SBA Loans, Coronavirus Stimulus, & CARES: How to fund your construction business

Your construction business can stay afloat despite the COVID-19 economy thanks to a number of relief programs and funding options.

Join this webinar to learn:

• How the SBA/CARES/stimulus helps construction businesses
• How to qualify and apply
• Additional actions to take to keep your business funded

Full Webinar Transcript

Michael:
Today’s agenda, we’re going to cover SBA, the cares act, the paycheck, um, the, uh, the PPP, the stimulus, and how these programs apply and who qualifies and then some additional actions to take in addition to these SBA products. I’m Michael Williams, the manager of financial services here at, uh, at Levelset and we have Jon Fry, the founder and CEO of Lendflow, one of our really good partners who helps us provide financing to our user base. So without further ado, over to you, over to you John.

Jon:
Yeah, super excited to uh, be able to hop on and um, it’s been a great partnering with, uh, Levelset as well. What we’re doing at Lendflow is, you know, we plug in and integrate into software companies just like Levelset to provide them technic technology to allow them to connect their customers, uh, with the capital they need to grow the business. Um, and it’s, it’s been great working so far and uh, super excited to be here and see where we can help them provide value.

Michael:
And for those of you who are new to Levelset or unfamiliar with Levelset, quite simply, we help you get paid. Uh, we help contractors and construction companies manage their payments and help them get paid faster. And one of the ways we do that is through our partnership with Lendflow to help give our user base access to working capital products and other financial services products.

Jon:
Yeah. Awesome. Well, I’ll go ahead and dive in. And so first we’ll do the overview of the SBA, the cares act, uh, the PPP. Um, and uh, yeah, so first the SBA, um, they are tasked with um, guaranteeing loans to small businesses, um, up to $5 million. And this is to encourage, uh, lenders and banks to lend to companies. They may otherwise not be incentivized to do that. And you guys are probably familiar with this a bit under the SBA seven program. Um, that’s the, the primary one. Um, and it’s also important to remember the SBA doesn’t actually issue the loans themselves. These loans are made by banks and the SBA guarantees them. Uh, and so this is, you know, comes into play later when we get into the PPV a little bit more and really understanding how that works. Um, also important to know, you know, the scale of what we’re dealing with now relative to what the SBA is usually used to in terms of volume.

Jon:
So give you some context. Last year, 2019, 23 billion in loans were issued over the course of the entire year. So now we are, uh, we are, they are tasked with issuing $349 billion in loans and uh, in about two weeks. So it just order of magnitudes, um, you know, more challenging, more complex, uh, and more volume than there ever used to to handle it. Uh, hopefully long term, medium, long term, this is going to make them a much more efficient lender. They haven’t had the best reputation. So yeah, looking for silver linings with the SBA there. Uh, next we’ll kind of just go into how it really works and I don’t want to get down into too many details or complex financial complexities and confuse you guys, but I think it is important. There is confusion about, about how it exactly works. And so I just want to run through that.

Jon:
Again, the SBA isn’t issuing these loans directly. They have given this off to banks and in other cases, you know, also started to get this off the FinTech companies as well. And you may have read a little bit about that. Mmm. You know, when the program first started, one of the biggest challenges was that there wasn’t any, um, there wasn’t any place for the banks to pull money from in order to successfully make these loans. That means they were making loans off of their own balance sheets so they could only make loans, um, from cash that they had on hand in sitting in their bank account. And that means that their volumes, the liquidity wasn’t very high. You know, they just don’t keep a ton of just free cash sitting there because they wouldn’t be doing a very good job of being a bank if they were doing that, not reinvesting that money.

Jon:
About a week ago, about a week after the program launched, the one week ago, um, the treasury set up a, a SPV. Now just think of this is basically like a line of credit for the banks. Just a bank account with a bunch of money in it. The banks can draw from in order to make a larger volume of loans to small businesses. So this was just set up a week ago and it really picked up the volume because now all of a sudden the banks actually have money to draw from to put out to businesses. This wasn’t the case to start. Um, it’s also important to know this because you know, when you hear about FinTech lenders being approved to make these PPP loans, that’s awesome. And it’s a huge step. But you know, it’s not the full picture and not the full story because yes, they’re approved to make the loans.

Jon:
But they are not approved yet. More importantly, to pull any money from that line of credit, from that SPV, um, that the treasury treasury has set up, meaning the only money they can loan is the money that they have sitting in their bank account and that they’re willing to just put out and risk their own business. Um, and hoping that the government reimburses them for that and it’s determinant amount of time. And so basically what that mean is while they may be approved, they aren’t actually going to likely being, issuing, uh, any loans for this. And that goes for PayPal. Uh, you know, funding circle was approved yesterday into it. That’s QuickBook products. Um, you know, this is true for all of them. And so I just important to keep that as mine as well and hear those announcements and things in the press.

Jon:
There’s always, uh, another story behind that. Um, all right, so under the cares act, there are five, six, uh, options. Um, so you have the first year, the paycheck protection program, we’re going to focus mostly on that. That’s probably the most relevant to most of the businesses in here. Um, the next is the economic injury disaster loan. Um, and there’s also the grant. So there are actually two separate, that’s why I say, you know, five kinds is because if you’re not approved for the disaster loan, then you can still actually get approved for the grant. Um, the grants, the only difference is you’re not responsible for paying that loan back. Uh, those are both for $10,000. The next is express bridge loans. And what these are, are for only for, uh, businesses who already have a relationship with a bank and with an SBA program.

