If you are an employee stuck at home right now because of the Coronavirus pandemic, chances are you might have received your paycheck, which was acquired through the Paycheck Protection Program. What is it, and how can employers repay the PPP loan? In this episode, Patrick Donohoe interviews CPA Tom Wheelwright, the creative genius behind WealthAbility, a revolutionary platform of educational tools and a global network of CPAs. Today, Tom joins Patrick Donohoe to tackle the ins and outs of the PPP loan, including what you need to know as an employer about the payback period interest rates. Emphasizing on the need to sit with a CPA, Tom notes how one can help you understand the loan count computation better than the banks. He also touches on the EIDL program, its three parts, and its restrictions. Tune in to learn how you can save yourself from unnecessary loan charges and make use of more investment opportunities even amid the pandemic.
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What You Need To Know About The Paycheck Protection Program Loan With Tom Wheelwright
I know we’re going through some crazy times. I hope you are doing awesome. Before I cut to Tom Wheelwright, who’s my guest, one of the foremost expert strategists around wealth and tax strategy, he is going to speak about the stimulus package. You definitely want to follow Tom because he’s not only speaking about this initial package, there’s most likely going to be more. Tune in to his YouTube channel, as well as his podcast and email list. Everything’s free. Also, we have a new YouTube channel, let’s get the word out. We wanted to boost that, if you would go on and subscribe and watch some of the videos. All the episodes that I’m doing are in video format.
There’s something that I’ve been trying to focus on as it relates to capitalizing on this opportunity. These days are super challenging and I found myself challenged because I come to an empty office by myself. There’s nobody on the streets. I go home with my family and it’s been amazing. One of the highlights of all this is the amount of time I get to spend with my children, my wife and my family, but there’s an emptiness of sorts because of what I’m used to doing and what my routine is. It doesn’t exist anymore. I’ve had to reinvent my routine and the certainty associated with how I show up daily. I’ve had to do that because it became challenging and frustrating for me. I’m hoping that you are handling this better than I have been, but I wanted to share with you what I’m doing.
First, there’s a process and a sequence that I’ve been using. I learned it. I understood the information, but it wasn’t a part of me. It wasn’t part of my life in a sense because everything before was going pretty good. I focus first on my state of being. State for me is a function of your physiology, what you’re focused on, glass half-empty or glass half-full. Strategy then comes after that. Second is story and then it’s strategy. State is important because we’re facing hard and challenging times. I think everybody’s affected by this. It’s more important to recognize who you should be showing up as because, as human beings, we have faced challenging times in the past. We know what it’s like. We face it and we’ve most likely overcome things. I’m sure you have overcome everything.
As you start to identify what the state you are in when you overcame the adversity of the past, how were you breathing? How is your posture? Where were your shoulders and eyes? What did you feel like internally? That’s physiology. That’s that state. You want to identify it with how you showed up during difficult and challenging times. The second is the focus you have. What’s your perspective on things? Is it the time to hunker down and be afraid? There’s a tremendous disruption, which is going to flush out a lot of inefficiency. Those other individuals that may not have the emotional wherewithal will sell and do irrational things. That is the time right now. If you have that perspective, that’s where your focus is where things are disrupting, inefficiencies are being cleared out, presenting massive opportunities for me and my business and investment and so forth.
Next is strategy. The first is your state and your perspective. What you’re focused on? The words that you’re using to describe it. Opportunity and inefficiency is being disrupted and flushed out, not panic, not afraid, not anxiety. Be careful with the words that you use. That creates her state and story about what’s going on and how you are showing up to it. Finally, the strategy comes after that. Most people are going to that. It’s the actions. It’s not the specific state first, story second, strategy third. I’ve been focusing purely on state and story. When I show up for my team, it’s a different conversation. I showed up, I felt it and they felt it. As a leader, as someone who gets paid to make hard decisions and to show up, I wasn’t that. I fell short of my responsibilities and I caught myself. I’ve redone my routine. I’ve redone how I establish myself and what I do when I’m in that funk zone.
