The recent passage of the CARES Act includes $350 Billion in funding for small businesses. A large part of this funding will be delivered through a new forgivable loan program called the Paycheck Protection Program (PPP). The main idea of this program is to help small businesses to help weather the economic challenges caused by the COVID-19 pandemic. Applicants will receive a low interest loan to cover key costs such as payroll, mortgage costs, rent and utilities. An added perk is that some (or all) of the loan can also be forgiven if a businesses maintains its payroll and uses the funds for eligible expenses.
At Montana Angler we are not financial planing gurus, but we have been trying our best to get up to speed on several new programs that will help ease the pain of the COVID-19 pandemic. We understand that many fly shops, lodges and guides are in a similar position and hope some of what we have learned might be of assistance during these challenging times.
Are guides also eligible for the PPP?
Yes. Any guide that is an independent contractor (but not an employee guide) can apply for the PPP. The gal of the loan program is to preserve payrolls so you can use to the loan to pay yourself (even if you do end up working trips this summer) and it would be forgiven.
Will the money run out?
Yes. $350 Billion sounds like a lot, but there are 30 Million small businesses in the US. There is discussion that more money may be coming to fund the program but it you should apply as soon as you can, currently the Senate is scheduled to request another $250 Billion on April 9th to add more funding. Banks began taking applications for small businesses with employees on April 3rd and in a few hours larger banks like Wells Fargo, Bank of America, Chase etc shut down new applicants due to massive interest. On Friday April 10th the system opens up for Independent Contractors. So make sure to have all of your application materials ready to go for Friday April 10th. You should also check in with your bank before Friday to familiarize yourself with their process. Smaller banks may just ask you to email a completed paper copy while large national banks will have you complete an online form. If you bank with a large national bank you may want to also contact a smaller local bank as a back up option. Larger banks that close shut down new applicants may also reopen the application process so keep checking back.
Will there be delays?
Probably. This is a massive new program. New information seems to come every day on the Paycheck Protection Program from the Small Business Administration. Banks have been scrambling to learn more. Larger banks have also been overwhelmed with interest and many large national banks have closed the first wave of accepting applications (the next round for independent contractors starts April 10th - be ready!!!). So expect some delays and frustrations. It does sound like Washington is already working on another wave of funding for small businesses so stay tuned.
When can you apply?
Businesses with employees (S-corps, LLCs with employees, etc) could start applying April 3rd. Independent contractors (guides) can begin applying April 10th. Again, many of the larger banks have already been slammed with applications and hit their limits when the April 3rd window opened up. If you are a fishing guide start talking to your bank now, if it is a larger bank be ready on April 10th to get in an application ASAP.
Where do I apply?
All banks (not just SBA banks) can facilitate the PPP loans. We have seen that large national banks are limited in the volume of applicants they can receive and have already cut off the first wave of applications. So this may open up again. We recommend starting with your primary bank. If they are not accepting loan applications try a smaller, regional bank. Also try back later as they may open up applications again at a later date.
Where do I get the application?
Some larger national banks have built web based forms to accept your application. Smaller banks are using a paper PDF application provided by the SBA: Click Here to find the application form
How much can you apply for?
You can apply for up to 2.5X your average monthly payroll costs.
How do you figure out your average monthly payroll costs?
If you have a local banker. Inquire with what they recommend. For Independent Contractors First Madison Valley Bank advised that you should take your 2019 net earnings (so your 2019 profit as a contractor which is what you report on line 31 of Schedule C on your tax return) and divide that by 12. We have also found this as guidance for larger companies:
Monthly Payroll Costs
Average total monthly “Payroll Costs” incurred during the one-year prior to the loan date
Non-Seasonal Employers not operational in 2019
Average total monthly payroll costs incurred for January and February 2020
Average total monthly payments for payroll costs for the 12-week period beginning February 15, 2019 or March 1, 2019 (decided by the borrower) and ending June 30, 2019
So for most guides you should use the seasonal employers option (recommend March 1 to June 30 window from 2019. So for example if you guided 45 trips last year in this window and made $330 per trip you would have grossed $14,850 which is a monthly average (divide by 4) of $3712.50. Keep in mind that payroll taxes and group health costs are also considered. If you are a lodge or fly shop you can run a payroll report in your accounting software to see your payroll costs in that window. For a fishing guide you pay your payroll taxes at year end when you do your taxes - usually about 15% of your gross (so for now just use an extra 15%, you can adjust later. But do not delay getting the app in).