Jon:
So if you had a 7A loan or a 7A line of credit, then you can have access to $25,000, um, very quickly and within a couple of days. Um, and so you will have one of those, you can access that, um, through the bank that provided you the SBA guaranteed a loan product. Um, the next is the employee retention tax credit, which is basically a tax credit you can earn if you don’t lay off any of your employees throughout this crisis. I mean, there’s several incentives that the government, it’s really important for them that people stay, work, uh, stay at work, uh, and that, uh, employment stays high. And so we’ll see. Be seeing more of these incentives. And this is just one of the in. And lastly, we have the SBA that really, this is similar, similar to the bridge loan, but rather than issuing new capital, you can get relief from your current a loan product.

Jon:
And this could be forgiveness or deferral of payments or deferral of interest. And so again, if you are, if you have that program, those are worth exploring. You shouldn’t get in touch with your bank that you have the SBA products with and have a discussion with them about that as quickly as you can. So go ahead and dive into the paycheck protection program. Um, it’s one loan per business. The maximum that you can get is $10 billion, which this is going to equate to about $4 million in monthly payroll cost, if you have that much payroll, then you’ll be able to potentially take out that $10 million max. Uh, it’s a two year term, but it’s also important to remember that this, uh, the payments start after six months. Now the interest is going to be accruing during that six months, but the payments don’t start per six months.

Jon:
So you have some leeway there as far as, uh, as far as that goes. Next is the, uh, the 1% annual interest rate. And, uh, you know, that’s, that’s one of the best things about the product. I don’t think you’re ever, uh, again going to see rates quite this competitive. So, uh, it’s, it’s really, uh, uh, enticing to take advantage of this and, and to, um, take out this product and to take advantage of unprecedentedly low rates. 1% annual is just absolutely, uh, about as good as it can ever possibly get in any scenario. Um, how is this going to be calculated? Get, it’s going to be 2.5, basically 2.5 times your monthly payroll. That’s going to be an average over the past year. Um, you could also do, um, it’s acceptable to do just the 20, 19 payroll costs. Um, you take your average month, multiply by 2.5.

Jon:
Okay. Uh, and get your number. Um, some caveats on that, it’s capped at $100,000. So if someone’s making $150,000, you have to treat that as if they were making 100,000 and subtract that extra $50,000 out of the calculation. Um, okay. The other really great things about this program and the great features that has in addition to that 1% in a six month deferral of payments is, um, you know, you may notice on many of the other products, there’s always, you know, credit, uh, checks and, uh, guarantees and liens against your assets. The cool thing about this program is there’s, there’s really none of that. There’s no credit checks, there’s no personal guarantee that can’t come after your personal assets. There’s no minimum credit score and there’s no borrower fees. You should never ever be paying any money or any fees to apply and to, um, to take the advantage of this product.

Jon:
And there is no collateral required. Um, as far as you know, assets, uh, real estate or liens against your accounts receivable, anything like that, it’s completely, um, collateral free, um, and, and, and no recourse and nonrecourse so they can’t come after your business again or your personal assets. Um, so those are really, those are really awesome features. Um, next is what they can be used for. So this one’s really important. It’s called the paycheck protection program and that’s what it’s really intended to be all about. So the number one thing they want you to do is they want you to use this to pay your employees. Um, there are other acceptable uses, but this is the primary one for the program and you are going to be heavily incentivized to use it for this purpose as we’re about to go over, but there are some other acceptable purposes, um, one being a payment of interest on your mortgage obligation.

Jon:
Um, another one is your payment, your rent or your utilities, your interest, um, on any debt obligations and for refinancing, um, that EIDL, the economic injury, disaster loan. Um, all of these had to have taken place before February 15th. Um, it’s all you can take out, you know, have new rent or you know, utilities that you’ve just started and use it for that. It should be things that were already in place prior to February 15th, which is about when this whole, um, prices appendant situation began, uh, for the EIDL. That’s one that was issued, um, earlier in this year. Okay. A little bit further on that, on that point. Yeah, go ahead.

Michael:
Before we jump into this, I did want to take a take some questions. There was some consistent questions as you can imagine from the audience regarding the headlines this morning around the $349 billion, uh, PPP program being maxed out as of this morning. Um, and so before we move on, I’m sure, uh, a lot of people have this same question, so it’d be good to go and address that now given that you just went through the, uh, given that you just went through the complexities of the program and maybe where some of the misconceptions that are around the news headlines may originate from.

Jon:
Yeah, absolutely. And it’s just been, it’s been that way since the start with the program. And I don’t think this bit of news is any difference, uh, different than, than all of the other news around the launch and around when funds start going out. You know, and as we talked about before, you know, what’s being pushed in the media and what’s really going on behind the scenes. Sometimes there’s a little bit of a disconnect there. It’s not always completely untrue, but there’s just more to the story, um, that having the full context and understanding is just very helpful to know. And so as far as the, the loan’s being depleted, this could really mean a number of different things. Um, it doesn’t necessarily mean, it doesn’t mean that the funds are already out, that’s for sure. Because funds only started to actually be dispersed and to bank accounts this week.

Jon:
Um, you know, contrary to what you may have heard elsewhere. Um, and so although they may be promised or they may be like the banks may have said, Hey, we have applications for this amount already submitted or we’ve already committed to this amount, we’ve already approved them, we’ve already issued the redemption code to the banks so that they can draw from that credit facility. So it could be a number of things, but also it’s important to keep in mind that, um, you know, to just keep moving forward with the process. Right. The banks that I’m speaking with, everyone’s just moving full steam ahead. It’s not like everyone’s just stopping and so it shouldn’t just, you know, dis-incentivize you from moving forward if you haven’t done already, you may as well try. There’s going to be another batch issue and the way that the government of kind of approaches the situation in the media and if at some level of success with it, but also it causes some confusion sometimes is that they put this out in the media so they can try to get things done faster in the political realm.

