Erik Asgeirsson, CEO at CPA.com, and Mark Koziel, EVP of Firm Services at the AICPA, join the show for an episode all about the Small Business Administration's Paycheck Protection Program (PPP), which was created by the CARES Act two weeks ago to help small businesses pay their employees through the COVID-19 pandemic. We ask: Is the PPP working? How much of the PPP's $349 billion has actually been disbursed? What is the AICPA doing to support accounting pros struggling through this difficult time? Why didn't Congress go with the AICPA's plan to use payroll processors to distribute funds? What's up with banks not paying agent fees, and much more.
Statements from the administration on PPP processing and/or disbursements:
- VP Pence on 4/7 saying 71B has been disbursed
- Kevin McCarthy on 4/8 on Fox News saying we got 70B out in two days and “this has been a very successful program when you look on every angle”
- Mnuchin said on 3/31 that “Treasury and the Small Business Administration expect to have this program up and running by April 3rd so that businesses can go to a participating SBA 7(a) lender, bank, or credit union, apply for a loan, and be approved on the same day.”
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Erik Asgeirsson: [00:00:20] Your poll is absolutely accurate. If, actually, you'd asked me what percentage, I would've guessed below five percent because I think it probably is below five percent, right now. There's very few banks that have started distributing funds. There are some that have ...
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Blake Oliver: [00:02:32] Welcome to The Cloud Accounting Podcast. I'm Blake Oliver.
David Leary: [00:02:36] And I'm David Leary.
Erik Asgeirsson: [00:02:37] Erik Asgeirsson.
Mark Koziel: [00:02:38] Mark Koziel.
Blake Oliver: [00:02:39] Thank you so much for joining us. Erik is the CEO at CPA.com and a member of the leadership team at AICPA. Mark is the Executive Vice President of Firm Services. They have generously agreed to join the show and help us understand a little bit ... I'm particularly interested in what is going on with the PPP SBA programs that are available for small businesses. There's just been a ton of chatter in the accounting community about these programs since they launched a week ago on Friday. It is Friday, April 10, and we're eager to get an update from you guys. Hopefully, you have a little more information than we do about what's going on at the SBA. Before that, would you mind just letting us know a little bit about what CPA.com is and the relationship between that and the AICPA? Because we've got some listeners who are not CPAs - international listeners. They may not be familiar with these organizations.
Erik Asgeirsson: [00:03:38] Blake, and David, thank you for having Mark, and I on the phone- on the podcast. It's a critical time to communicate what's going on, so we appreciate this opportunity. Just real quick, a little bit about CPA.com. CPA.com is the business and technology subsidiary of the AICPA. We're focused on empowering firms with all of these digital capabilities that they're using today to support their clients. My role is also, as part of the AICPA leadership team, just helping with the overall business and technology strategy.
[00:04:14] Mark, and I are part of the team, executive team, that are really leading all of our activities related to the CARES Act, and the Paycheck Protection Program. It's a historic time for the 44,000 firms in the U.S.; it's a historic time for our members all over the world. We've got a big team working hard at providing leadership and guidance around all of these important business stimulus initiatives that have been launched by the different government entities. So, I'll let Mark just give a little background on his role.
Mark Koziel: [00:04:48] Thanks, Erik. My team - Firm Services - we manage the relationships for the 44,000 firms of the AICPA, starting- you have the Big Four; you have the major firm group, which is the top 100 firms. You have what we call our G400 community, the group of 400. That's firm number 101 to firm number 500. Then, the 43,500 small firms that are out there. We're small-firm driven. What we do ... That's where this CARES Act fits so well in the wheelhouse of trying to help small businesses understanding the intent of the program and understanding what truly small business is. Many of our CPAs, that is what they're doing each and every day. We know their phones are ringing off the hook, right now, and we're trying to provide as much support as we can to help them help their small businesses stay alive.
David Leary: [00:05:45] All right. I think, for most of us, this focus is gonna be the last 10 to 30 days of what's been happening-
Blake Oliver: [00:05:50] Which seems like six months.
David Leary: [00:05:52] It does feel-
Mark Koziel: [00:05:52] It does. Each day has been like a year in the last week. So, when you ask what each of our divisions do, Firm Services, we're more on the practice-management side. We provide tools and resources. Some of those are- we have a private area for firms that choose to be members of that to get deeper support, but we've opened up all of our working-remote tool sets that we have to all firms, not just AICPA members, to help every firm that we possibly can, right now, because everybody's in that need. Eric's team, and a lot of the initiatives around cloud, around technology, those firms who have been listening to that over the last 10 years, for them, when they got the stay-at-home order, it was business as usual. There are other firms that struggled beyond that, but they're catching up now. When we get to the other side of this, you're gonna see new ways of doing business for a lot of firms.
Erik Asgeirsson: [00:06:47] We've been doing check-ins. We wanna get to the Paycheck Protection Program. We've been doing check-ins with the many, many firms that we work with, and a lot of them have been saying- 1) They've been saying "Thank you for getting us up on these cloud solutions." 2) They've been saying that, now, their clients are thanking them because they're on these cloud-based solutions. Then, 3) they're saying, "We've got ..." Sometimes, there's many partners in a firm, and they're like, "The other partners now are more willing to move their clients to these modern platforms." Then, some of their clients that were resisting and staying in the desktop world are quickly moving to the cloud. So, in some ways, some of these solutions we have out there ... We're all talking about Zoom; we're all on Zoom. It's like a verb, now. I'm not gonna name names, but there's a lot of solutions like that out there in the accounting space that are doing the same thing.
