right. So there's two ways we need to talk about these funds once they do get in your bank account. And I realize that several on the phone might be saying, man, I'll just be glad when that money does get funded. When it does get there, though, we want to talk about the difference on use of funds and forgiveness of funds. And as you can see here, the two bullet point columns, they do line up pretty well. The use of funds, again, as a reminder, it is not just payroll, there are some other operating expenses that you can pay for during this time period. Eight weeks does start on the day it's funded. So it doesn't start on the day that the contract was signed or applied or any of that. It counts when the money comes into your bank account. So we start because that's when you're going to use it, right? And so that's also when we start calculating for what will be forgiven. But in that, on both sides of the use and forgiveness, we can pay for payroll, interest, rent, utilities. And then there is some discrepancy on here. Again, I talked earlier about what the law says and what the SBA guidance has said. And I do want to be careful on this one. The last bullet point on both of them, there is that, and I'm just going to quote it so I don't misquote it. It says, this is what the law actually said. Interest on any other debt obligations that were incurred before 2015-2020 are included. So that is the law. But the SBA has, and maybe presumably intentionally, maybe not, has left off the interest on the other obligations other than the mortgage. And so it is our belief that the law and the intent obviously said any interest, which obviously for dealerships would include floor plan interest. That is something obviously we have to watch carefully. If that winds up the SBA saying that is not a forgivable use of the funds, then we want to make sure we understand that. Because certainly by the time we add floor plan interest on the payroll and all that, you definitely have all of your funds most likely forgiven. You might then actually wind up running into the calculation that you have to be careful of, no more than 25% – I said that backwards. No more than – at least 75% has to be payroll. No more than 25% can be the other stuff that is on here. As far as what are utilities, we've got that question quite a bit. And our opinion based on reading the law again is anything that keeps the building powered or communications up in the building or water, any of those kind of things. But it would also include communications and those kind of things, which would be your phone bills, etc. The other thing to remember is that the forgiveness of the funds is a tax-free event, at least at the federal level, in many states. There are some states that this will not be a tax-free event, and so it will wind up being taxable. But for most cases, it is going to be a tax-free event. It's not so tax-free, though, that you can't keep good records during this timeframe. So while we don't think it's necessary to put the money in a separate bank account and make transfers back and forth, if that's the best way that you can do to keep your bookkeeping clean, then we would suggest it. Otherwise, we do just suggest that that bookkeeping, whether you set up different codes or whether you're looking at that on a weekly basis or whatever during that eight-week time period, that we do afford ourselves the ability to turn in a pretty good package at the end of this that says, hey, here are the expenses I had, here's how they line up with the forgiveness of funds that are outlined in the law, and here's why I deserve full forgiveness on this debt. We think that's ultimately going to be as important as how we applied for the loan by the time we get to the end. There's a few other pieces of forgiveness on here. You need to pay attention to your full-time equivalent headcount during the timeframe. Officially, your timeframe between 2-15-19 and 6-30-19 as compared to this year is 2-15 and 6-30. Those are the program dates, and we've got to make sure that we look similar and we don't have a big decrease in employment. Further, we can't have more than a 25% reduction in pay, or we wind up having some things that are not forgiven. Again, we want as much of this money to be forgiven, but even if it's not, we'll walk through here in a second what that will look like. The lender is held harmless if the documentation is there, so that's why the lenders were able to process these loans so fast. That doesn't necessarily mean you'll be held harmless if you didn't pay attention to filing accurate data, so it is important that while we don't have guarantees and things like that with a normal loan, there is still an importance of submitting a proper application. Finally, if you wind up not having enough forgivable debt, there are funds that aren't forgiven. Those will be termed out to a two-year maximum. Originally, that had said it was going to be 10 years, and originally it said it was going to be a half-percent interest, and now we see that that's going to be 1% for the two-year amortization period. We still have all the normal loan fees, and the guarantees are waived, and the rest of the things that were waived before. I don't think we've seen any changes in that either. Again, pretty good program. You're not too late to qualify if you haven't already. I think there's been some press out there about could Congress possibly put another $250 billion in this program. That certainly is possible, although that, again, will require additional congressional approval to get that done, and we've already maybe even lucked out a little bit getting Congress to approve as much as they have. I would suggest that if you do find yourself eligible for a PPP loan, you do get that processed