Jon:
They can put pressure to get the deal done so they can have more funds because the truth is this money is going to go fast. That much is true and so they want this other 250 billion followup. They really want to get that signed and agreed with and done so that they can, you know, have a reserve and then they can really start working on the next batch of funds. So everyone is approaching this, every bank, everyone we’re working with on this as if there’s going to be multiple batches of funds released over the next, you know, month, two months, three months, who knows how long this is going to go on. No one really knows. And so it’s just, it’s important to remember.

Michael:
Yeah, that’s a good segue into going into how, how one can apply and who qualifies, especially considering what you just mentioned, which is it’s still a, the part for the courses to proceed as we have been for the last couple of weeks and taking in new applications. So with that being said and addressed, uh, let’s go into how someone can actually apply and who would qualify for these programs.

Jon:
Cool. Yeah, that’s, go ahead. Um, okay. So who qualifies the simple way to look at it. And the most important way to metric is here’s how many employees you have. So it’s for businesses with less than 500 employees. Um, all right. So it can also be other types of entities can be sole props, independent contractor or self employed. But you know, it really, the key thing is do you have less than 500 employees? If you check that box in the vast majority of the cases, that means you qualify for the program. Um, so, you know, there’s definitions. The SBA is released of what defines a business as small. But really the most important thing to keep in mind is if you have less than 500 employees, you’re going to be good to go on this. Mmm. Next is where to apply. And this is, this is important as well because, uh, yeah, it’s, you need to know the right place to go.

Jon:
Um, the number one best place that you can go to apply for this is a bank where you already have a relationship. If you already have a loan out, and especially if you have a 7A loan out you need, you should be going there and they should be able to help facilitate you very quickly for that. Um, if you have, and the reason is, is it makes just a lot of sense for the banks. They’re heavily, heavily incentivized to, um, to issue these to their current customers because if someone has a debt outstanding, they want to get money into that account as quickly as they can so that business can continue making payments on the loan to that bank. So that’s going to be their biggest priority. They can’t have businesses going out of going out of business and then all of a sudden they can’t pay their loan obligations to that bank.

Jon:
So that’s the number one priority right behind that is their current customers. They don’t want their current customers going out of business. And those are people they already have relationships with and that’s going to damage their business. So the banks are heavily incentivized to disperse these funds and process the applications of their current debt holders and our current customers first. And so if you have that, use that to your advantage. It’s really important. Um, it’s really important. It also drives efficiencies in the application process for the banks as well, so they can actually process it in much faster than it could elsewhere. Um, and we’ll go into that a little bit later, but that has to do with anti money laundering. KYC, know your customer KYP know your business. And so it also speeds easier for them, far easier to do as well. Um, the next best option if you can’t do that, the next specs options are technology focused banks.

Jon:
Now these aren’t FinTechs, right? Because as we went over earlier, they can’t actually issues these directly yet because of the challenge of accessing that, um, that line of credit or that credit facility with the treasury. Um, so it is, but it is banks that are focused on technology, um, who work with fintechs, who are the backbone for the FinTech’s operations. Um, and so, you know, that’s who we, who we work with and because this is going to allow them, uh, we talk to, we work, this is going to allow them to do all of the manual processes much, much, much faster that KYC and KYB the AML, the checking of the payroll, doing the due diligence around the payroll calculations to ensure those are accurate and true. All of that involves a lot of manual steps, but also could be completed with automation and technology. And so the banks were in the best position to do that or the banks who are using this technology already and other parts of their operations.

Jon:
Most banks don’t do this because it’s not necessary. They aren’t operating at scale where this has become a requirement from rent for them. They may have aspirations, but it’s not mission critical because they’re doing very low volume and large loans, and it doesn’t require automation like it does or, uh, banks operating in institutions operating at scale and doing many, many loans. Mmm. So, you know, as we partnered with Levelset, that’s been our focus. You know, we can’t control whether, you know, the applicants have a relationship with the bank already or not, but we can control, go into the banks we believe are in the best position to process these as quickly as possible. Um,

Michael:
Hey John, real quick. Um, we had a, uh, we had, uh, attendees asking about PayPal and I’ve, I feel like PayPal is a really good example. You and I have talked about this before of exactly to drive home your point about FinTech companies having access to submit these loans but not having access to the facility from the credit line, from the federal reserve. So if you could just use PayPal, as that specific example, to drive home that point?

Jon:
Yeah, sure. So they were one of the first ones approach PayPal and into it. So, um, they are in a position to, to, um, for sure it’s, in particular PayPal, to operate at scale and to issue many small loans in a short period of time because they have a program for this already and they’ve been doing it well for many years. Um, the, the challenge with them actually being able to process the loans isn’t around processing them. The KYC and KYB and automating, it’s around them being able to access the credit line or the credit facility from the treasury to put money out the door. Otherwise they’re just going to have to go into the PayPal bank account and issue money directly from there. And they don’t really have a timeline around when that is going to be reimbursed.

Jon:
And so how much PayPal, how much money does PayPal have is sitting in their bank account. Like do they have $1 million? Do they have hundreds of millions? Like, and also it’s a huge business risk. If they’re putting all that money out, then it depletes their funds. Then they have another core business to operate as well. And so they’re really heavily disincentivized from doing this because it could, it’s a big business risk and it’s a big risk for their business. And a, they don’t know when that cash is going to come back in and they aren’t going to be compensated all that will for it. And so, uh, it likely means that their hands are going to be tied and they’re not going to be able to do any kind of real volume as far as the PVP until they are also approved to access that credit line, that credit facility from the treasury.