[00:07:40] If we wanna get into ... I'll pivot us into what's on everybody's mind - the Paycheck Protection Program. You look what's happened over the last two weeks; it's only two weeks since the CARES Act was made law. It was signed by the President on March 27, and then, three or four days later, Treasury came out and gave direction on the forms and a little bit about the process. We've been involved throughout this. Pre it becoming law to the last 10 days, we've really worked through all the implementation items.
[00:08:16] It was about 10 days ago that the forms were put out. We started getting guidance to the firms. We also were talking with the government officials, talking to the payroll companies who are playing a key role, and some of the banking community. Then on Friday, April 3, the application went live. The banks literally had 12 hours since the final guidance came out on Thursday night, April 2. Then, over the past week, there's been now over 500,000 applications that have been submitted- successfully submitted to the SBA - the SBA E-Tran system - totaling about, as of last night, over $140 billion in loans. There's even more bigger numbers in that, that are still on the banking side that are getting submitted to the SBA.
[00:09:04] What we're doing- what we're trying to do is just build consistency in the process, a common understanding, and really trying to get the firms to understand, okay, here's the best practices around what documents are needed; understand how to do the calculation. Also, it's so critical to be in communication with the payroll companies, and that we've got this AICPA-led coalition that we stood up over the past three weeks and that's made up of the payroll processes primarily. And then on top of that, we're connecting to the banking community. There's four, 4000 lenders that are up now, but there's never been anything of this magnitude done in this short period of time. There are issues. When you started a program this large, there is gonna be issues. But, right now, the SBA is processing in one day what they processed in all 2019. We can talk about the issues. We can talk about some of the technical aspects of it. Mark's team's doing a fantastic job. I'll let Mark jump in on all the tools that they're putting in place for the firms [crosstalk]
Blake Oliver: [00:10:15] Yeah, let's-
Erik Asgeirsson: [00:10:17] -I'll let you guys go. That was a little bit, but I just thought I'd give a little bit of a broad summary of what's going on. Every day's been a Monday. We're pretty much going seven days a week; not 24 hours a day, but we're working long days.
Blake Oliver: [00:10:32] So, let's talk about that processing number, those application numbers. David, and I have been glued to Twitter, and the news trying to figure out what is going on. I'm hearing one thing from the accounting community, which is that not a lot of their clients are getting money in the bank. I did a little informal Twitter poll. 140-something folks responded. I asked: "If you applied for a PPP loan, do you have the money, or are you still waiting, or did you get rejected?" 4.9 percent, on Wednesday, said they had money. 89 percent said they hadn't heard anything. Then, slightly more- the remainder of that, more than the folks who got the money, said they had their applications rejected.
[00:11:18] I can't reconcile that number of five percent or so to anything official from the SBA, or from the administration, except for a few posts that came out. Vice President Pence said on Twitter that the SBA had processed $71 billion of funds, as of April 7. The President then made a video and repeated that this is a great success. Money is getting out to people. I don't know exactly what he said, but it seemed like, "Hey, money is getting out there." Some folks on Fox Business are saying that various amounts above that have been processed, that the money is getting out. Kevin McCarthy, on the 8th, he told Fox News that they got $70 billion out in two days [crosstalk]
Erik Asgeirsson: [00:12:07] -Blake, I think it's fair. There's three categories, I think, to look at. There's getting your application into the bank. That's phase one. Second phase is the bank getting that application successfully submitted to the SBA, and then, the bank giving the money to the clients. Your question is the third step. What people are talking about in the press are ... B of A may say, "We've taken in this many in applications." Then, Vice President Pence was talking about what the SBA had processed. Your question is the important question - how much money is in the hands of the businesses.
[00:12:45] Your poll is absolutely accurate. If, actually, you'd asked me what percentage, I would have guessed below five percent, because I think it probably is below five percent, right now. There's very few banks that have started distributing funds. There are some that have. I actually just ... It was on an email exchange- a firm, said, "Hey, my client just got funds." What's gonna happen is that's gonna really start occurring in the coming days.
[00:13:15] This is how it works. You have to get the application into the bank. The bank then has to get it to the SBA. The SBA kicks back the approval, and then the bank distributes the funds. So, I think, over the next seven days, those numbers are gonna start catching up. So, 10 days from now, if we had this podcast ... Today is the 10th. If we had this podcast on the 20th, that number is gonna be in the $100-, to $200-billion level. Within 10 days, these funds will go out.
[00:13:51] One thing that's important to know ... Everyone says you don't always just want the money immediately because you need to ... You wanna set up what's your ... Some businesses absolutely do, but some businesses wanna go out and get their employees back on payroll. We're working, now, on all the different elements of loan forgiveness. One concept that Mark, and I were just talking about in another seminar/webinar was that businesses should set up a special account to receive this funding.
[00:14:22] The money's gonna come, and there's gonna be lots of stories on TV and in the press, over the coming days, about there isn't much money distributed yet, but that is coming, and we'll start hearing stories about it being distributed. Then, you're still gonna hear stories about businesses that haven't been able to successfully apply; that their bank in their town is not online. There's only 4,000 banks, out of the 10,000, that are online they're online.
