I want to welcome everyone.

♫♪♪

This is another quick PPP forgiveness video series video.

This one is Qualifying Other Expenses and Documentation.

We've had videos on payroll expenses and other aspects of

the PPP forgiveness program. This one we're just going to focus 

on things like utility, mortgages and other similar payments

that could qualify to help PPP borrowers gain full forgiveness.

Of course before we get started our just standard disclaimer

that this is a dynamic program aspects of the program are 

changing all the time.

We are still waiting for another SBA, Treasury update, their

final procedures and guidance.

So any of this could change. This is the best information

at our time.

It is also just general information and may not pertain to

your particular situation.

And so since every small business's situation is slightly different 

we urge you to seek advice from your CPA, your accountant,

your tax professional, etcetera, to get the best advice possible

My name is Chris Nichols, CenterState Bank.

We have with us Josh Harris, CPA and our Credit Administrator

for CenterState Bank.

And he's also the one that's in charge of PPP approval.

So him and his team are tantamount to this effort.

We also are lucky enough to have John Carpenter, Principal

at Cherry Bekaert, CPA firm who CenterState has partnered

with and who will help us review some applications and is

with us today to give us his advice.

Gentlemen, welcome. Before we get started, just want to set

the tone. Again,

we already tackled payroll in another video today.

We're going to tackle the non payroll expenses and how this

can help borrowers obtain full forgiveness.

Josh, John,

what are your thoughts here?

Josh Harris: This is just a Josh.

I think now that we've gotten to, you know, we've already

covered the 60% coverage topic from payroll and I think one

of the reasons that it's important for folks just to understand

this other eligible expenses area, is that it may be one of

the easier places to go in order to kind of pick up the remaining

dollars that they need in order to attain full forgiveness.

And what I mean by that, it is relatively easy to prove out

kind of basic payroll

expenses. Once you start to get to what the SBA's calling the 

non-cash expenses, meaning 401K, retirement, or health insurance,

there's some potential adjustments there that can kind of add

complexity. So the last bullet on the 60% side that

retirement, benefits and the group medical, those can both

get a little bit just more complex and require a lot of energy and

so, one of the things that we're counseling our borrowers on

is as they're trying to maximize their forgiveness,

it may make sense to kind of set aside group medical and retirement 

and then focus the majority of their efforts on, or the remainder of their 

efforts on these other eligible expenses in this 40% column and

then only go back to group medical and retirement if they

still need some extra dollars to attain in forgiveness. And so, I think

in summary, this 40% bucket is just perceived maybe a simpler,

easier place to pick up some dollars to maximize forgiveness.

Chris Nichols: Josh, is it true, though, that if I can achieve a 100%

forgiveness just on payroll, that I don't even need

to worry about this bucket, the 40%?

Josh Harris: Yeah, absolutely.

And that's probably what will happen for most people.

I wouldn't be surprised

if a lot of folks, especially with the expanded covered period, where,

to your point, they could probably attain maximum forgiveness solely 

by looking at cash compensation. So they may not have

to review group medical or retirement or any of these

other eligible expenses.

But yeah, you're exactly right.

They could qualify for 100% forgiveness solely using

cash compensation or cash payroll.

Chris Nichols: Excellent.

John, why don't you start us off and talk a little bit about mortgage

and rental expenses.

John Carpenter: Sure.

Yeah, thanks, Chris. And let's go through what types of expenses

can be included and what we think are expenses that cannot

be included.

And for those of you who tuned in on the payroll video, that's

pretty complicated.

We're happy to say these categories are quite a bit easier

to understand. So basically borrowers are allowed to get

forgiveness on either rents that they're paying for their

business properties,

this is real or personal property, and interest on mortgages

for properties that are used in the business.

This does not count home mortgage interest,

although I'll talk in a second about if you have a home office.

So basically if you've got business real estate that you

rent or if you have business property that you rent, again,

this does... the rentals that you pay for real or

personal property used in the business, does qualify. If the 

business owns buildings, could be multiple buildings, rent could be

on multiple facilities, that can all be included in forgiveness.

I mentioned home offices:

there are certain business owners who may work out of their

home. If you have been accustomed to taking a home office

deduction, then you would use the same

math, the same criteria to include partial interest for

a home office, although we think probably for most companies

this is going to really only apply to company owned facilities.

One of the caveats that SBA is thrown in is that this has

to be for obligations, be at least, or mortgage obligations

that were in place as of February 15th of 2020 and one of

the items that you will have to provide to the Bank

to document your forgiveness is evidence of that.

So when the time comes to apply for forgiveness, you will

see that there will be a place where you will need to upload

copies of the leases that you're claiming forgiveness or

promissory notes or amortization schedules documenting the

mortgage obligation.