Jon:
Thanks. Yeah, sure. Uh, cool. So moving, moving forward, uh, what’s the application process? So, um, first is just the business owner information, first name, last name, address, social security. Government ID becomes an important one for the KYC, which is something that was added, you know, a few, at least a few days after the program started. Um, next is the business details. That’s the KYP business name. Uh, business owners and affiliations, other companies and entities they control and own, um, that EIN, employee identification number, um, owners in the company. Next is the, uh, the payroll calculation and the docs. That’s the 941, the 940, 1095 and 1094 that has to do with, uh, uh, healthcare, uh, insurance, um, you know, those W2’s, those bank statements, all of that. Um, those are the, the next step of what they’re going to look at to process these.

Jon:
And the last step is just the business owner, uh, in the business, just a testing that it is that this is true. Uh, that’s a big part of it because a lot of this, they’re, they’re having to move so quickly. A lot of it comes down to the, um, you know, in the integrity and honesty of the business owner. And so they are wanting you to and make promises under penalty of perjury, um, and criminal fines that what you’re saying in this application is true. Um, so that’s the last part of it. There’s about seven to 10 questions there. Mmm. You know, which documents could I, could you be required to submit to your, um, to your lender or your bank again, that’s that form 940, 941. The state and local payroll tax forms, a W2’s payroll processing statements that you can export from your, uh, your, um, a payroll processor, like ADP or whoever you use, you can go to them.

Jon:
A lot of them have that set up already so you can easily export that, uh, health insurance, invoice receipts, um, employer pay, retirement benefits. Um, all of those are really good to have on hand and ready to go. You should also go above and beyond. It had additional documents as well. You should have, I know because every bank is going to be different, you know, they had been given guidance and then it’s up to them to decide what that guidance means for what for them, right? What, how they want to approach meeting the criteria specified by the SBA and the treasury. So, um, they may ask for things like articles of incorporation or trust agreements or um, you know, it could be any, any, any types of, you know, the income statements, the balance sheet. So just have all that ready, get with your accountant, have that prepared, have everything in front of you and you’re a position to move really quickly on that. Uh, yeah. All right. So what is the process and how long should you expect it to take? Um, well, if you have everything ready, it should be really fast and easy to apply. If you had everything from the previous steps, it should only take you about 15 minutes to go through the process. Um, and that should be done, uh, pretty shortly. The next is the KYC KYB and the AML. Um, and so this is where if you’re already a bank of the customer and that’s where there’s real advantages because this is basically going to be instantaneous, you know, 30 minutes if you already have a relationship there because it’s already been done before. If not, it’s going to take a few days. I’m hearing minimum three days, um, for that to be done.

Jon:
Maybe they’ve been able to speed it up over the past, you know, they are getting it improving and getting faster and faster at some of these steps as, uh, each day that passes and goes on. So I would say at least three days for that. Um, you know, maybe more, maybe less than that’s very dependent on the bank you’re dealing with. Again, the next is the payroll doc and good faith review. And so this is the one that is going to take the most amount of time and it is going to vary widely because there is a huge differentiation between each bank and how they’re handling this process and how in depth they want to go and how, um, Oh, how and how much they want to look into all of these documents, right? Are they really going to audit it very closely?

Jon:
How much time are they going to spend on each audit? And so this could be anywhere from a few days to weeks to months for them to get through this process. So, um, ideally, obviously I don’t think anyone could, could wait for it to be months and so it won’t go that long. But it doesn’t mean it won’t be months for the funds to the ultimately you dispersed, which is the last step because what they need to do once they bought it. All of this. And they’ve proven that they’re, um, they’re a part of the, um, process. They have to submit all this information to the SBA, to the ETRAN system to basically get a redemption code, which is basically like submitting an invoice. That means they are going to get paid back for this by the government. Um, and so once they’ve been issued that, then they can go to the process of dispersing those funds.

Jon:
Um, and so that’s how that process works. And you know, that kind of redemption code is a really important part of it and it’s been one of the biggest bottlenecks of the process. But it is something that is, is a, is speeding up rapidly. They made really huge strides from, you know, the first day to, to now. Um, so why aren’t funds getting out quickly? And, and so that’s a, that goes is just building really right off of that, that step there. So every single business basically, you know, the vast majority of the businesses in the U S are all applying at once. This has never happened before I basically ever, and so there’s just literally the maximum number of scale possible. Um, and remember they’re used to doing maybe a 20 to 30,000 of these a year, and now they’re doing literally millions and millions and millions and in a week and two weeks.

Jon:
That’s just the level of increases is just so much greater and so much, much more load on all of their systems and all the people who are assigned to do this. Um, that it just makes it an extraordinarily challenging task. Um, add onto the fact that the guidance was only issued three hours before the program started. So they had three, basically they had to guess, and they had three hours to prepare before a launch. So basically they were just scrambling to get things just, yeah, ready to accept applications. Um, that’s why many banks didn’t even accept applications when they launched. They wait, they wait until the next week.

Michael:
Um, Hey Jon. Real quick. Um, I’m going to try and see if you can address, there’s a big group of questions around, um, around which type of companies can apply for, uh, can apply for these, uh, paycheck protection program loans, whether they’re an S Corp, a C Corp, an LLC, a sole proprietor. Um, and I can’t remember if that’s in our prepared slides, but I think about 60% of the questions I have so far around that. So it may be something you can touch on pretty quickly before we get too far ahead.

Jon:
Yeah. So all of those business entities are eligible, um, every single one, as long as they have less than 500, uh, employees and greater basically greater than one employee, um, because they need to have payroll. Um, and so yes, it doesn’t matter if it’s LLC, S Corp, C Corp, um, you are going to be, uh, eligible for the program.

Michael:
And, and what about if you don’t have any employees? If you’re a sole proprietor and you, you are the sole sole proprietor, how does that work as a sole proprietor or a contractor eligible as well?