and submitted as soon as you can. Certainly, as the other programs start getting more attention, those funds will start being absorbed. Quinn, many of the people on the phone, though, have more than 500 employees. They might not have the right franchise designation that they need. Is there anything left for them? Absolutely, Mark. If I think about the original slide back on the or the original picture back on the second slide, the big circle, and a fourth of that circle is what you guys have just talked about there, the Paycheck Protection Program and some of the other funds for these less than 500 employee businesses. Another quarter of that circle was this Economic Stabilization Fund. It's about a $500 billion program. I don't want people to check out, though, and think, well, wait a second, I have less than 500 employees. I don't need to listen to this because there's a little teaser. The guidance right now from the Federal Reserve would say all businesses up to 10,000 employees are eligible, including those that are under 500 or that have maybe already filed for PPP, Paycheck Protection Program. So as a little teaser, don't tune out if you're under 500 because you think this just applies to people bigger than you. It could apply to you as well. Like I said, these first three bullet points here are some industries that are specifically looking at set aside for assistance, obviously airline industries, cargo carriers, and businesses pertaining to national security, vital that they have access to resources. But the big part of this program is really for any business, and there's a number of programs under that $454 billion. The main one we're talking about right now is the Paycheck Protection Program. It's under that $454 billion. The main one we're going to focus on is the Main Street Lending Program because many of the other aspects of that are between the Fed and the banking system. But this Main Street Lending Program will impact businesses directly. Interestingly, in the CARES Act, I have a quote in my notes. I won't read the whole quote, but there's a particular provision in there in the legislation where it outlines the guidelines, I'll call them the guiding principles for lack of a better term, and then says that, but nothing in this paragraph shall limit the discretion of the Board of Governors of the Federal Reserve to establish this program as long as it's consistent with prior law. So the Fed has been given a lot of latitude, and they've already begun to exercise that. So on the next slide, you'll see how we've added to the top of the header there, questions are greater than answers, just meaning in terms of number of volume of them. So to be eligible for the Main Street Lending Program, the business has to be based in the U.S. It also has to have most of its operations and employees here in the U.S. They can have foreign activities, they can have foreign employees, but the majority of them need to be here in the U.S. It's also up to 10,000 employees. It's a pretty big number. The numbers I read the other day said these mid-sized businesses account for about 30 percent of all employees in the U.S. work for a company that fits in this category. So it's a pretty big part of our economy. A couple of the other questions we've gotten is, does this apply to employers with less than 500 employees? So again, I gave you the teaser earlier. I'll tell you right now, the press release from the Federal Reserve says absolutely. I mean, it's on their website right now, which is about the best guidance we have, other than the CARES Act itself is the one piece of paper that they've released. And it specifically says on there, companies that qualified for the PPP may also use this program. Another question that we've gotten is, can it be used with other EIDL and some other programs? And as of right now, we don't have any guidance on that. The Fed has been silent on that. I think what they're seeing is just where are most of the applications going, and knowing that the 3P program is the largest one they addressed yet. Another requirement to be eligible is they must have annual revenue from 2019 of less than $2.5 billion. The guidance from the Federal Reserve actually says it's an or. So it can be up to 10,000 employees or revenue less than $2.5 billion. My guess is for those of us on the call today, we're probably not bumping up against both of those limits. And then loans prior to April 8th that were in existence are eligible for what is an expansion program. Again, probably not applicable to most of us on the call. I think the key date those of us on the call need to pay attention to is September 30th. And so this program legislatively runs through September 30th. That's when this special purpose vehicle that the Fed has created to fund the Main Street program, that's when it's set to expire and wrap up paperwork by the end of the calendar year. I would say like all of the economic stimulus programs that are out there, there's a good chance if we get to the end of it and things aren't done or the money's not all used or there's more demand for it, it will have either been replaced or funded by some other subsequent stimulus bill that's been passed or just a general extension. So generally it's pretty broad reaching. I didn't put it on the bullet point, but I've been asked the question, are there certain industries that are excluded from using this program? And what I can say is nothing we've read either in the law or the press release in the term sheet would indicate certain industries get excluded from this. So it's really pretty open to all. The next slide here really gets into a little bit more of the details of the application process. I will say the formal application has not been released yet. In fact, the