I encourage you to do that. These are a lot of the things I’ve learned from some of the Tony Robbins trainings that I’ve done. Check him out. There are others as well. This is a great opportunity for humanity to rise up to the challenge, to face adversity and grow from it. That is going to be the end result. That is the end result of humanity. It’s the yin and the yang. I believe that the deeper we go with the extreme, whether its emotions or physical circumstances, the more we expand ourselves to be able to experience the other side of the spectrum. There’s some deep principle and psychology associated with it. I’m excited about all this. It’s going to be amazing. Even though I can look outside and see nothing, probably easily justify how bad things are, that’s the opportunity where you can go out and look at how amazing things are.
It’s the yin and the yang. We’ve always heard the greatest fortunes are made during times of extreme adversity. Now are those times. Hopefully, that helps. You are going to love Tom. He’s amazing. He’s been a friend of mine and has been a tremendous support for our clients at Paradigm Life as an incredible company called WealthAbility, which is a network of different CPA firms around the country. What he’s sharing is insanely valuable. It’s detailed and complicated because he’s been trained and influenced to the extreme by Robert Kiyosaki. Simplicity is his middle name. He makes this bill and the provisions of the bill easy. You are going to learn a ton.If you had on your team a good banker, a good CPA, and a good lawyer, you'd already be funded. Click To Tweet
Tom, it’s awesome to have you on. There’s so much happening these days and what I wanted you to speak to is the CARES Act. There’s so much to it. It’s $2.2 trillion and it’s probably going to go up from there, but there’s confusion. There are huge bottlenecks at banks. Let’s talk about the loan programs that people are trying to get. It would make a big difference, especially as things are still shut down.
Let’s start with the big one, which is the PPP loan or the Paycheck Protection Program. It is referred to everywhere as the PPP loan. It’s the one where it’s 2.5 times your average monthly payroll. You take last year’s payroll, the average monthly payroll. There are some interesting things about this computation. What does that include? Every bank is being different. Here’s what’s going on. The loan is guaranteed by the federal government, but it’s coming from the bank. It’s not money coming straight from the Treasury. Because of that, the banks are scared. They’re taking conservative positions. Remember, they don’t have that much capital on hand, so it’s going to be replenished, but they have to be careful about parsing out those loans.
That’s why you see somebody goes, “I’ve got my loan. I already funded.” That’s true because it’s probably a smaller bank you had a relationship with and they had enough capital for their few customers. When you go to Bank of America or Wells Fargo and you hear them saying, “We’re only looking at these types of people and we’re doing this kind of loan,” they’re going to have strict requirements. They’re going to minimize the amount. This is one of those things where you go, “It’s 2.5 times average monthly payroll.” Let me give you an example of where this is an issue. First of all, it includes health insurance.
The contributions that the employer was making that to health insurance.
It includes health insurance. I don’t know about the rest of you, but that’s a lot of money. We have ten employees and that’s a lot of money because we pay for every employee’s health insurance. If they’re not including that, they’re taking the payroll, you’re losing that. Let me tell you a big one. The law says that includes commissions and not only commissions to employees. If you had commissions to employees, no big deal. It’s going to be included in your payroll report, but it also includes commissions, the independent contractors. The law was clear on that. However, if you go to the Treasury website, it’s not included. If you go to Bank of America, they won’t include it. For us, that’s almost as big a number, so 2.5x is our commission because we don’t put ourselves, people, on the payroll. They are independent contractors, that’s what they want to be because they drank our Kool-Aid. They understand that it’s better to be an independent contractor.
You already have these two things that your bank may not include in your loan count computation. Remember, this is the loan computation, but then you have the forgiveness computation. Remember that this loan at least in part gets forgiven. This is 2.5x months this, but the forgiveness includes eight weeks from when the loan is originated. It’s the date on your loan document that you’re looking at. It’s eight weeks of payroll plus insurance plus commissions. This not only can be funded, it can be forgiven. This is free money. Chances are your bank did not include this. This is why what I’m telling people is don’t go to a bank. You need to sit down with your CPA. You need a CPA who understands how to calculate this because only CPAs are reading this bill.
The bankers aren’t reading the bill. The bankers have their set of rules. They’re all about rules. They’re all about risk. They see this as a huge risk. They see that if they do the computation wrong, if they don’t take a conservative approach, they may not get reimbursed. That’s a big deal. Even if they get reimbursed, they don’t want to carry these loans on the books. These are going to be a myriad of $10,000 or $15,000 loans. Once the forgiveness is done, you’re going to have little penny loans for two years that you’re going to have to track and manage at 0.5% interests. From a banker standpoint, this is a terrible deal. They’re doing it because their customers and Treasury demand it.