Jon:
Yes, they can be, uh, that’s just going to be different documents that goes into those 10, 99. And so it’s just a slightly different process. But you know, they, there are still eligibility there as well. So you know, as far as getting back into, um, I, you know, talking with the banks, all the ones I talked to did not even start distributing funds until this week, uh, Monday at the, at the earliest. Um, and so, you know, funds have just started going out, um, non-customers aren’t going to be started going through this process until next week at the earliest this week was really them just focused on their customers and their debt holders. And so, um, if you were not that, they aren’t even looking at you until, until next week. And so, um, we anticipate that those, with those, uh, updates and that feedback will be coming through.

Jon:
Mmm. And so, you know, the other reason it’s, so again, it’s a brand new process. They’re not experienced with lending to small businesses and our experience, they’re not experienced with this level of scale. Um, the other thing is that you train bottleneck. They need to submit to the, uh, they need to submit to the e-tron system that legacy 21 year old software to get that redemption code that they, so they can guarantee that they’re going to be reimbursed by the government for this, uh, for this loan. Um, and so otherwise they just have to lend off the, the balance sheet off of their own books, uh, which that is a, you know, there’s a very limited number of scale, um, that uh, that credit facility, that line of credit was opened up by the treasury last week. And so that sped up the process exponentially because now there’s actually funds for them to draw from.

Jon:
All right. Uh, so the next one, and this one’s probably really important for a lot of you here is as well as the loan forgiveness details. And so again, this program is focused on, um, protecting the paycheck of employees and on payroll. And so using that is really what the government wants him to incentivize you to do. And that’s what it’s in the best interest of you for you to do as well. And one of the primary reasons around that is around loan forgiveness. And so earlier we went around the different um, alternative acceptable uses. Um, you can use it for that, but if you do, you should not go above 25% because if you do go above 25%, you go above that threshold, you are no longer eligible to apply for loan forgiveness. Um, and it’s not only important to do that in reality, but it’s also important to be tracking that, uh, and make sure you have, or are ready with all of the proof with all the tracking, with all the documentation around that as that is true.

Jon:
Um, so if you can do that for proving that you all want 100% of it went to your payroll, that is what you want to do. Um, if you use it for other purposes, make sure you are tracking that closely. Um, with your, you know, accountants so that when the time comes to apply for loan forgiveness, you are ready to go and you will be approved for that. Um, you know, nothing. The only thing better than 1% money is a, it’s free money. So you, it’s a, there’s not many situations that have ever happened where you just have, you can get free money. So this is one of them and you probably will never ever see this again. So, you know, go ahead and take advantage, right? Mmm. Okay. So next we’ll go into additional actions to take, um, in addition to that, the SBA PVP program.

Jon:
All right, so, uh, this is the scenario we’re in, right? So what the smart thing to do is to plan for all situations and all scenarios. There is so much uncertainty going on. No one knows what the future holds. That’s just the reality. You don’t know when things are going to start getting back to normal. Maybe it’s a few weeks, maybe it’s a few months. And so you want to be able to be prepared for every situation. And it’s not only just preparing to survive and some of you are fully prepared to survive and weather this storm, but it’s also about putting your business in a position to thrive and to succeed and to come out on the other end of this better prepared and ready to, to um, to take off, right. And to ready to scale from that point and ready to take advantage of all the opportunities that are going to present themselves for, for your business because of this.

Jon:
Um, so the first thing that goes into this process is just calculating, um, your monthly burn rate, how, what is your overhead, how much money a R is going out each month and having a good understanding of this. The next is your cash inflows. How much money are you still going to be able to take in on a month by month basis? You know, you need to be able to estimate that I was probably a little bit harder because there’s all this uncertainty, but just do the best job that you can and base on the current work that you have in the current work that you have scheduled for upcoming months. The next one really important around this is not just the work that you’ve done and the money that you’ve earned, but the timing of that cash actually coming into your bank account, as you probably know and are dealing with those net terms are being delayed and pushed out further and further.

Jon:
And so the timing of your cashflow is probably going to be, uh, slower and you’re used to, um, and it probably will continue to get slower until this situation starts to resolve itself. So I’m using all those metrics. You can kind of calculate your runway and that’s how many months at the current rate. Uh, in the current scenario, you’re going to be able to remain a going concern and remain in business. And so just having a, I mean, it seems very simple and it is, but really having that down on papers really, really important because, um, it just changes the way you think about an approach. Um, all of your different options and all of the different opportunities. Um, and it helps your decision making project process, you know, how can you long, how much longer can you, I survived with no revenue or a limited revenue relative to what you’re used to.

Jon:
Um, the other thing is, you know, how long is your accounts receivable going to be delayed? How long until that cash comes into your actual bank account so that you can use that for your business. Uh, take advantage of it. All right, so next quickly we’ll just go into, you know, what type of business are you? Um, and so, you know, that’s basically going to be are you very asset heavy or are you asset light? And there’s advantages and disadvantages to both. And understanding where you are on that stretch spectrum is really important. You know, scaling horizontally, you’re trying to capture as much margin as you can on each project. And that means doing more of the work yourself means owning a lot of the apps assets. It means you’re making, capturing maximum Mar margins during an up cycle, which we basically been in the last 10 years or so.

Jon:
And so a lot of you have probably moved to do this just to capture the amount of profit margin, um, as much of that as you can. The problem is, um, is that you struggle with this model a lot in a down cycle and this is what has just been thrown on us in a very, very short order, in a very short amount of time. And so a lot of businesses right now are caught off guard because how could you, how could you prepare for something like this to happen? It’s just not something that any, um, you know, anyone could have foreseen really. So the next is asset light. And so that means just scaling vertically or trying to take on as many projects as you can. You’re focused on marketing the sales and the logistics of the project. You’re subcontracting out a lot of the work.