Federal Reserve is taking public comment for another three days on this program. Later in the slides there will be a place where we provide the URL where a person can go to add public comment if they would like. And my guess is that would be through Thursday. My guess is on Friday we probably get guidance and a copy of whatever loan application. Although if you think about the program in general, it's really a pretty friendly traditional bank financing loan program. It is a four-year term. It also has an adjustable rate, and that rate you can see on the second bullet point there is 250 to 400 basis points, so 2.5 to 4%. Above the overnight federal rate, which the current overnight federal rate is 1.1% as of the end of last week. So basically it's a 2.5 to a 4% loan. It is for four years, but the first year the principal and interest payments are deferred, and so nothing would be due the first year. The minimum amount of the loan is $1 million, and the maximum amount of loan is $25 million. Now we've heard some people say, well, wait a second, I've seen up to $150 million. Well, there is a provision that allows an expansion of the loan up to $150 million, but that's only if you already had a Main Street loan in place prior to April 8th. That's why we noted the date on the last slide. So assuming probably at most one person on this call, most likely no one on this call had a loan at that point in time, we'll work with the $25 million maximum amount of the loan. The loan is then limited to four times the 2019 EBITDA, earnings before interest taxes, depreciation, and amortization of the business. It's not the loan itself that's actually limited to that. It's actually the amount that can be borrowed under this program when added to the other lending that the business has in place cannot exceed four times EBITDA. So we've gotten questions from some clients about, hey, I expanded my rental fleet last year, and I took all this tax depreciation. I have zero taxable income. How does that affect this calculation? We've had others who have said, well, my GAP, my Generally Accepted Accounting Principles, and that income was X, and if I add all these back, I come up with Y. Right now it's unclear as to whether we're dealing with EBITDA from a GAP perspective, or in other words, you're audited or reviewed financials, or whether we're dealing with a tax basis EBITDA. I would guess we're probably dealing with a GAP basis EBITDA because it more accurately reflects the financial position of an organization, but we might get guidance on that that says otherwise. There are also a couple of other notes here. Common questions we've gotten is, is there a prepayment penalty? And the answer is no. There's no prepayment penalty. In fact, you're going to see some restrictions on a later slide that some people we've talked with have already said, well, if one of those restrictions kicked in, could I just pay the loan off to where I was not subject to the restrictions? And in some cases the answer is, well, the answer is always yes, you can pay the loan off. Whether that gets you out of the limitation or not, that we'll talk about on the next slide, then that's a different issue. And then finally, the big bullet point is, these loans are not eligible for loan forgiveness. And Mark and Beth and Daniel and I, Brian, were talking shortly before this call as we were online just to make sure we were all connected. We were saying, my, how times change in such a short period of time. You know, a loan that's a 2.5% to 4% term loan that's a pretty friendly qualification process three months ago probably would have sounded like a pretty good loan. And all of a sudden now, because of the 3P program and it's a loan forgiveness program, I think some people are like, well, wait a second, this Main Street program is not forgivable. That's a horrible deal. And the reality is it's not a horrible deal. It's just perceptions have changed in the last few weeks. So on the next slide, we bullet pointed several of the key restrictions. And there are actually 10 restrictions enumerated in the CARES Act itself and in the Title IV, which is the part that covers the Economic Stabilization Fund. But these top four ones here are the ones that have gotten most people's attention pretty quickly. And that is, one is the dividends and capital distributions that are based upon common stock are restricted. And so it will be interesting to see, clearly preferred stock was left out of that. But then it will be interesting to see what guidance comes out of, well, how would this affect an S-corporation or a partnership? Clearly, partnerships do not have stock. They have partnership units. LLCs do not have stock. They have member units. S-corporations do have common stock. And generally, the distributions would follow common stock. That's the default rule. And both LLCs, partnerships, and S-corps, of course, all need to make distributions usually to the owners so the owners can pay tax. So the guidance that comes out related to this dividend and capital distribution will be an interesting topic to watch. So far, again, the law is silent other than what I've just said about the capital stock. The guidance also only mentions capital stock. Another question that has caught a lot of people's attention are the compensation limits. And these compensation limits apply not just during the term of the loan but also for another year after the loan. And so this is one where the person I was talking with the other day that said, could I just pay off the loan if I wanted or needed to spend more in compensation? The answer is, yeah, but you're going to have to wait a year. And so we've titled this here Officers and Employees Who Are Paid. But it's really, I mean, clearly anyone who's paid. I