[00:14:51] I could talk to you about the why behind some of those banks having issues and what's driving that. We could also talk about the issues on why the banks are, today, only taking their existing clients. Then, we can also talk about how a number of fintech companies are gonna be standing up platforms. I'll let you drive the next question. But that was your answer to your question. I think you got- I'll say your Twitter feed gave you accurate data.
David Leary: [00:15:20] Taking it a level up higher, based on tweets and recommendations the AICPA has put out, it sounds like you guys kind of are in the loop. You have a seat at the table with the SBA. You're in communications with the Treasury. You possibly were in communications, as this bill was getting developed. Is this a correct impression I have or not?
Mark Koziel: [00:15:39] Yeah, I mean, there's definitely elements of that. We have a strong D.C. team, and they were in constant contact with many of the legislators who are sitting on the small business committees, who are going through this. We had our recommendations ... Not everything got through, as you saw. One of the things is- Erik mentioned about this leadership perspective ... The coalition where there was no common way that payroll was being calculated.
[00:16:11] Erik gets the 26 together that are in the coalition and says, "All right, we need some consistency here. Let's come out with what we consider to be the consistent approach." Published that- that was on Saturday, the day after this thing launches, right? Then, you don't get guidance around any of that. They say that that's right, until Monday. Monday, they actually confirmed what it was that came out on Saturday. So, there's some of it where we're in, as the sausage is being mad, and some of it, we have to re-stuff the sausage on the back end. There are so many factors to this.
Blake Oliver: [00:16:47] Well, let me just say that for all the problems the PPP loan program is having, that was not the initial recommendation of the AICPA. I was a huge fan of your plan to use the payroll processors to funnel this money to small businesses. You guys put out a press release pretty early - you got together with Intuit, and Paychex, and I forget who the fourth member of this alliance was, initially; now it's quite large - saying, "Let's create a way for the payroll companies to tap into this fund on behalf of their small business customers and get the money out that way," which kind of makes a lot of sense to me that it would be much more efficient than having banks underwrite a ton of loans.
[00:17:27] This process that we've created seems designed to fail in that the SBA, on a good year, processes $20 billion of loans. Like you said, Erik, we're asking them to do that every single day? It seems impossible that they're gonna be able to do this when it's $350 billion of loans. Could you speak to this idea of the payroll companies - this original idea - and did Congress even consider it? Was it even an option? What happened to that?
Erik Asgeirsson: [00:17:57] Blake, I appreciate- I did see you post something about your support for that idea. That was on March 21; it was Saturday. Congress and the policymakers had asked us for some suggestions. The AICPA absolutely provides suggestions, and we had what our goals were. Our goals were to help the Main Street businesses; to get the funding in place for the Main Street businesses. We put together a number of different ideas. Mark's team worked on that. They talked to firms.
[00:18:28] One of the prominent ones was this this idea of distributing the money through the payroll providers. We talked to the payroll providers that week, it was March 15, or 21. Then, Congress was- there was interest in our concept. They said, "Please issue something." So, then we worked hard on that, and then we issued that letter on Saturday. We actually sent it to all of the Senate, all of the House of Representatives; sent it to Treasury Secretary Mnuchin, the SBA, and the White House. That kind of started this whole process off, and then, we quickly moved into this broader coalition. Then, Congress thought through what was the best way to do this, and they put that in place in the CARES Act, and in the Paycheck Protection Program. Then, we moved to supporting the implementation of that program.
[00:19:22] I think, if I had to say why ... What they wanted to do was have a universal solution, and I think there's still discussion about leveraging payroll processes for some direct distribution. I can tell you that is still- they're still looking at new ideas and new ways to advance this distribution, so that's ongoing. What they wanted was a total solution, and the banks do offer a total solution because not everybody, not every small business uses a payroll processor. What they put forward with the Paycheck Protection Program was a process that would support any business, no matter how you did your payroll [crosstalk] It's not the SBA program. I'm sorry, go ahead, David.
David Leary: [00:20:07] Except for the fact that the whole loan application is based off of the payroll data.
Erik Asgeirsson: [00:20:13] It is.
David Leary: [00:20:13] It's insane [crosstalk] The application has one box, and nobody can figure out how to fill it out.
Erik Asgeirsson: [00:20:18] You know what? Any big program is gonna have issues and at this point, where I think we're on the path to implementing it ... I do think there'll be other- there'll be new things that come out in the coming weeks as they continue to try to help small businesses. So, it's just good to be in the conversation. I think that's what we're trying to be in the conversation. What we just wanna do is execute and get the businesses their funding and have the firms play a trusted advisor role [crosstalk] Go ahead, Mark.
Mark Koziel: [00:20:52] The one thing, David, and Blake, I know there has been a lot of buzz about this is wrong, and that's wrong, and they haven't figured this out. This prior webinar, we said, "Assume positive intent," that the intent was to get money in the hands of small business. They're doing it through a loan. They wanted a forgivable loan. The government wanted to provide a mechanism to get money into the hands of small business. They want that loan to turn into a forgiven loan on the back end. They don't want small businesses hung with additional loan dollars. The banks don't want small businesses hung with additional loan dollars.
[00:21:30] Now, we just gotta figure out all the mechanisms in between. As an example, on the payroll, the talk about that ... It's 2.5 times your average payroll. That's the money they're going to give you. Erick mentioned the great idea of setting up a separate bank account; hold it over in this account. Then, you've gotta figure out how to pay it. You've got to have at least 75 percent of the expended funds be in payroll because that's what they were trying to fund. What is it that they're trying to do? They wanna keep people on your payroll.