Jon:
Um, you, uh, own few assets. Um, you have less, but you have less overheads who are nimble. Um, you’re have a little bit more agile and you’re better prepared to manage that down cycle. You’re not investing as much back into the business. You’re not buying assets. Um, and so, you know, this is, uh, you know, kind of the other approach that you could be taking. And so where are you on that spectrum? It’s just good to take note of that because it, then it’s going to affect, you know, what other options you have at your disposal, you know, understanding what your advantages and your disadvantages are and then leveraging those to, um, to take advantage of the resources that you, um, that you have. Um, and so, you know, you want to be able to manage this down cycle right and survive. But you also want to prepare yourself to, um, to take advantage all the other opportunities that are going to present themselves because everyone else isn’t prepared as you are.

Jon:
Everyone else doesn’t have the resources at their disposal to take advantage. Whenever things start to pick back up, you know, they’re going to be, uh, in many ways, more crippled than you are or they could be. And the market for sure is going to be affected and there’s going to be washout of companies that were not able to, to manage through the situation is that means there’s a lot of opportunities that are then I open up and can you be aggressive when others aren’t able to be? And if you can, you’re going to be able to grow at a much more rapid pace. Um, and you could come out on the other side of this and a much, much better position. And so again, it’s not just about remaining a going concern and staying in business. It’s like, okay, we’re in this situation. Let’s dive in, let’s Wade through it and now let’s plan and strategize for when we come out on the other side.

Jon:
We’re going to come out even stronger. We’re going to go even more. We’re going to be taken up even more projects generating more revenue and growing faster. And we’re going to be better because we were more prepared than the rest of the market. Mmm. So how, what are some of the ways you can do this? And again, uh, it’s assessing, um, what, what you have now. And a lot of that goes into what are your assets, right? And so if your asset heavy, then you have a lot of that. Um, if your ‘re asset light, helping your primary assets are gonna be around your accounts receivable, because you’re taking it on lots of work and you’re going to have a lot of accounts receivable, you’re going to be owed a lot of money for all the work that you’re doing. If you’re asset heavy, you’re also going to have an addition, a lot of assets that you can leverage.

Jon:
Um, you’re going to have equipment, you’re going to have no trucks, you’re going to have real estate. That’s really important to start assessing what is, what is the value of all of that? What do I have, um, what can I use to my advantage? And so taking stock of that I think is a really good exercise as well. You to go through. And so you know what options you have and you know which direction you can. You can go very quickly and you’re prepared whenever the opportunities present themselves and you know exactly where you stand. Um, you know, that’s going to be a big advantage for you. Mmm. And so what can you use, what financial options can you, um, access with some of these. A lot of the credit liquidity that was out there in the market no longer exists. That’s just the reality.

Jon:
Most of it has dried up, you know, what you’re seeing that still exist as far as the ability to access credit is based around, um, asset backed financing. And that can be your accounts receivable. That could be your real estate and that could be heavy equipment. It could be any asset that you own. And so you know, some of the best products right now and one of the best is, is that accounts receivable line of credit, similar to, in the way that, uh, the treasury created a credit facility or a line of credit, the banks to access, you know, you’re able to do the exact same thing. You can create a credit facility and you can have it sitting there and you can choose whether or not you want to access that or not. With items sitting in your accounts receivable. You can take that invoice, you can trade it into your credit facility and you can access that capital.

Jon:
Typically you’ll be paid, um, you know, between 70 and 90% of that account receivable line item, uh, what you’re owed that value. Um, and then you’re going to be charged somewhere between two and 3% for the first 30 days. And then after that about me, between around 0.7 0.8% 0.7, 5% per 10 days, uh, after that. And so, you know, relative to being able to take that capital, prepare and use that to take advantage of opportunities relative to that, 2% of the opportunity at hand likely could be much, much more than that. And so having that credit facility at least set up and sitting there whether you want to access or not, it’d be a very prudent thing to do. Mmm. The next is, you know, again, assessing those assets that can be real estate heavy equipment, getting what the value of those are. Are they more than $10,000?

Jon:
I’m assessing if that’s something that a lender is willing to, to take as as collateral and are there could be some pretty unique equipment. And is that something that they’re, they’re willing to, uh, willing to issue a loan against? And so these are the type of products that are going to exist on the market. Um, you know, unsecured type products just don’t really exist right now, um, in any meaningful way. Um, you know, they may be out there, but their rates and terms are going to, those are not ideal. And it’s not ideal for, um, for your business until things really start to take off. Those products are designed for growth. And if you’re not, if you’re just surviving, they’re not, they’re not right for you. Um, if you’re trying to grow and take advantage of many opportunities, are the opportunities coming your way, then those are better.

Jon:
And those will probably be a more available at that point in time. But at this point in time, these are, you know, these are your best options. Um, and I think, you know, just kind of to wrap it up the way that I, you know, look at the situation is okay, compared to my peers in the market compared to my competitors, um, where, you know, do I have an advantage over them or not? And where are those advantages? So everyone’s applying for the PPP. So you know, let’s say every, let’s say every one gets $1 million PPP and they have access to that capital. Okay. And you do too. So everyone has that. In addition to that, what else can you have at your disposal? Do you think that a, a company that has access to a million dollar TPP plus a $3 million credit facility for their accounts receivable, are they better positioned to take advantage opportunities moving forward or less?

Jon:
If a company, you know, if a business has that, plus they have all these assets, they are ready to use as collateral to generate immediate cash that they can then use to put into opportunities to take on new projects or even to survivor and then ideally to take on more projects. If things start to pick up, are they in a better position than those who only went with the PPP and, and just sat there and kind of waited for it to arrive. And so that’s kinda how you’ve got to think about it. Like which company is going to be better positioned moving forward. Uh, and that’s the approach that, you know, the, a lot of the top businesses we’re working with and talking to are really using and at least getting an, assessing their options and understanding what they have, what resources they have at their disposal. So I kind of ended there and uh, you know, leave it to you Michael to go through any, any final questions?