guess everyone would fall under one of those two categories. Basically, if you make more than $425,000 in 2019, I used a nice clean calendar cutoff for the test here. If you made more than $425,000 in 2019, then on a consecutive 12-month period, so think of this as a rolling 12 as we talk about in the dealership world, on a rolling 12 months, you can never have those rolling 12 months where a person makes more than whatever they made in 2019. So it really, it caps you at that. Basically, you can't get a raise. And if someone made more than $3 million of compensation, now the compensation would not include, presumably would not include the capital distributions, then if you made more than $3 million in 2019, then you're limited to $3 million plus 50% of the excess of the $3 million. So let's say somebody makes $5 million a year. Good for them. Basically, they're going to be limited to $4 million going forward because it's the $3 million plus 50% of the amount over. So those are the big compensation limits. Employment limit then is one that is very different from what the law says versus what the guidance that has come out so far would be. The law had a very bright line test that said as of September 30th, you have to maintain in order to qualify for this program 90% of your workforce and 90% of your payroll from before the emergency was declared. I forget the exact testing date they used. I want to say it was in February of 2020. The guidance that came out, again, merely through a press release and a term sheet, the Federal Reserve said basically you just have to attest that you will make an effort, a reasonable effort to maintain payroll and retain workers during this period. They took the bright line of 90% off and basically said try. And then this last bullet point here, I don't know that it affects many people on the call, but basically public stock buybacks are not allowed during the repayment period and I believe it's up to another year or two after. So I think that's aimed at some of the smaller publicly held companies that say if you qualify under this program, we're not going to allow you to buy your shares back. And then on the next slide, this is our last slide related to the Main Street Lending Program. Just a few comments here. These are some of these other certifications or other restrictions that are on these loans. One is the company cannot be in bankruptcy at the time of application. And if you think about it, it makes sense for a couple of reasons. I mean, one, this is not designed to be a bailout type loan, especially since it goes through a traditional bank and is subject to underwriting. So can't be in bankruptcy. You also are going to attest that you will not outsource or offshore jobs for the term of the loan plus two years. And it's interesting, when they say outsource, I assume we'll get clarification on what that means. I don't think that just means you can't use contractors, subcontractors and advisors and things like that. I think they're meaning you can't outsource out of the United States, would be my guess. And then these last two, one of them has a word I had to look up here, will not abrogate. I don't even know that I'm saying that right, but I do know I had to look that up. In other words, you will not do away with any collective bargaining agreements that you have today. And then finally, the last bullet point, which I know we've got a couple of questions about already, and that is that you'll be neutral in any organizing effort during the term of the loan. So those are some of the certifications. Again, at a really high level, it's a pretty friendly loan. It does go through normal underwriting, but has some government assistance there. And what that assistance looks like, we didn't outline it because it's not the audience here, but what that government assistance looks like is the government, the Fed will be buying 95% of each one of these loans. So the bank will be on the hook for 5% of the loan that's done to encourage them to do good underwriting, and then the government will be guaranteeing the other 95% of the loans. But all in all, it's a pretty friendly program. Mark, I'll turn it over to you, if you don't mind, and have you talk about the EIDL program. Yeah, as I make the transition, I think one of the things that we'll be transitioning back to, and so let me be clear, what Clinton just laid out there was a program that's going to be administered by the Federal Reserve. And it was a program that was, most of the language, as you can see, is designed around big publicly traded businesses. And so some of that wording sounds weird for us to talk about it with this group, but that's why it's there. The EIDL loan is back to another SBA loan. And so one of the things that we've seen is the SBA has been overwhelmed, might be a wrong word, it seems like they're overwhelmed from our standpoint, just in the way they can, how fast they can process and the amount of clarifications that come out every day. So we'll see if the Federal Reserve does any different with the Main Street program. So the EIDL loan, for being the first phase of the legislation, we haven't heard much about this one since it came out. Again, this is the type of program that many people may have thought of about when they hear about economic stimulus. It's usually designed around the government helping out during a disaster and is one of the reasons that all the states were fast to declare themselves disaster zones, so that this funding could be available. As such, it's a very long-standing program. So these EIDL loans have been around for a long time. On these, the one specifically is it's related to the coronavirus is the obligations, you'll notice one of the questions we get is, do we have to have a