[00:21:58] They wanna say to Jack Waiter, and Susie Server that they need to stay with the restaurant. "There's a stay at home order. We're gonna keep you on the payroll for the next eight weeks. The minute we can open our doors up again, you can come right back in here. You don't have to go and file for unemployment. If you're on unemployment, come on back because we know it's a royal pain in the ass to go to the unemployment office every week. Stay on the payroll." That's what they want - equal payroll for this period and then move it forward.
[00:22:29] The proof ... The business advisor, to the CPA firm can help navigate that with the client. If I've got $100,000 in loan, I gotta spend $75,000 in payroll. I gotta have 100 percent of the same number of employees I had from a year ago - to compare that to - and then I need to make sure I don't pay anybody less than 75 percent of what they were making before. Those are the rules. Here's who I have. Here's what I'm gonna pay them over the next eight weeks to make sure that I spend the $75K.
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Blake Oliver: [00:24:15] So, Erik, I appreciate your enthusiasm or, I guess, confidence that the funds will get out. We haven't seen any official numbers from the SBA on amounts dispersed, or when they expect funds to be dispersed. How much do you think of this is going to be dispersed next week? The reason I ask this is not to be a complainer or somebody who just likes to point out problems - I understand people are working really hard on this - but half of small businesses only have 15 days of cash reserves. We're two weeks after the CARES Act was passed, and there was already a period where many small businesses were shut down or seeing decreased revenues due to shutdowns, lockdowns, business closures in this country.
[00:24:56] So, if the money doesn't get out soon, half of small businesses will have already furloughed their employees or laid them off, and then they can't pay payroll anyway. I don't have the exact numbers on this, but I'd be willing to bet that 80 percent of companies don't have more than 30 days of cash reserves. Just like most Americans live paycheck to paycheck, most businesses live payroll to payroll. So, is this program gonna deliver the goods? Have we heard anything from the SBA to give us any assurance in that regard?
David Leary: [00:25:27] To add some context on that, her name's Jovita Carranza- she's the Administrator of the SBA?
Blake Oliver: [00:25:34] She's the Administrator.
David Leary: [00:25:35] On the first day, she tweeted numbers out; about every hour, the first day, and it's been radio silence, since. I had my daughter look for three hours, searching the internet for numbers. They don't exist. Then, when people go radio silent ... Because if it was successful, they'd be out there touting this more.
Blake Oliver: [00:25:54] Yeah.
David Leary: [00:25:54] It was the GOP, and it was Trump, and it was everybody ... This is the greatest thing ever to happen to small business. The reality is it sure doesn't feel like that. Then because, now, it's radio silent, now, it's very scary. What's really happening?
Blake Oliver: [00:26:07] The lack of communication makes it hard for accountants to communicate with their clients because clients are calling and asking CPAs, and bookkeepers, and accountants, "What's going on? People are getting money, and I'm not." We don't know how to communicate that; we don't know how to communicate the status because we don't have a status update on the program [crosstalk] I know that you don't have all the answers-
Erik Asgeirsson: [00:26:32] -on this positive ... I think what we're doing, right now, is we're trying to play our role and to help. So, I think, in just trying to provide context, I think the answer is that not many people have received funds. So, that's the answer. We need to get ... I think this is why those- I said earlier, there's those three different groups of information. A big bank could say, "This is what we've taken in, in applications." Then, the SBA would- Administrator Carranza was sending out, via social media, on April 3, what they were receiving in, and they were putting E-Tran IDs on the applications, and they added that up.
[00:27:16] Now, the next thing is the amount of funding that the banks have given to their clients? All I would say is, you're right, it needs to happen yesterday. We're one week since it went live, which was April 3, and two weeks from the law. It still needs to all happen immediately. But what we're trying to do is keep the- as Mark described, keep the businesses intact, get the funding to them through the banking systems, the 11,000 banks. That's what we're doing.
[00:27:48] We've got to make that work, so you have to have some process, though. You still have to have some process to make sure it's effective. We don't want ... There's the checks and balances so you don't have fraud occurring, and I think that's something that [crosstalk] we all gotta think about. So, I think the money- I'll just finish up- I think the money is gonna get there, and it's gonna get there in the next week. That is something that I think the banks are committed to doing. There's also gonna be lending. I'm hearing, right now, that people will lend in advance. If someone really needs the money, they're gonna start giving them loans prior to that final step in the approval process-
Blake Oliver: [00:28:33] Well, I think it-
Erik Asgeirsson: [00:28:33] -from beginning to end, it's gonna be- it's seven days; now 10 ... For a lot of this money, it'll be about two-and-a-half weeks, I guess, for it to get out there.
Blake Oliver: [00:28:41] That's a best case scenario.
Erik Asgeirsson: [00:28:43] Yeah.
Blake Oliver: [00:28:43] David, you were gonna say something.