They’ve been forced to do it in a sense.
On top of that, you also get plus utilities, rent or mortgage interest, whichever you have. This is all forgiven. It’s not included. The utilities, rent and the mortgage interest, that’s not included up here, but if you use it for this, you could end up spending more on the utilities and rent in eight weeks. If you’ve got a class A space, you’re going to spend some money on rent and utilities. The idea was it should approximately equal this. The idea was, “Let’s put it in there so that it pretty much used up.” The reality though is that a lot of it depends on your bank. We’ve been using a lot of SBA loan consultants because they know the banks better for people who don’t have an existing relationship. If you have an existing relationship with a small community bank, a small regional bank, you have loans with them and you have deposits with them and you do all your banking with them, you need to go to them.
You need to explain this computation and I would suggest you go to them with your CPA. “You explain this because I don’t understand it.” You will get your loan faster through there than if you go through a consultant. That’s my experience so far. We were talking about it that it’s new every day. You’re seeing all these bottlenecks and they tend to be bottlenecks with the big banks. A relationship with a smaller bank is going to get you your money a lot faster and you’re going to have a little more flexibility than with a big bank. This is a big loan. There are a couple of other things that you ought to be applying for.
Looking at the actual loan documents, is it important to go through those to understand what provisions in there that you’re signing since you are signing a contract? It’s your obligation.
You want to make sure you go through those loan documents thoroughly. If you have anybody to have a look at it, maybe a lawyer, but certainly your CPA should be looking at it to see if the money works out or if the computation is right because a lot of this is math. This is pointed out to me. I spent a lot of time with Robert Kiyosaki on the road. A lot of what we’ve been talking about in the last few years is it’s been present for this, because we’ve been talking a lot about having a team. The Rich adviser wrote a book on more important than money is about building the team. If you had on your team a good banker, a good CPA and a good lawyer, you had already been funded at the maximum amount.
This is a good example of why the team is important. You can’t have one of these. You need a bookkeeper too. Bookkeepers are the ones calculating all this. You should have a payroll company. They produce these reports. That’s why I never like a bookkeeper doing payroll. That’s a terrible idea. Have the payroll company do payroll. Let the specialists handle it. Have the specialist on your team and they’re producing those reports. The problem is most of the big banks are taking that report and that’s all they’re giving you. They’re ignoring this. You want to make sure that you’ve got that team together when you do this.
Can you speak one more thing about this loan? There are some requirements for the eight weeks to be forgiven. It has to do with retaining employees. This isn’t something where you can take the money and then let people go because there’s a penalty.
It’s a Paycheck Protection Program. You have to remember that. This P is for Paycheck and another P is Protection. This is all about employers keeping employees. I’ll get back to the reductions and everything, but there’s an interesting quandary that employers and employees have and that is, “Do I let people go so they can get the enhanced unemployment insurance? Do I keep them and they get paid for eight weeks?” It’s only eight weeks. What if the pandemic lasts two years? You’re not going to keep getting this every week. It’s not going to happen. I believe this is a one-time shot. This is not going to happen again. They are talking about adding money to it. I think they will add that $250 billion. That $350 billion was never going to be even close to enough. What’s good is they’re recognizing that a lot of people were getting shut out because the big boys have all the money. They gave it to McDonald’s and Taco Bell.There are more business opportunities when you try to pivot during this pandemic. Click To Tweet
The franchise owners.
The best lobbying in this bill was by Boeing, the airlines and the franchises. They’re the ones who lobbied the best. Boeing got a $17 billion bailout. Their max issue has nothing to do with the virus. The airlines got bailed out. That was inevitable. You don’t want them failing. The franchises got bailed out. There is no qualification for this except that you’re under 500 employees. That’s it. If you’re a franchise, you don’t even have to be under 500 points. All franchises qualify. You can be at 10,000 employees and you’d qualify as a franchise. On top of that, if you’re in the foodservice, then even if you’re not a franchise, it’s 500 employees per location. For example, Harrah’s Casino. They’re included in this category.