downturn? Because it's really hard to prove, especially as a dealership, is my downturn now, is it going to be six months from now, is it going to be a year from now? Will there be a downturn or will it just be an economic change? I don't know that we know the answer to that, but there isn't necessarily an ability for us to show that there's a downturn right now. What this loan, though, talks about is there are certainly supply disruptions and you can cover obligations that because of this economic impact that you've had, that we can cover supply disruption, rent and mortgage, payroll. Can't cover payroll, though, if we have got a PPP loan, but we've also got the PPP loan for payroll, so we can't double up there. We can also cover the emergency leave expenses. So it covers a wide range of the expenses on there. It's been taking a lot of heat in the media because it's been slow to come out so far, much slower than a typical disaster loan that we would have seen for a tornado or a hurricane in the past. Even the loan amount is a little bit confusing on this one. It says that there was a $2 million maximum. However, there's potential to do an advancement right now for $10,000. The companies could get up to $15,000. I'm reading from the SBA here. They could get a maximum of up to $15,000 based on two months of working capital as of right now, but nowhere do we actually see in this thing being carried out so far that we're getting anywhere near the $2 million maximum that the program said it was designed around, although it is a maximum, so I suppose there's a minimum that's something less than that. Right now, it appears to be these are generally $10,000 to $15,000 loans, trying to help as many businesses as possible at first, and so that's why it was the first part of the program quickly replaced in popularity by the PPP. Beth, we haven't talked much about Family First Leave. That was some of the stuff that came out very early on, too. What's new there? Yeah, so on the 4th, the Department of Labor gave us some much-needed clarification around what circumstances qualify for paid leave. A couple of important updates. The definition of child has expanded to cover the same definition as for FMLA purposes, which means that it's any child of the employee that's under the age of 18 or an adult child who is unable to care for themselves due to disability. So if you have employees with adult children who are unable to care for themselves and their place of care has closed, that is a qualifying leave circumstance under the law based on the regulations. Additionally, the term governmental order gave us some really great clarification. Based on their FAQs, it looked like the Department of Labor was going to say that a governmental order was not going to include a stay-home order, but the regulations clarify that the stay-home order is absolutely a qualifying reason for employees to be unable to work, assuming that the employee's place of employment is otherwise open and the employee could work if the place of employment was open. So, for example, a coffee shop that has shut down due to a stay-home order, its employees could not take paid leave while the coffee shop was shut down because of the stay-home order because the employer is not otherwise open. That may have limited application for this group here, but it was an example that we saw in the Department of Labor's explanations that I think gives some really good context to what they're talking about when they say that if an employee could otherwise work, the governmental order is a valid reason for emergency paid sick leave. Additionally, isolation based on the health provider's advice was clarified a little bit. So, the regulations listed the common COVID-19 symptoms plus the definition of seeking medical diagnosis. So, an employee that is experiencing the common symptoms of COVID-19 means that they have a fever, dry cough, shortness of breath, or anything else that the CDC has listed as a symptom of COVID-19. Employees are able to only take time off between the onset of those symptoms and the end of their doctor's appointment. And after that, it is up to whether the doctor says, you need to quarantine until we get your test results or you need to quarantine for two weeks because you have all of these symptoms, but we can't test you because tests aren't available. So, that starts a second set of qualifying paid sick leave. So, there's still only 80 hours, but you have to kind of segment the qualifying leave hours based on essentially pre-doctor's appointment and post-doctor's appointment. The isolation based on health provider's advice also is expanded to include advice of health care providers for people who are particularly high risk. And this also is covered in the governmental order as well, that if your local health department says, we recommend that high risk people stay home, that is considered an isolation order that qualifies for paid sick leave. The regulations also go through and spend probably 10 pages or so on how to calculate part-time and variable hour employees leave amounts. So, we've got some pretty good clarity around what an employer needs to do to figure out what part-time employees leave is, or the amount of hours that they're eligible for. We've also got a clarification on the small employer exemption. We were afraid that there was going to be an application process where the Department of Labor was going to review the information that employers submitted and make a determination of whether the employer is actually eligible for that exemption. But instead, the regulations list out three objective criteria for an employer to determine on their own and document whether they're exempt from offering the paid leave. So, again, this small employer exemption is