David Leary: [00:28:46] I feel like everybody's being too cautious about fraud. We learned this in the 2008 stimulus package. It took too long to distribute it, and now we're in the same boat again. It's $350 billion, and we're worried about fraud. It's free money just being basically printed up. Just give it away. Now, yes, there's probably gonna be $1 billion, $2 billion of fraud, but it's much better that small businesses get the other $348 billion. It just-
Blake Oliver: [00:29:12] Don't forget that there is no requirement that these businesses prove need. So, we've probably got a lot of businesses that are applying for these PPP loans that arguably don't need the money, don't now; maybe will need it in the future. Then, the way this whole program has been structured, the banks are giving the loans out first to their customers with existing lines of credit; existing loans. This was the criticism that was levied at Bank of America over the past weekend was that in order to get the loan, to even apply, you had to have a business checking account, and an existing loan with them, or a line of credit. I think, at first, even a credit card wasn't good enough [crosstalk] Basically, they're getting free money from the government to give to their existing customers, which is effectively de-risking their portfolio ... Are those the most needy customers?
David Leary: [00:30:07] Their biggest customers, based on the average of the loans [crosstalk] The biggest.
Mark Koziel: [00:30:11] -also, not that I'm here to defend the banks, but you have to understand, too, I mean ... To Erik's point, they were given 12 hours to have a system up and running. They knew they were gonna have this massive influx. So, how are they gonna manage? They were managing, to be honest, probably slightly better than the SBA, who is just getting the influx of everybody, trying to manage the number of applications out of the gate.
[00:30:35] Now, you're having more loan options, more banks that are creating these options. We get the question all the time: "If my bank won't do it for me, then where do I go?" I know a business that just switched banks, in March, well before this program was announced. Every bank is saying, "We are not going to allow applications for anybody who wasn't a banking customer on February 15." That is a consistent thing. But one of the tests is that the business had to be a viable business operating on February 15. How does a bank verify that? They were a banking customer on February 15.
[00:31:12] Now, you have fintech companies that are coming in, and they're going to start creating options, and you're gonna see that the market's gonna open up now. I know it was stressful for those, "Oh, my God, my bank turned me down; I'm rejected; I got nowhere to go ..." The options are open. I've answered a bunch of social media posts about that. There are fintech solutions that are available now. There's gonna be even more. 4,000 banks - to Erik's point before - gonna turn into 10,000 banks probably very soon.
Erik Asgeirsson: [00:31:44] Blake, I just wanna offer a couple of points here just on ... We're not ... We're just trying to- we're not defending anybody, but I just think it's good to provide information on what each group, each of these stakeholders, are kind of working through. The lenders, the real reason why they- right now, they're just saying existing customers, it's due to the anti-money-laundering regulations, the FinCEN regulations. For them, it would take- it takes them one to three hours more. It's very hard to just do all the verification for a non-existing client. So, that's the why. They just said, "Let me ... That's what we can do, and we're standing this up really fast." That was the reason. It wasn't like, "I just wanna give it to my existing." They've actually gone to Treasury. There's that red tape, and they're saying, "Can we relax some of those MAL rules?" That would probably ... There's discussions going on about that, that would give the banks some more ability to take on non-customers.
[00:32:54] Then, just with the system here, you need to have a centralized system, so you wouldn't have double applicants. You're right. I hear you, David. You don't wanna get the money out. I actually don't ... I think we've- you can self-certify. So, people are trying to make it really effective, but you don't wanna have a system that's so broken that somebody can apply four times and you don't know. They've centralized it, and they're centralizing it with the SBA systems. This week, the SBA brought in Amazon Web Services to step up their portal to kind of give them more capability. Things are getting better, but it hasn't ... There's absolutely been bumps along the way and frustrations. There needs to be better communication, and Blake, that's what you're doing here with this podcast.
David Leary: [00:33:45] So, to tie up on ... If I'm hearing you correctly, as more the tech companies get in, the Intuits of the world, with QuickBooks, and they have a much smaller-sized customer base, as far as business sizes, we should see this average loan amount start dropping? Right now, it's still $250,000. That's a $1.6 million-a-year payroll.
Blake Oliver: [00:34:01] Yeah, that's like 30 or 40 employees, as best we can tell, and 80 percent of small businesses have, I think, 10 or fewer employees. So, it definitely seems like these loans are going to the top 20 percent of small businesses, right now, at least the ones that are getting authorized. I don't know that; we're just speculating based on available data. We're not speculating ... We're just making our own calcs, right? Average loan amount based on the total number of loans, and the total amount authorized, but it makes sense to me because who are the businesses that would have the resources to be able to apply on Friday? It's somebody who has a finance professional, or a CPA, who can mobilize them very quickly, but that is-
Erik Asgeirsson: [00:34:44] That's right. That's right, Blake. I think actually what ... Today's a big day, I mean, today we're speaking, right now, it's April 10, and today, the independent contractors can start applying. The average loan size is gonna go down. There's 30 million in America- we're talking ... I know you've got worldwide listeners. There's 30 million identified businesses in America, but only 6 million of those businesses, 5.9 million have employees. So, you've got 24 million that are, essentially, individual contractors are sole proprietors. That's the batch that's coming in, and that's why we've gotta get this confusion sorted out, and we've gotta make it ...
[00:35:24] Because they don't- they don't have- they're a smaller team; they may have an advisor. There'll be a lot of people doing this by themselves. So, I think, with these other entities coming online ... I think the banks, too, are gonna work at getting it better, making it better; and the firms ... That's what we said on April ... We're trying to mobilize the 44,000 firms so they can kind of get clarity out there. You're right, the loan amount's gonna come down, and, yes, the larger businesses, larger small businesses were the first ones probably to apply.