If they had less than 500 employees per casino, they already have their money. That’s when you see, “$100 billion was gone.” That’s how it went too. It didn’t go to the little guys. It went to the big guys and that was always going to happen. It’s good news that they’re adding that there. They’re adding that $250 billion, which they need to do. They may need to add more than that. The independent contractors can’t even apply for this loan. My prediction was $350 billion is going to be gone by then. They have to add money if they’re going to get to the infinite contractors at all or even the routine small business that is having a tough time finding a bank to give him the loan.
Let’s talk about the reduction. It’s not as onerous as you think. There are two reductions. There’s one reduction based on reducing payroll and there’s another reduction based on reducing the number of employees. A lot of people have given May payroll reductions. They said, “We’re going to reduce your pay by 20% until this is over because otherwise, we can’t survive. That’s the only way we can keep you employed.” It’s okay to do that. Once you go over 25%, the excess reduction over 25% directly offsets what is forgiven. If you go over my $10,000, you lose $10,000 of forgiven over the 25%. That one is not onerous. I don’t see a lot of companies doing more than 25%.
Plus, the interest rate on the payback period.
It’s a two-year payback period and it’s a 0.5% of interest. It’s like a free loan anyway. If you reduce Full-Time Equivalent or FTEs from what you had a year ago at this time, you’re looking at 2019 between February and June compared to 2020, compared to your eight weeks. If you reduced, you’re a number of them, your overall payroll and your number of employees, then you get a percentage reduction of the entire amount of forgiveness. You’re reducing everything. Let’s say you’re 90% of where you were a year ago, 10% will not be forgiven. That’s a much bigger deal for people who are thinking.
I was on a call with a big mastermind group and business owner. Some of them are restaurant owners. “I’ve carried them, but do I let them go? Do I keep them and keep them on this?” It’s a tough decision. The answer is to sit down with your CPA and run the numbers. Once you have data, everything’s less scary. One of the reasons this whole virus is scary is because we don’t have data. The more data we get, the less scary it becomes. The same is true with your numbers. The more data you have, the less scary it becomes. This is a time in the world to know your data. That’s why the bookkeeper’s important. You know you have an accurate data.
I want to make a point that your network of WealthAbility accountants are doing consultations.
We are. We haven’t mandated it, it’s not a franchise, but a lot of our members are doing consultations on this and not charging. For our firm, we did no tax returns. We spent all week on the phones with clients. We’re not billing anything for it. We feel like that’s our civic duty to our clients to take care of them. It’s adding insult to injury when you bill for something like that.
It is the time to give.
Even the loan consultants are billing on the backend. They’re not billing anything upfront. They’re taking a percentage of what is funded. If you don’t get the money, you don’t pay. For the most part, people are being generous. Even California is sending ventilators to New York. That’s extraordinarily generous. Let’s look at two other things I want to talk about. They both relate to the same category. This is the EIDL Program. There are three parts to this program. This changes daily. This is an Emergency Injury Disaster Loans and originally, it was up to $2 million but this is a regular loan. This is an SBA loan.
Do you have to qualify for it?
Yes, there are some restrictions on it. You have to have been damaged. The PPP loan, you don’t have to show any damage. I’m telling all my clients, you need to apply for it. Even if you have done better during this time period because the reality is you’re going to pay for it anyway through your taxes. Seriously, don’t say, “No, I’m not going to take this because I don’t need it.” Reality is you don’t need it, but you’re going to need it to pay the taxes on this bill. We don’t know what’s going to happen. People that don’t need it yet may need it in a month or two. This is a $2 million SBA loan. Not as restrictive as some of the other loans as far as a regular SBA loan.
They collateralize everything, including your first year born son or daughter. They take an arm and a leg and they even take your house and a personal guarantee. This does not have all those requirements. It is a good loan. I think it’s the best loan that’s a true loan in this package. There’s also an SBA Express loan that is even less onerous than this one. Everybody can get that as long as you qualify. These are bank loans so the bank has to agree to this. All of this is going to happen after the PPP loans are done. After they’re done, the banks are replenished. Everything after that, you’ll start seeing this money.