Michael:
Yeah, we have a lot of questions and I’m going to do my best to get through all of these, all the questions that we have and it’s important to note that, um, we’re going to send out a recording of this. Um, and any questions you have, you can follow up with me directly if any of these questions aren’t, aren’t answered. But I did want to add, add a note on your last comment there, John, that it’s important. I know you and I have this conversation with a lot of Levelset users and applicants for our financing products. SBA included that factoring agreements or accounts receivables, financing agreements and the SBA, it’s not an either or question. You can apply for both and it doesn’t cost you anything to at least see what your options are. So the best practice is to go ahead and apply and make sure you have, have these things at your disposal.

Michael:
Um, so I did, uh, I guess we’ll jump into some of these questions and uh, and again, we have a lot of questions so if we can’t get to all of them I apologize, but you can always follow up with me directly after. Okay. So one, one thing I’m getting a lot of questions on is, uh, what is, if you could go specifically into the timeline, John, around uh, around the funds used for the PPP and the 75% payroll requirement. How long is that assessment period after the loan funds are distributed? Um, how long and how long is that monitoring process of how the funds are to be?

Jon:
Yeah, that is a, is a good question. As far as in the monitoring processes, I can tell you that there are none in place yet because the banks have no time to worry about monitoring. They are 100% focused on just how can we get this money, uh, you know, how can we process the applications and get this money out? Their plan is, well, let’s do that first and we’ll worry about the monitoring next. So as far as anything being in place already, there’s nothing in place. So, um, you know, all we can do is kind of give our best guess here because that isn’t not something they’re, they’re focusing on at this point. Um, as far as the timeline, it’s just being able to tie, um, that money to a specific, you know, payroll payments. Um, and so I think it’s probably less about the timeline and more about how can you track that money as it came in and track it to a payroll payment and just having a document around that. I think that’s the most important thing, um, to keep in mind. Uh, you know, did, how much money did you get? You got $100,000, you know, did $100,000 go into payroll? Did you fire anyone? Did you not? Right. Those are the questions you should be asking. And the way you should be approaching it rather than, you know, how long, you know, how as far as a, how long question.

Michael:
Great. Uh, another question. I, we have quite a few questions. Uh, repeat questions and I know I get this question a lot. If someone were to, if someone, let’s say two weeks ago, applied directly through the SBAs website but has not heard anything yet, um, in regards to their application, what is the best path forward of getting a status of the application and are they able to apply again? Um, I know the context I get with this question a lot is I’ve applied but I haven’t heard anything, so I’m not sure if my application went through or if it’s just being processed.

Jon:
Yeah. Yeah. And it’s, it’s a great question. I mean, I would say, did you apply through the SBA website? And it also depends on which product you applied for, you know, uh, but if you apply through the SBA website, they are not set up to handle the scale that they’re receiving. And so your application probably has not been processed. I would, it’s just a guess because there’s no way to know, right. We just know what their capabilities are and think about it there. They’re also trying to just make sure they’re able to issue those redemption codes to the banks and dealing with that E-TRAN system, which has been, you know, one of the biggest bottlenecks and the biggest challenges of the entire program. And so they’re stretched as thin as possible. And so their ability to process your application in a timely manner is basically, you know, and its lowest point that it could possibly be.

Jon:
And so, you know, what do you do in that situation? It was the right move obviously to do that. Um, but it doesn’t hurt to, it doesn’t hurt to try applying again elsewhere. Try again directly at your bank. Obviously try playing again through level-set, try applying again. I it doesn’t hurt to do that because that’s what the E-TRAN system is there for. You know, we are going through the process and talking with the banks about how to scale out this program and how to build it. And one of the biggest things we identified from the start was the E-TRAN system. Why did they choose not to eliminate it? Even though it was the biggest slowdown of the entire process, it was to ensure that businesses were not going to be funded twice. There was not a solution that we could come up with where they felt comfortable enough with it that businesses wouldn’t be funded multiple times in many different banks.

Jon:
So someone went around applying 10 times, they would be sent 10 PPP, uh, disbursements and that was just not an acceptable outcome for them. And so they stuck with the E-TRAN system. And what that means that the benefit for you is that it’s not possible for someone to get double funded. And so it’s not not a problem for you to apply to multiple places because if someone accepts you and processes you and gets that redemption code for your business already, then that’s a win. If someone else tries to do it again, yeah, they may have wasted that time doing the underwriting and the KYC, can I view, which is unfortunate for the entity that did that. But at the end of the day, you’re not going to receive the double funds. There’s no risk of like you being accused of fraud or you know, doing something, um, that lacking integrity just because you were trying to maximize your chances, uh, uh, of being accepted and processed and, and getting those funds. And so because it’s in place, you know, I would suggest applying, you know, there’s no limit because, sure. Yeah. You should just go ahead and do it. Uh,

Michael:
yeah, so basically what you’re saying is I could apply to a hundred different banks and there’s no penalty for doing so, but I can only get funded once and the system is built to prevent from being funded twice. Okay. Um, another, another question and I get a lot and it’s given the asset light nature of a lot of contractors. Uh, I gotta there’s a question, can I apply for the PPP as a, as an LLC that subcontracts out all my work and have all of my subcontractors also apply for the PPP one?

