Want A PPP loan? Get Moving, Experts Advise

With the application process already well underway for small companies to apply for assistance under the 3P provision of the CARES Act, a group of people who will be helping companies through the process had a message: Get moving if you want some money from the program.

In a webinar produced by the Truckload Carriers Association and hosted on FreightWavesTV, Michael Letsch of the Bank of America (BOA) made it clear what a company seeking assistance needs to do: "Talk to your lender yesterday," he said.

The primary means of assistance under CARES for trucking companies will be the Payroll Protection Program (PPP), which is a roughly $350 billion program designed to keep people on company payrolls. Fred Price, the CFO of JRayl Transport of Akron, said his company had already applied for assistance. But he added that when he asked his banker when he might be getting the money, Price said the banker responded that he didn't know.

Letsch, the senior relationship manager for transportation and logistics at BOA, said he has been telling clients that the wait time is generally three to five days to upload all the documents and then another three to five days once it gets to the Small Business Administration (SBA), which is administering the program. "So it is probably a couple of weeks if you got your application in on day one," Letsch said.

But after listening to the four-person webinar team discuss the uncertainties of the program, it's clear there are a lot of things even these experts did not know. Eligibility is the leading issue.

The PPP is targeted at companies with 500 workers or fewer. Under the terms of the PPP, employers can borrow up to $10 million at a calculation of 2.5 times payroll at terms that are extremely generous to nonexistent. Specifically, there is no requirement to pay back the loan if certain criteria regarding keeping people employed are met.

The program is designed to aid companies harmed by the current economy. Applicants need to sign an attestation that it has suffered. But as Letsch asked, "How harmed do companies need to be to accept these grants?"

Steven Pletcher, an attorney on the call from Scopelitis Garvin, Light, Hanson & Feary noted that the definition of that is "not a bright line test. It's about getting this money out into the economy." Beyond the attestation, Pletcher added, you don't need to show any specific evidence of how the COVID-19 crisis is impacting you. "But I don't think it hurts if you are able to track that you lost customers or that your revenue dipped by a certain amount," he said. "So if there were any questions, you have evidence that you had a good-faith belief based on the numbers we were seeing."

Counting up those employees and maintaining their status remains a challenge for companies. But it's key. As Randy Hooper, partner at the transportation consulting firm of Katz, Sapper & Miller, said, there are four "different buckets" that can be paid for by PPP money: rent, utilities, interest on loans taken out prior to Feb. 15 and payroll, which he called "the main driver." Three-quarters of the receipts of the loans must be paid out in payroll.

A common theme among the questions fielded by TCA President John Lyboldt on the webinar involved counting payroll and counting expenses. The law firm of Scopelitis, Garvin, Light, Hanson & Feary was represented on the webinar by attorney Steven Pletcher. His firm recently hosted a similar webinar in which the question of counting independent contractors as part of the payroll base was discussed. The conclusion on that webinar was that they wouldn't count and even if a company could sneak those expenses into the payroll base, it probably wasn't a good idea because it would set up the possibility of that coming back to haunt them in classification battles down the line. That message was reiterated on the TCA webinar not only by Pletcher but by others.

But even with that settled, it leaves plenty of other questions. For example, what employee expenses can be considered as part of the payroll base? Hooper said it includes a lot: salaries and other wages, commissions, tips, vacation pay, health insurance and retirement payments, and state and local taxes.

One thing he said is not in there: per diems. Hooper said that would not be considered part of wages and should not be included in the borrowing base.

How do you count employees? Hooper said the standards are similar to what would be used to count employees to determine their requirements under the Affordable Care Act. "What I've read so far is that it is based on an employee who works 30 hours per week," Hooper said. If there were two employees who each worked 15 hours per week, that would count as one employee, he said. But a workaholic who works 80 hours per week would still be counted as one full time employee, Hooper added.

With the PPP set up to keep people on a payroll, the incentives can be clearly seen for a company not to let people go. For example, Hooper also laid out the scenario in which a company is thinking of laying off 10 people to cut costs. But as he noted, given the terms of the PPP, the owner would be better off cutting everybody's hours down to 95% of normal. The workers left behind are making less, and the size of the payroll to be borrowed against would shrink, but they are still considered FTEs under PPP. "If you cut you are absolutely harmed, so that may be a planning point out there," he said.

There also is a provision that would allow a company to bring back an employee before June 30 who has been laid off and still count as an FTE. 

The phrase "we need more guidance" was heard throughout the call, but never as much as on the question of counting to 500.

The overriding question: Is the trucking company a stand-alone firm with fewer than 500 employees, or is it one component of a bigger entity that when combined exceeds 500 employees? And if it is, is it eligible for PPP relief?

Pletcher noted that one of the reasons there are no hard and fast rules is that, according to the FAQs published by the Department of Treasury about the PPP, "they make clear that it is the responsibility of the borrower, not the lenders, to make that determination whether you have entities that should be affiliated or not."

He added that there are criteria set out by the SBA regarding affiliations that can be looked to for guidance. The SBA rules look to the question of "whether one entity controls another, and whether it is exercising that control."

Hooper indicated that classifications can vary. For example, if a trucking company is affiliated with a company that is in an industry that has a more than 500-person cap, looking into whether that affiliation can bring a firm under the larger cap of a separate industry should be explored.

What is the role of your banker in this process? While the money may be coming from the federal government, it is going to be banks big and small that direct the process. Letsch said. BOA's policy is that it is servicing only existing clients. But he added that the policies are "bank by bank and not uniform."

On the webinar, Letsch said BOA had received more than 250,000 applications, for more than $30 billion. There are no specific bank-by-bank allocations, he said; rather, it's "first come, first served." "So if you think you are eligible, and you think you can seek loan forgiveness, I'd advise you to turn in an application," Letsch said.