for employers with fewer than 50 employees. And those three objective criteria are revenue-based, skills-based, or staffing-based. So, the revenue-based is essentially that if childcare-related leave of an employee would cause the business' expenses and financial obligations to exceed available revenue and cause the business to cease operating at a minimal capacity, you can exclude employees from taking childcare-related paid leave. The skills-based section is about the particular employee's skills. So, if they have unique or specialized skills, knowledge of the business, or responsibilities that would cause substantial risk to the business' financial health, you can exempt yourself from allowing that employee to take childcare-related paid sick leave. Staffing-based is that there aren't sufficient employees with the required ability, willingness, and qualifications available to cover the shifts that the employee would be absent for. So, essentially, if you don't have anyone else to cover the shifts that your employee would miss, then you can refuse to allow your employee to take that paid sick leave. Those are our main updates on that. There are extensive Q&As on the DOL's website. At last check, there were almost 80 of them, and they've been a real good source of information for figuring out the more unique situations. Very good. Beth, I see we're about out of time, so I want Daniel to be able to ask us some questions. I don't want anybody on the phone call, though, here to lose sight of the fact that there were significant business tax provisions that were also part of this, including just about any tax filing or tax payment that was due prior to July 1st of this year will be due July 15th of this year, so your 415 payments and filings are due 715, and same with your second quarter estimate payments. The other two big things are the NOL, being able to carry that back again, and the interest expense limitation went from 30% up to 50%. Again, I apologize we kind of ran short on that to get those pointed out, but I want to be able to get to your questions. Daniel, with that, I think I'll turn it back to you. Thank you very much. That was very comprehensive. As those of you on the call can see, these things are changing. This is just an update, and it took an hour. These rules and regulations are changing, and I would expect more changes to the PPP, or the Triple P Program, as Clint likes to call it, as well as to the Main Street Lending Program. Details are still fluid, and I'd expect many changes to both those programs as we move forward here, as Congress and the administration make changes. With that, I will go to the questions. I did not understand your conclusion to dealership representing an OEM with a franchise number. Did you say, if all my locations are one dealer contract, then I don't qualify regardless of my OEM's franchise number? That is correct. It still comes back to the 500 employees. If you've got 1,000 employees, but you've got three contracts, and let's say you've got 330 employees per location's contract, then you are under the 500, even though you have 1,000. But if you've only got the one contract, then you're still limited to that 500. That's some of the clarification that has been back and forth for the last week or so, and I think that's also part of why some of the dealers wound up filing that differently than they thought they were going to, or some of the manufacturers, I mean, because it wound up not being as beneficial as it looked to be, than it is for the car dealerships. Hey, Mark. Mark, I might add, it's your contract, but it's also your different legal entities. The example I think you and I worked through was, let's say you had three, typically in the car industry, if they have three Mazda locations, for example, let's say one in Indianapolis, one in Kansas City, and one in Washington, D.C., then they're going to have three separate legal entities, each legal entity with its own contract. That would be allowed, but typically in dealerships, they will have, even if they have, let's say, an ag contract and a golf contract and a consumer worksite contract, a lot of times they'll have all three of those in the same legal entity with multiple locations. Part of it's the contract, and the other part is the legal entity. All right. Are bonuses to department managers considered to be the same as commissions related to the employee tax? My understanding is no. Bonuses are still compensation, or a commission is kind of risk-based based on performance. The employee bonus is more the performance of the company, and so it's compensation different than the commission. All right. We had a question about whether you recommend a separate bank account instead of commingling the funds from the PPP. I believe you did address that. I don't know if you have any other thoughts on that. Just being involved with dealerships and auditing dealerships, I know how you send a check or a wire over to your payroll company to pay your payroll. You send one to your OEM to pay your interest. If all of a sudden we have to do one more step to get that out of another bank account, then that's probably going to be a big pain in the neck for people. Now, granted, we are getting a free loan, and it's forgiveness and all that kind of stuff, so maybe we should have a little bit of pain in the neck. But I don't think you need an extra bank account. There's certainly nothing in the law that says you have to put that in its own bank account and track it separately. The law just says you have to have good bookkeeping and be able to, again, produce the forgiveness package at the end that says I spent the money the way I said I was going to spend it. All right. What if the owner of the company is the owner of the property