Now there have been a few wrinkles that have come up in questions

that have come up, especially related to leases and probably

a couple of the wrinkles

we've seen or things like this:

suppose you were in a lease that was in place on February

15th, the lease could have been in place for 10 years prior to

February 15th, but it just so happened, it was kind of your lucky

timing, that your lease expired at the end of February or

the end of March or any time

just prior to when you get your PPP loan or even during your

forgiveness period. Is the lease expense on that lease eligible?

Well, and what if you renewed that lease? This was never 

addressed by SBA. We believe common sense would sort

of prevail here that if you renew a lease that was in place

on 2/15/2020, renew it for long-term,

perhaps only renew it month to month, because of uncertainty

but if you renew a lease on substantially the same terms

as what was in place as of February 15th, we believe that

the lease payments under that renewal or extension will be

eligible for forgiveness.

You'll probably need to provide the documentation

showing that you renewed or extended the lease and be ready

to show that it was done

so on substantially the same terms. It is clear that any past

due amounts, either past due mortgage interest or past due

rent, can be included. SBA has made it clear that prepaid mortgage

interest is definitely not eligible to be included.

And as we note here prepaid rent is not really been addressed

by SBA. We tend to think that prepaid rent can

be included but that really has not been made clear yet.

Let's move on to utilities. Again,

we think utilities are probably fairly simple or at least

some of the categories of utilities are pretty easy to understand.

So again, these are all utilities that are being used in

the business and where you can document, probably just through

your monthly bill, that this is for a service that was in

place as of 2/15/2020.

So basic electricity,

gas, meaning natural gas if you have natural gas service

in your place of operation, water, telephone, including cell

phones, company cell phones, internet access, in other words,

your internet service provider bill is a utility, and in there

was this category of transportation, which was introduced

by SBA in the original CARES Act has never really been defined

very well. The only real category of transportation expense that we've

seen that seems allowable would be gasoline for business

vehicles, say delivery vehicles.

It is quite clear by SBA that if you have a utility bill

that's presented to you during the Forgiveness period, and

you're going to pay it on its due date even if that falls

just after the Forgiveness period and those expenses can

be included. Any past due expenses can be included.

Now what are some of the utilities that people have considered

perhaps as a utility but we don't believe SBA would include

them and this would be things like trash service, recycling

service, outdoor maintenance, VPN service, your email service,

think of all the IT services that are separate from what

you pay to your internet service provider.

You may consider them part of your IT infrastructure, and

therefore a utility, but our belief based on SBA guidance is

that all those IT services really are considered more IT

services, not utilities and anything beyond what you pay your internet 

service provider are probably not includable in forgiveness.

Chris Nichols: And I guess the overarching way to think

about this is PPP was designed to keep employees employed,

so to the extent that you have to have your business open

for your employees to come to, that's what it was designed for,

not necessarily paying for your cost of goods and your inventory

and ancillary services like that.

And that's just kind of a general way.

John Carpenter: Yep.

Totally agree.

Totally agree, Chris.

Chris Nichols: Let's talk about documentation. Josh,

I think your team would best like evidence of the obligation

and then evidence of payment.

Is that right?

Maybe expand on this a little more?

Josh Harris: Yeah, exactly.

And I guess, you know, what I think we've mentioned before

there, we'll get deeper into the documentation in a future

presentation. But at least in terms of for today's topic,

what folks have to understand that is that this non-payroll

documentation is mandated.

It's not something that we have the discretion

as a bank to say "hey, they didn't provide documentation

they're claiming

let's say 30 or 40% of the Forgiveness amount is related

to these other eligible expenses."

If that's the case, the customer or the borrower did not provide

evidence whether it's, like you said, copies of mortgages or

leases, copies of utility bills, any invoices, evidence of payment,

if those items are not provided, it will actually stop or

cease the application because we'll have to go back to the

borrower or the applicant

and request those.

So the information or the documents that are required are

not necessarily extremely complicated or burdensome, but

they are absolutely required.

So if the Bank comes back, it's not because they want to, it's because

they have to. So hopefully that sets the context appropriately,

but these are the basic items: proof of the expense and proof

of an evidence of payment of the expense would be necessary

for the application to proceed through the approval process.

Chris Nichols: And like you said, well, we'll talk about this more in 

the documentation video.

I think a high-level tip would be for every borrower to put

themselves in your team's shoes and it's at nine o'clock

at night and they're trying to dig through five leases,

it would be great if they could highlight exactly what their

current escalators are, what they're actually paying for rent

or for their mortgage payment, where to find certain information

on utility bills,

they know their utilities bills best.