You can have both.The innovators are the ones who are going to come out of this crisis winning. Click To Tweet
You’re not going to see this money for quite a while. There’s also a $200,000 loan under the EIDL. This is the same loan, but it has much looser requirements on it. If you need a $200,000 infusion, and you can show that you’ve been damaged. This is probably a good option for you. Here’s the option everybody should be doing and that is, there is a $10,000 grant. This is in addition to the PPP. If you get the grant, the grant reduces the amount of forgiveness on the PPP. What it means is that your PPP, $10,000 of it is going to be a loan unless you have extra. It reduces the amount of forgiveness on the PPP.
That’s the loan that’s going to be 0.5% payback over two years.
This is a $10,000 emergency grant and this. I haven’t seen people getting it yet because it comes directly from the SBA and they have been overwhelmed. This is supposed to be done within three days. I know for a fact it hasn’t because I filed for one and it has not come yet. This is something that people had to pay attention to, especially taken independent contractor, $10,000 can tide you over. That can be enough. You may not need to go through the PPP process. This may be sufficient for you. This may be exactly what you need if you’re an independent contractor or a small business. The whole focus has been on the PPP.
That doesn’t mean it’s the only thing available. That’s the key, sit down with your CPA. I look at that CPA’s as the financial positions of the crisis. We’re the ones who’ve read the law. We understand the law. We have a network of CPAs, 35 firms across the country and we’re dying to help. We have offer for April because we see all of these opportunities, but we also see another opportunity and that is people seem to have a little more time because they’re not commuting. They’re not going to dinner at night. They’re not going to movies. We’re going to have some financial opportunities that are going to be at least as good as 2008, 2009 and 2010.
It will be a lot better.
If you’re not prepared for that, you are going to miss out. A lot of us missed out on 2008, 2009 and 2010. I’m one of those. I had all of these single-family homes and I was trying to get out from under that. I swore I was not going to let that happen again. We have to be financially prepared for this and it’s not only about money, there’s this opportunity to borrow $100,000 from your IRA penalty-free, interest-free and tax-free for three years. You can borrow it and put it back and not pay tax on it. There are going to be all these opportunities. What we’ve decided is, we know that it’s a window. It’s a short window to get focused and put a plan of action together. That’s what we do for a living is wealth and tax strategies. We’re going to give away your first personal income tax return if you sign up for wealth and tax strategy.
We’re doing that because we see this window. Your taxes aren’t due until July 2020. You’ve got this window until July to do something. You’ve got this window probably 3rd and 4th quarters when we’re going to start seeing these deals come up. You need financial education. We want to encourage you to take some action. Our members have agreed that they’re going to give up their fees for your personal tax return because what happens is when you do a tax strategy and a wealth strategy and you have the same person do the tax return, it makes the implementation and the effectiveness of that so much greater. We decided, “We’re going to yes this out because this was when we need to be giving.” Our members are all saying, “I’ll give away a free tax return so that I can encourage people to get in this process because this is a huge opportunity.” If you miss out, you’re going to be kicking yourself for the rest of your life.
We’re in the beginning stages. The economic impacts have yet be seen. That’s globally, it’s not just in the United States. Who knows what’s going to come down the line with the other stimulus packages, other incentives? In the end, the majority of people are employed by small business owners. They’re the ones that are trying to figure out what to do. Things are going to change. People are going to innovate. There are going to be new ways of doing business at the same time. In 2020, it’s going to be somewhat painful. I believe that there’s going to be continued opportunities that have to do both wealth strategy and your tax strategy. Having something and having a team member in place to help out with that is more important than ever. It is complicated. This thing’s like a thousand pages long and you have read it.
It is 854 pages and yes, I read them multiple times and I’m still learning new things about it. Here’s the other thing. This hit me first when my first industry job was with a company, this is back in the savings and loan crisis, paid $2 billion for a savings and loan that went to zero within two years. They put a hiring freeze on. I was the only hire in six months and a Fortune 500 company. My first job was to let people go. I had to let half my staff go. It was similar to this. Only in this case, people are getting let go and they’re not getting big severance packages because there’s no money to give you. I remember thinking about and I’m going, “These people did nothing wrong.” You can be the best employee in your entire shop and you have no job right now. You’re on unemployment. It’s no-fault of yours except for one thing. You only had one client. You only have one customer. You had an employer that was your one customer.