Fly shops or lodges that have year round employees should figure out which of the three options work best. Remember that for the loan to be forgivable you must retain the retain the same number of employees compared to the window you used for payroll in the past AND your payroll costs must be at least 75% of that window in the past. Again, don't overthink this, just get an application in as timing is important.
How do I figure out the number of employees?
For fishing guides this is easy: 1. If you own a fly shop or lodge you need to figure out the FTE (full time equivalent) for each employee in the time widow you use to determine average payroll. So for example if you had an employee that worked 8 hours per week they would be .2 FTE. At Montana Angler we use January and February 2020 for our benchmark so we ran a payroll report for that 2 month window. We then determined how many weeks were in that window (8.57 weeks). So full time would be 8.57 X 40 hours = 342.8 hours. For our salaried staff they are all 1 FTE. For part time employees we divided the total hours worked in January and February by 342.8 hours. So for example a part time employee that worked 61 hours in that window would be .178 FTE.
How much will be forgivable?
You can apply for up to 2.5 times your average annual payroll reported. So a fishing guide that worked 45 days in 2019 between March 1 and June 30 would be eligible for a $10,673.44 loan (less any advances from the EIDL program). Since they are 100% of their payroll if they pay themselves in 2020 everything that they make in an 8 week window (ending as late as June 30) would be forgivable.
For a fly shop or lodge you will need to make sure that you have at least as many employees by June 30th that you had for the window in the loan application. And you need to then make sure your payroll in the 8 week window would have been at least 75% of the average monthly you reported. Then any expense used for payroll, mortgages, rent and utilities would be forgiven. You can use the money for other expenses but they would not be forgiven (like advertising).
What happens to funds we receive that are not forgiven?
For independent contractor guides they should all be forgiven as long as you pay yourself in May or June what the loan was for. For lodges and fly shops whatever is not forgiven is then a loan at low interest rates. Currently this is being listed at 1% with a 2 year payback. Note that this has been changing a bit as it appears much of this program is being figured out on the fly.
Can I apply for the EIDL and the PPP?
Yes! If you only get the 10,000 advance from the Economic Injury Disaster Loan (EIDL) it will be subtracted from your PPP loan. We have heard mixed reviews on if you can apply for the large EIDL loan which is 3.75% over 30 years AND the PPP. One banker told us one or the other. Another told us it is fine as long as what you use the funds from the EIDL for is different from the PPP. So the verdict is out there - we just applied for both to cover our bases.
Make sure to keep a separate business checking account and credit card
Most folks that are already an LLC should have a business checking account and a business credit card. If you operate as a sole proprietor (so if you are an ICEC but do not have an LLC you are a sole proprietor) you should still have a separate account just for taking in your guiding income. It is also a good idea to have a business credit card as well (and eventually it just makes sense for every guide to be a manager managed LLC). If you are awarded a loan from the SBA having a separate account for your business will make life much easier. You then pay yourself from your business checking account to your personal account. Keeping business income and expenses separate from personal is very important if you get either the EIDL advance of the PPP.
Example Application for an Independent Contractor Fishing Guide:
If you are a independent contractor fishing guide or outfitter without employees your application will look like this. So for guides or for outfitters that don't have employees just take your 2019 total net profit from your guide business (so even if you hire other guides as contractors, take your total revenues less guide expenses - this is what goes on line 31 of Schedule C on your tax return. Then divide this by 12 to get your monthly average revenue).
Hopefully this will help shed a little light on how the PPP may help during these challenging times. The big takeaways are that the money is going to run out fast so act soon. Also keep in mind that the rules seem to keep changing so all of this may continue to be modified moving forward. There is also some hope that the funding will be increased for the program, so if you are late to the game keep an eye on this as it is highly likely that more opportunities may develop in the future.