So to the extent that they can either notate it on the bill

itself or provide it in some narrative, you know, or upload

a separate document.

We're going to give everyone a worksheet to fill out for

the more complicated businesses.

So whatever each borrower can do to make it easy, we wholly

support and would love that.

Josh Harris: Yeah, that's a great point, Chris, and I think the kind

of the comment of thinking of my own mind is that everybody

needs to kind of think of themselves as developing a 

auditors kind of work paper file.

And every number that they claim they just need to go

to point back to where that number came from and how they

used it. So,

Chris Nichols: John, you want to give us some overall caveats on

 retaining documentation?

John Carpenter: Yeah, sure, Chris.

Really, the SBA has provided guidance to say that borrowers 

need to maintain documentation of their files for six years,

seems like a pretty long time. But remember

 this is a government-run program and the government

retains audit rights for a pretty long time. Many people may

have seen in the news that the Treasury Department has publicly 

said that they quote-unquote promise to audit every PPP loan 

over $2 million. Now, remains to be seen whether they will

follow through on that with a 100% certainty or not. 

We need to think that borrowers would then interpret that to mean

that loans under $2 million are not going to be audited.

We know that that's not the case. Now, are the chances

for audits under $2 million less than for loans

over $2 million?

Well, yes, they probably are, but what borrowers do need

to be ready for just the likelihood, just like you there's

always a likelihood that you can be audited with your annual

tax return.

There's in fact, probably a higher likelihood that borrowers

will be audited by SBA on their PPP loans and the process

of how that's going to work has certainly not been rolled

out and it could take a period of years for that to happen.

Chris Nichols: Now, John, we've gone more in depth with our other 

videos on choosing your covered period, etcetera, but I think the

short takeaway is that you're going to start collecting expenses

either at the time of funding or at the time of your covered

period, maybe just talk about that real quick.

When does expense counting start?

John Carpenter: Yeah, it really starts when you receive your 

PPP loan. So probably just about everybody who's watching

this video already has their PPP money, may have gotten back

in April.

So it's never too late to start gathering up those expenses.

If you've already spent, made certain PPP expenditures, but

have not saved receipts, that's okay.

But now's a good time to go back and find them.

If you have lost certain receipts,

I would say if you don't have a ready way to replace them,

then it's probably a good idea to just start counting some

expenditures that are happening from this point going forward.

And just to reinforce with what Josh has said, the Bank really

has no choice. SBA has mandated that lenders need to gather

documentation for borrowers providing evidence of what they

have spent.

So this is not just a requirement that the Bank is thinking

up on its own,

they're following with SBA has instructing them to do.

Chris Nichols: And if I choose an alternative covered period, if I'm 

bi-weekly in my payroll for example, should my expenses match

my payroll expenses? My other expenses match my payroll expenses?

John Carpenter: Yeah, of course, that's a great question and a great point,

and the answer is yes. For borrowers who are choosing that

alternative covered period then it's not just payroll that

aligns in those dates, but it's really all the forgivable

expenses. So rent, mortgage, utilities, everything we've discussed

here today all has to align with the same date ranges that

are being used for payroll.

Chris Nichols: All right.

I think that covers it. Josh, any last words? Or John, anything

you want to throw in there?

Josh Harris: I think the only thing I would just finally mention, this

comes, so to just accumulating or assembling the final package

and speaking to you specifically is the electronic package,

one of the things I'm counseling our applicants to do is

to think carefully the way that name those electronic files.

So it's one thing to collect all the documentation.

It's another thing to name them in a way that is easy to organize 

and so we recommend for folks is name each file according to

the line on the application that relates to. So Line 1, and then

they might say, you know, have a brief descriptor, and then

the date of that document, the date that that document refers to.

That might be some, one simple tip that would aid not only the

Borrower, but also the Bank, and just keeping that large electronic

file organized.

Chris Nichols: Good point, and again, our application will be online 

and while you won't actually turn in your paper or electronic copy

of the application itself, the at the online portal will mimic

the application.

So when Josh says, you know, refer to Line 1 or Line 6 or 7, 

you can still do that, even though it won't technically

be Line 6 or 7, but you can still do that in your documentation

that you uploaded, how you name your file,

that would be helpful.

All right.

Well that will wrap up.

I thank everyone for watching this far,

appreciate that you're taking time to educate yourselves

to make your life easier and our life easier and get your

application out faster.

Be sure to watch our other videos, and be sure to tune in

to our live webinars every Thursday for the next several

weeks here where you can ask questions and go back and forth

with our experts.

Josh, John, thank you very much.

We'll see y'all soon.

Take care.

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