I know you deal with banks all the time, Patrick. If you had a business owner, if a business owner had a single client and they went to a bank for a loan, will the bank ever give them a loan? Never. It is too much risk. Every single person who’s an employee has one customer. This points this out. I’m thinking, “You’re online right now.” More people are online than ever. You realize that video is easy. I’m learning that YouTube is easy. Even elderly people are discovering YouTube and know other things. If that’s the case, think about how easy it would be to start a business with thousands of customers. I know you have thousands of clients or customers, Patrick. You have the risk if one customer will not leave. You have the risks that they’re going to die in the life insurance industry. If you lose a customer, that’s okay because there are other customers and there are more customers. Whereas if you lose a job, what do you do? It is the time to be thinking about, “Maybe I’d be starting a business.” It has huge tax advantages to it, as we all know. You’ll get deduct stuff. You get deduct part of your home, you get deduct the car, you get the deduct some of your meals, your travel. You get to deduct all sorts of stuff.
Your taxes go way down as a business owner. On top of that, you have that much less risk. It is the time. One of the big things I’m encouraging people to do is we’ve got these investment opportunities coming. We are also having an enormous business opportunity and the big word is pivot. People who are shifting how they think and changing as you would use in your business, changing their paradigm, that’s a big deal. The innovators are the ones who are going to come out of this winning. It’s going to be the people who did the same old thing, same thing I did last year, that you’re going to come out the big losers. Rahm Emanuel said, “You never let a serious crisis go to waste.” I don’t like the saying, at the same time, there’s a point there that maybe we ought to be looking at.
We want to protect ourselves. We want to protect our loved ones. I’m particularly vulnerable for this because of my immune system and the same with my wife. We want to take care of health. At the same time, we want to take care of our finances for now and for the future for the next time it does happen. There will be a next time, 1990, 2000, 2008, 2009, 2010, 2020. There is a pattern here and it’s going to happen again in 2030. Don’t believe, it won’t. This time it was pandemic, last time it was real estate. The time before that was stock. Who knows what it’s going to be? As long as the economy is the way it is, we’re going to keep doing these things. It is time to get prepared. If I had any words of wisdom, that would be it. It is time to get prepared.
You had mentioned something, Tom, which I think is vital, which is mindset. There are all the reasons to be incredibly afraid. That’s all we see on TV. That’s all we see in the news and headlines. That’s all we see on social media. At the same time, many others have a perspective that this is a wonderful time. Reinvent yourself, take advantage of the opportunity. It’s a time where the inefficiencies and waste are flushed down the toilet. That’s where people start to grow. You don’t grow when things are all when they’re easy. These are the times where you can grow the most, but it’s a choice you make and it starts with your perspective. I believe that employment, education, investing, real estate is going to change, but it’s going to change for the better.
It’s all good. I hope everybody’s taking care and protecting themselves and their neighbors, especially protecting us, elderly people. We appreciate those of you who are wearing masks and gloves and washing your hands and all that kind of stuff. It doesn’t only affect you. It affects my wife and I. When we have landscapers come, we need them to take care of themselves because they put us at risk. I encourage people, it is the time to give. We’re out there giving whatever we can. I know you are too, Patrick. All I can give is the explanation of the law, a way to build your wealth and reduce your taxes. Anything we can do for you or your readers, they can go to WealthAbility.com and schedule a call. All you have to do is click on the button and schedule a call. It’s a free call. If they need a CPA, if they need help or anything, we don’t charge for any of that. We charge CPAs for that, but we don’t charge the public for that. We’re happy to help any way we can.
Thank you for your generosity. Tom, thanks again.
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About Tom Wheelwright
Tom Wheelwright, CPA is the visionary and best selling author behind multiple companys that specializing in wealth and tax strategy. Tom is also a leading expert and published author on partnerships and corporation tax strategies, a well-known platform speaker and a wealth education innovator.
Tom is a regular commentator in the field of taxes and contributes regularly in major professional journals and online resources. Tom’s work has been featured in hundreds of media, including Forbes, The Huffington Post, Accounting Today, CFO Magazine, ABC News Radio and AZTV Morning News, along with writing columns for Entrepreneur Magazine and Inman News.
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