Blake Oliver: [00:36:00] So, one smaller piece of this was the agent fees. That's still kind of a sore point. I think a good number of accountants, including myself, read the Treasury regulations, or rules and said, "Oh, this is nice. They're providing an agent fee." So, if I prepare a loan application on behalf of my client, if act as their agent and get this for them, then I can get a piece of the action, too, because the banks - let's not forget - are getting five percent on loans under $100,000; three percent on loans between that and, I think, $350,000. No, it's three percent from $350,000 to $2 million; and then one percent up to $10 million; from $2 to 10 million; something like that. Anyway, it's as much as five percent, so the banks stand to make $17.5 billion from this program at most.
[00:36:48] The agent fees were gonna be paid by the banks - in the rules - and agents could earn a quarter percent, half a percent, or one percent, but the banks are refusing to pay the agent fees. I haven't heard of any banks paying agent fees. Some accountants thought, "Hey, I'm gonna be an agent. I'm gonna get these fees that'll compensate me for my time." Then we learn that, according to the rules ... The AICPA put out a press release on this, warning CPA firms that you can't charge your clients for loan preparation; if you act as an agent, you can't charge clients. You gotta get that from the agent fee. But the banks aren't paying the agent fees. Other than giving up on that, is the AICPA planning to do any lobbying to get the banks to actually pay the agent fees? [crosstalk]
Erik Asgeirsson: [00:37:32] Blake, I think you got three questions in there. Mark's gonna take ... Mark, there's three questions here. 1) Are the banks supportive of the agent fees? 2) What's the AICPA's advice to the firms on being an agent or not being an agent? Those are two parts. So, why don't you, Mark, take that first question, and then I'll- if that's okay, then I can come back to the other question. Does that make sense, Blake? Those are the two questions - what's the banks' rule, and what's the AICPA's advice on this?
Blake Oliver: [00:38:01] And I apologize for bombarding you with multiple questions [crosstalk] the last one would be what is the AICPA's plan? Is there going to be some lobbying in this respect, or are we just giving up on that?
Mark Koziel: [00:38:16] We are asking for additional clarification, and everyone's eyes lit up because they saw dollar signs based on what was in the guidance. That wasn't even in the act, that was in the guidance. What the act intended was to make sure that the client wasn't losing this loan they were getting to all kinds of fees and charges. That was ultimately what it was. But that's not in the application. I know, and I've had some members yell at me for trying to oversimplify this process, but I've seen the application. I've actually completed it for a friend. I will tell you, it's five minutes to complete the application. Yeah, there's the documentation.
[00:38:59] But I think more importantly than what we're going to do for the client to fill out this application is, up front, there's actually four loan options. PPP is not by itself. I hope our members are sitting down and providing an advisory service to their client to figure out which federal program is right for them. That gets paid, right? The application, itself, and then, you have that whole eight-week verification. The example I gave - who's gonna sit down with the client and figure out that they won't have to pay, or loan on the back end because they can get everything forgiven? That could be paid.
[00:39:37] This whole idea of assisting in the application ... Some of this is coming from 7(a)- SBA rules on 7(a) loan packages that take weeks to put together. That's where agent fees come from, and that's where bank fees come from. The five percent that the banks are getting, on the high end, for the smaller loans, think about it - what are they getting on the back end that they usually get for most loans?
Blake Oliver: [00:40:04] They're getting the one-percent interest if the loan is not forgiven, which, yeah, admittedly is-
Mark Koziel: [00:40:08] They laughed when it went from a half to one-
Blake Oliver: [00:40:10] They negotiated that. I mean, that shows you the power that the banks have. At the last minute, they were able to negotiate doubling that interest rate because it wasn't good enough for them. I don't know. It just- it feels to me like, as a practitioner, the banks sure got a sweet deal compared to the accountants.
Erik Asgeirsson: [00:40:27] Well, if I could- Mark, do you want ... This is ... I'm just- context here; so, just so you have context and it's not trying to take an editorial position one way or the other [crosstalk]
Blake Oliver: [00:40:38] And I know you guys didn't write the law. I get that.
Erik Asgeirsson: [00:40:40] Yeah, but on that, just because we've spoken to people, on the loan going from half a percent to one percent that was really the small banks; the small banks just didn't have access to capital, and they would lose money. They would lose money on that. So, that's it. I think there's truth to that. The small banks were gonna lose money on the half-percent rate, so they put it up to a percent. The goal of this is to get it forgiven, but that ... That's one.
[00:41:04] The other point is on this- the agent fees. You have to look at- you've got the borrower, the lender, and the agent - that three-party group, here. Then, you've got the advisor. The advisor could be the agent. Mark just did a great job of explaining that. The banks are supportive of agents; the banks I've spoken to. I'm sure there are some banks that are not. They're saying, "No, we're supportive of that. We're supportive of paying the agent fee. So, I'd like to understand that. I'd like to understand if you wanna- if someone- one of your listeners, if someone is having a bank that says we won't pay that, I'd like to understand that a little bit more. I'm sure it's happening, but I'd welcome to learn about that [crosstalk]
Blake Oliver: [00:41:53] And I should just say, I don't have anything more than anecdotal evidence in regard to that [crosstalk]
Erik Asgeirsson: [00:41:57] -I'm just talking generally. This is what I'll say on this side - what the banks don't want ... So, the banks say they wanna pay. They wanna have an agent. The agent comes in, helps their client do it, fill it out, they wanna pay him. They also don't want somebody just coming in and dumping a thousand applications and trying to abuse the process. So, there's that. So, we need to listen. We need to work together. Mark, and the AICPA has put out, I think, a really good piece of guidance there on saying how to think about this. It's almost just take it outside of this agent relationship ...