the company is renting? Is it still forgivable? Beth, do you want to take that one on rent? I think rent is rent as long as the lease agreement was written prior. Right. So the only thing that we have seen on that, the thing that we're mainly cautioning clients on there is to make sure that the rent that you've agreed to is based on the fair market value or the fair rental value of the property. But other than that, there are no restrictions about paying rent to or between related parties. As long as it's, again, same with any rent, though, that it's for the accrued period and not paid in advance and that kind of thing. Yep. Right. All right. I think the other clarification we got on that was rent is not just for real estate either. I mean, is that your understanding as well, Beth, that when you think about rental, they might be renting equipment or they might be renting something else? I mean, the point is rent is rent as long as it's subject to a fair market value contract. Right. There are a couple of different provisions in the CARES Act that lead us to conclude that it's not about just real estate, but that personal property rentals or equipment rentals definitely count toward that rent or lease obligation. Could the company use FF paid leave if an employee tested positive for COVID-19 and an employer shut down an operation for a week to clean and leave time between when a positive employee was at facility and when other employees come back to the facility? We haven't seen a situation like that yet, so I can't say with any confidence. I would say that it makes sense to – it would make sense to give employees the federal required paid leave. However, the Department of Labor has been pretty specific that when you have to shut down operations, that if employees don't otherwise have work to do, that's not really qualifying leave. That said, I think an argument could be made to take the leave one way or the other. It's really just a gray area. If we are approved for the PPP, are we able to get tax credit for the emergency sick pay and emergency FMLA? So if you – yes. The answer is yes, but it doesn't count toward your payroll costs. So you would have to be careful and make sure that you are spending the remainder of your loan proceeds on eligible forgivable expenses. All right. And then there's one question that came in via email here. I guess when does the – when do you have to have 500 employees to qualify for the PPP? So the question is, if you were to lay off – say you're just over 500 employees, you were to lay off to get under that 500 employees before you apply for the PPP loan, can you then qualify for the PPP, or is it – at what point, I guess, do you have to – do you have to be under the 500 employees? Yes, I'm glad somebody asked that question, Daniel, because you could also use this to your benefit if you're – if you're not eligible for the PPP. So where that 500 definition comes in is where – what your average payroll was during the period that you're looking at. So whether you chose a calendar year, that that's what you're submitting as your PPP loan, or whether you did a rolling 12 during some period after 1231, whether you chose a calendar year, that's what you're submitting as your PPP loan, or whether you did a rolling 12 during some period after 1231, what you do is with each one of those payroll cycles during that, you figure out what was – how many – essentially, how many checks did you cut to say what was my average payroll number during that time period. And so that is where the 500 number comes in, and so that was why we would say we might have to rehire somebody to get back to that, but it's also a very good case where we had a – Clint and I were talking to a dealership that has specific examples, so they had 400 – they had 496 full-time employees and 30 part-time employees, and so he just was not going to apply for the PPP loan because he said, well, I'm over 500. But he had done a merger early in the year, and some of those part-time people, that was headcount, so it was – they didn't pay him all year long. He paid some sometimes and some some other times, and so when we looked at his actual payroll by pay period during that time frame, his number was 497 average paid people. And so all of a sudden, what he thought was 526 employees was 497, and he did actually qualify to submit an application for the PPP. So that 500 goes back to – it's kind of a rolling number. It also means that if I'm at 520 and I'm going to submit my PPP application tomorrow, it doesn't make sense for me to fire 21 people, so I'm at 499 people and now all of a sudden magically qualify for the loan because it's a look-back period over those averages. All right. Well, that is all the questions for now. So you guys obviously on the call have Mark, Clinton, and Beth's contact info on that slide there. Again, this webinar is recorded, and you can go back and listen to or watch, and I'm assuming it's okay for people without further follow-up questions to reach out to you guys, Mark, Clinton, Beth. And make sure to stay tuned to AED for further updates as we receive them, which seems almost on a daily basis. And for the latest and greatest, do go to aednet.org, to our coronavirus update website. We post new regulations and updates every day to that, and so that's really where the most updated and best information you're going to get from AED is. So with that, thank you to Keiko Isom's team. Really appreciate our partnership on this. And to everyone else out there, stay safe, and we'll talk soon.

CARES Act

Family First Coronavirus Response Act

Paycheck Protection Program

Main Street Lending Program

Economic Injury Disaster Loan

forgivable loan

eligibility criteria

loan forgiveness

record-keeping

documentation