Jon:
Uh, well the subcontractor should actually absolutely be applying yet for sure. Um, as far as, you know, applying, like if you don’t have any payroll, um, you know, there was specific language around, you know, contractors not being included. And so, um, you know, it’s just like, you’re not going to be able to include that in the payroll calculation. So yes, you can apply, but you know, how many employees, how much payroll do you have? And it’s probably not going to be enough relative to, you know, what you need is the reality because in that model, you know, your are the one with the employees, very likely. And so they’re the ones who are actually in a better position to benefit more from the program. And so you should really encourage them to, to go for it. Uh, if your payroll is very, very low, then you’re only gonna get basically approved for 2.5 X of that. And so, yes, you can apply, but you’re just not going to get what you need. You’re not going to get the amounts that, uh, it’s just not really designed for your model. Basically

Michael:
Are owners, distributions or LLC distributions considered payroll costs under PPP?

Jon:
They aren’t now.

Michael:
Okay. Let’s see. I know we’re running up, we’re running short on time. We have about five more minutes, so I’ll try and get to as many of these questions as I can. Um, and forgive me, I’m scrolling through just to see if I can find duplicate questions to get as many of these answered as possible. Uh, here’s a good question. Uh, can you, can you give some color and insight on the payroll tax relief bill.

Jon:
payroll tax relief bill? Um, no, I honestly, I haven’t looked too much into the payroll tax relief. I don’t want to give bad information or information, I’m not sure of, I know that there’s going to be, uh, a bunch of incentives around that. Um, and so, you know, basically the end of the day what they want you to do is to not lay off your employees and to keep them employed, um, as long as you possibly can. Obviously there’s always going to be a balance between the cost associated with that payroll. And the PPP funds and the forgiveness and the tax credits. And so they’re trying to make that, you know, is, is a weighted in the favor of keeping them on your payroll as possible, but ultimately that’s a decision for you. Um, but you know, as far as the details of it, that’s not something we’ve dug into a lot yet. Uh, so yeah,

Michael:
sure. And if Jon, if you don’t mind going to either, I think it’s the next slide or the one after that. I just wanted to pull up the additional resources because we do, there we go. Um, so if, if everyone, you can go to www.levelset.com/coronavirus-construction and there’s a full, uh, there’s a lot of resources available around Coronavirus and the Coronavirus stimulus packages. And one of those included is a cheat sheet which breaks down all of the different, uh, relief efforts that came with the stimulus package. And I do know there’s some information on the, on the tax credits. So for the person who asked that question, this would definitely be a great resource. Um, okay. Let’s see. Can you use the PPP proceeds to hire new employees?

Jon:
Well, a good question. I, without question, I would say that would be encouraged. Um, you know, they, they want, um, they, you that to go to payroll, they want that to go to American worker. So, um, while I don’t know what 100%, for sure, that’s a great question. I would say I would strongly lean towards, I think that’s highly, highly likely to be encouraged because it goes right hand in hand with the ultimate goals of this and that’s keeping Americans working, keeping Americans employed. Um, and uh, if you’re able to hire through this, I mean, you know, there’s, as you can see, the unemployment numbers are absolute records and if you can play a role to, to helping resolve that, uh, without, uh, in my, my mind, without a doubt, you’re going to be, um, incentivized to do that through these programs.

Michael:
Uh, another good question here is the, is the PPP on a, on a needs basis or funds distributed on a first come first serve basis?

Jon:
Yes. Uh, this is, um, yeah, this is the, uh, part of the program that’s a lot of disagreement over because it’s not on a needs basis and it’s on a first come first serve. And so the concern is, and it’s a very valid concern, is that the businesses who need it the most are not going to have the opportunity to take advantage of it. It’s going to go all to the ones who have already have a bank, a huge bank line of credit or a bank term loan out because the banks were incentivized to pay them first. And so everyone else is left is , is left in a, in a tough situation. And that’s why there’s such a big push and it, I, I feel extremely confident and I think everyone is operating as if this is the case, there’s going to be another round that’s 250 billion that will get passed and very, very likely to be more rounds after that. Now I wouldn’t plan and sit around and wait for it because you don’t know. You just don’t. But, uh, I, I think it is likely, I think they will work it out and come to an agreement. But, uh, yeah.

Michael:
Okay. And this is, I think a good, a good final question. And again, uh, if, if I wasn’t able to get to your question then you can email us either one of us directly. And John, if you want to go on, go to the next slide. I believe it has their email. Uh, you can contact me directly and I’m sure Jon is happy to take on questions as well. Um, but, uh, a good, I guess a good final thing for people who don’t qualify for the PPP program or the PP program, paycheck protection program. Uh, can you briefly go over the economic injury disaster loan process and who are the ideal ideal candidates to apply for those and how that works, um, differently from the application process of the PPP?

Jon:
Yeah, sure. Uh, so this should really be done on the SBA website. This is one where that’s the best place for it. Um, so I think it’s like COVID19.sba.com or dot gov. Uh, so I would go there, um, and apply there. Now again, the earlier question, your chances of receiving feedback on that are very low. I have also heard that those funds have been depleted as well. Again, whether that’s true or not or what it actually means is uncertain and whether those are going to be refilled as part of the, uh, the next batch of funds that are at least for these programs. Um, but just go there and apply. It is intended for businesses that are, uh, you know, mission critical for the country. So the more you can prove that what you do is critical to the, um, you know, the ongoing success of the, of America, then the better off you’re going to be. So yeah, that’s what it’s designed for. If somebody’s come businesses did injured, uh, he’s been damaged too, plays a critical role, uh, in the economy.

Michael:
Great. Thanks John. And I’d like to thank all the, all the attendants for coming. Um, hopefully this was valuable to you and you learned a little more about how, um, how these programs work. Uh, again, if any of your questions went on answered, feel free to visit level sets website and go to the expert center and ask a question for free or email me directly. Uh, John, thanks so much for your time. It was really helpful and, uh, it’s great to know that we have someone that’s working for our user base to help them get access to these funds. Um, so I hope everyone stays safe and remain successful through these times and if, uh, if you need any help level sets here to help you. So thanks again.

Jon:
Thanks everyone.