[00:42:34] If you wanna be an agent, okay, and just understand what that entails. Then, the banking community wants to be supportive of this. They wanna be supportive of the process. I know that's something we're gonna work on in the coming days is maybe to get some statements about this whole borrower/lender/agent relationship and just try to give clarity. Our goal here is common approach, clarity, consistency, help the small businesses and help everybody do things in a similar way, on the same page.
Mark Koziel: [00:43:10] Blake, I think that's ... Erik makes a great point. One of the biggest recommendations we have for firms is talk to the bank first.
Erik Asgeirsson: [00:43:17] Right.
Mark Koziel: [00:43:18] Don't just think you can go in there with 100 applications and say, "I want my agent fee." That's probably gonna be problematic. But if you have a conversation with the banker up front, I think that you will find more support in that. Now, being an agent also doesn't mean that you're gonna sign as authorized representative, necessarily, on the loan application. There's a lot of certifications in there, borrower certifications, that need to take place inside of that. But I've talked to plenty of firms. I've said it. I've written it. People have yelled at me for it, but the reality is, I'm a Buffalo guy. You know what? At the end of the day, we- I practiced in a recession all my life. You did what you had to do for your client, period. Didn't matter if I get paid for it or not, I'll figure that out. But what I will also say is a best practice that if I'm value-pricing my client, we're not even having this discussion.
Blake Oliver: [00:44:10] That's true.
Mark Koziel: [00:44:11] If I'm value-pricing my client, then it just got done, and it was part of the process of what we do. So, let's talk about the right systems to have as a firm to make sure, when things like this and emergencies happen, we're well prepared for it.
Erik Asgeirsson: [00:44:28] Mm-hmm.
David Leary: [00:44:29] I think the agent fee just falls right in this- there's just a lot of miscommunications, or misunderstandings. There's a press release here. You guys put out a recommendation here. There's what people are hearing over here in the media, so they're confused about the agent fees. I mean, there's arguments about gross versus net, right? Conflicting information in the two parts of the bill, right? This just continues to happen. I'm sure by the time people listen to this episode, there's gonna be another stimulus package either on the table or being voted as we're recording this.
[00:44:57] How does the AICPA get- just be stronger in it and really have more leadership and more control over the direction of this because the ripple effect is bad. Accountants, and bookkeepers, I think, have suffered almost more than anybody in the last 10 to 30 days. It's heartbreaking, the weight that they're feeling from this. Their clients are panicking, and then they can't get ... They almost feel like, in a way ... This is coming out of my mouth, but it's because I've heard it indirectly - they don't feel like they're getting the support from the AICPA that they maybe would want or need. At a much stronger level, it's just a lot of recommendations, right?
Erik Asgeirsson: [00:45:32] Well, David, what I can tell you is that we are absolutely trying to make our voice be heard. Mark used- everyone's very focused, and well-intentioned about supporting the $22 trillion economy, keeping these businesses intact. You have the healthcare workers focused on the healthcare of the U.S., and the world, and we're just trying to keep the businesses intact. I understand the frustrations, people saying the government officials, the AICPA, banks- some firms aren't doing enough. That's- people are frustrated, and it's understanding that they're venting. But we are- we're working together.
[00:46:17] The way we're trying to do this, to have a really good voice - and that's what we've stood up in the past month - to say, "Let's have a collective voice ..." We're trying to get dialogue going with the SBA. Treasury has been the driver. So, Treasury anyway [inaudible] but Treasury's been the driver of the act. SBA's playing a big role. Secretary Mnuchin, and some of his team really were instrumental in it. What we're just trying to do, right now, is, yes, we don't- we're not setting the standards, so we use the word 'recommendations,' but we're putting our brand out there; not just our brand, our position, and we're doing this from a leadership standpoint.
[00:47:00] That's what I would say to the people there that are saying, "We want it to happen faster." We agree with you, and we're trying to build bridges. So, I would say to your listeners, whatever you can do to help is if they want, call their congressmen, and say, "Let's get on this common page, and let's have agreed upon, generally - we're using this word, 'generally accepted' - let's all get generally accepted principles, so we can all move fast." That's one thing that everybody could do.
Mark Koziel: [00:47:30] It's interesting because the gross payroll is an option; the $100K limitation being on salary, not adding in the benefits. We were openly criticized for that and coming out with a recommendation, a position, on that, that proved successful. We also said employer FICA is a portion of that. Got that not quite right. But we can't get too far ahead of it. We're- like partner comp. We've been everywhere in D.C. to get an answer to this. Some banks are allowing for partner comp to be added into the wages for the employer version. Others are telling partners, "No, you're self-employed. You got a file that individually." So, there lacks consistency. Where with the payroll companies, that one's just been really hard to unravel. It's not from lack of trying. Some things, we're gonna get right; some things not so right.
[00:48:24] What I think is important here is that many people are treating this like it's tax code, and it's tax legislation; that, if I get this wrong, I'm gonna be penalized, and my client's gonna be penalized, and we're gonna have to pay interest," and all this stuff. Well, in the last guidance that came out, the FAQs, there was a particular section in there that talked about safe harbor and said, "Look, things are changing fast. We understand that. Your application will be accepted based on the information you had at the time. So, things may change after the fact of when you applied, but that's okay."
[00:49:04] But then, think of the fact that the small business who did apply early on Friday and decided to use net before that got worked out on Monday - we made the recommendation on Saturday, but on Monday, then, it gets worked out - they filed on that on Friday, and they continue that through the loan process, they're actually gonna get 30 percent less than they could have had they waited and filed on Monday with a different answer. So, we're trying to drive that consistency. We're proud of when it happens, and we're frustrated when it's not; probably just as frustrated as everyone else because I guarantee you I can multiply me by 10 people at the AICPA getting 100 hundred emails a day to ask about partner comp-
David Leary: [00:49:50] So, you're chasing the answers just the way the accountants and bookkeepers are, right now. You're doing the same thing [crosstalk]
Erik Asgeirsson: [00:49:55] -I think we're trying to categorize- I think we're chasing- we're prioritizing; we've got dialogue. We're working directly with- if it's Intuit, ADP, Paychex, large banks, SBA, input into Treasury ... We're trying to do this in a thoughtful manner. I wouldn't call it chasing-
David Leary: [00:50:21] Reconciling would be [crosstalk]
Erik Asgeirsson: [00:50:23] -here's our list. This is what we wanna do. We wanna just open up- making sure we're having good dialogues. So, I think, in some ways, we ... Mark just did a good description of a real-life situation that just occurred. There's ways, even, correct that, but we should do a follow up. I mean, communication matters. We should do another podcast in another 10 days or so with you, two weeks, and just state what's happening at the current time. I mean, we're moving ... Right now, we're looking forward. We're looking at loan-forgiveness steps. We're looking at the restart steps ... The U.S. economy has never been shut- the world economy has never been shut down like this. We've gotta stabilize it, get the funding to the businesses, and then we're gonna have to work on the startup. I think it's ... The government officials are working hard at it. They're working hard at it, and they want suggestions. They want input. They wanna know what's working/not working, and we're trying to do all of that.
Blake Oliver: [00:51:23] This is really great to hear. As a member who- just kind of watching from the outside, I don't feel like, in these public communications, I get this level of transparency that we're getting, right now, from you, Erik. It's so great to have you on. I think our listeners will really appreciate it. I understand that making public policy happen is delicate. You have to balance- you don't wanna piss people off. You want to be friendly with everybody on both sides of the aisle and the administration. As we've found with this administration, being antagonistic doesn't get you what you want in a lot of cases.
[00:51:58] But at a certain point, there comes a time when the AICPA could wield its big sword as the voice of CPAs and the voice of small business in this country. How bad does this have to get before that happens? If the money isn't flowing next week, is AICPA gonna issue a press release and say, "This isn't working, guys. Let's do this payroll plan. The $250 billion more that we're gonna put into this program, maybe we don't put that into this program because it's really not flowing." Is that an option?
Erik Asgeirsson: [00:52:26] I think you're ... The AICPA does ... We could share with the listeners, at times, they will put out strong- well-worded, strong-worded messages. On the push out of the tax date, when there was a disagreement, that statement went out ... That was a statement saying this is what the position should be. Yes. You know what? If the money is not flowing, right now, and seven days from now, and there's now money flowing, we'll put some statements out that we have issues with this process. I think the money is gonna be flowing, but we'll be with it ... Yes, we would ... We're ready.
[00:53:07] We offered that solution ... As I described earlier, there is still discussions on is there ways to use that plumbing, that plumbing to the businesses, through the payroll providers? We're active with that. So, we're working on other alternatives, as we work on the play that's been put in motion. So, the play that's put in motion, we wanna make that work. Then, we will make statements, if it- if what you said, there's no money flowing in 10 days. Then we're also very much always trying to iterate, and innovate, and think of other ways to do things.
Mark Koziel: [00:53:45] Blake, I think your comment ... This is a challenging balance for us. We try to describe to our members some of the advocacy things that we're working on, and how, and why. The challenge always is when we have big wins, we can't shout from the mountain tops that we had a big win because that means somebody lost, right? To your point, you said it, you do need both sides. The advocacy process is long and hard. Average legislation in D.C. today, to get a piece of legislation through, averages between seven and eight years, today. It used to be three to five. So, that process is more than double.
[00:54:31] The fact that they've gotten this legislation for the stimulus pushed through as fast as they did and the banks turning over as fast, it's gonna create problems, no doubt. There are problems in D.C., and our government is challenged with the bipartisanship that's out there today. Well, we have to manage that as a profession, and we do. We get our pieces into the right people in the pipeline. So, the fact that Senator Rubio says it, or Congressman Conaway says it, and they don't attributed to AICPA doesn't mean that AICPA wasn't there in some way to provide that support.
Erik Asgeirsson: [00:55:15] Well said. Well said.
Blake Oliver: [00:55:17] Well, that is ... I think that's a good bow at the end of this, tying it up. So, thank you both so much. Erik Asgeirsson, Mark Koziel, thank you for joining us today. We hope to have you back again. Really appreciate that. Any final words before we let you go?
Mark Koziel: [00:55:35] You better hurry up because Erik's already invited himself back. He's gonna be the tri-host by the time this thing's done, so you better get rid of him soon.
Erik Asgeirsson: [00:55:42] Blake, and David, I appreciate what you guys are doing. You've got a great listener base. It's important. There's never been a more important time to communicate. So, keep asking your good questions. Thanks for having us on, and we do look forward to being on again.
Mark Koziel: [00:55:59] Thanks, guys.
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