Small business owners with multiple entities affected by the coronavirus may be in for a surprise when they go to apply for U.S. Small Business Administration loans.
That’s because the SBA’s relief programs in response to the pandemic are limited to only one application per individual.
When entrepreneurs have 100-percent stakes in more than one operating business, “at that point you’re going to have to triage it and say: Which is going to be the better bang for my buck to get this loan?” said Bill Morgan, a CPA and president of Grand Rapids-based Morgan & Associates CPAs PC.
“You can’t have two SBA applications in at the same time on the same individual,” Morgan told MiBiz.
When Raquel Guzman, an attorney and co-founder of Avanti Law PLLC, started researching various SBA relief programs to help out with her law firm, she realized from a conversation with Morgan that the policy affected her. She’s involved in five businesses, whether on her own or with her husband, and faced choices over which should apply for SBA loans. Her initial priority was finding help for Wyoming-based Avanti Law, which has 18 employees.
In her practice at Avanti, Guzman represents a number of clients in the restaurant business that were closed to in-person dining as part of an executive order from Gov. Gretchen Whitmer.
“I immediately realized that at some point I was going to get hit as a business,” Guzman said.
Then came Whitmer’s stay-home order, which “basically closed my business.”
“While we continue working from home in the legal services industry, we were faced with a bigger issue: I still have work that I need to get out for clients,” Guzman said. “I had to put 18 employees to work full-time, continue getting the work out while the office is closed and not generating the normal income stream that we had.”
That set her looking at the various options, which left her overwhelmed given the numerous state and federal loan programs.
“As an attorney, I know that sometimes when you make one decision, it prohibits you from making others, so what I decided to do was not to rush to make any decision until I had the opportunity to discuss this with people that knew better than me,” she said, noting she reached out to Morgan as well as the Grand Rapids Area Chamber of Commerce, the West Michigan Hispanic Chamber of Commerce and Grand Rapids Opportunities For Women, in addition to other attorneys.
Based on that advice, she opted to apply for the Paycheck Protection Program. The program has up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. Businesses can use the loan to cover payroll costs, mortgage interest, rent and utility costs over the eight-week period after the loan is made as long as employee and compensation levels are maintained, according to guidance from the U.S. Department of the Treasury.
Guzman recommended small business owners leverage their advisers instead of trying to figure out the complex web of programs on their own.
“For me as a business owner, rather than trying to figure all this out, what I did was to reach out to key people that I knew were going to have the information … especially when you own multiple businesses,” she said. “Like in my case, we have five businesses running at the same time, with two of them (being) major for us — one for me and one for my husband.”
Morgan recommends owners with multiple entities that have different partners have another partner or manager apply for the SBA loans. Because the loan programs look backward to the period from Feb. 1, 2019 to Jan. 31, 2020, owners lack immediate options to change their structure when they apply, he said.
Many small businesses also could face challenges with the loan programs given the amount of information the SBA requests in the application process, according to Morgan. For example, many service-based businesses lack audited statements and may have difficulty answering questions about their cost of goods sold, he said.
As a result, he hopes the SBA is forgiving for owners who try their best but still make mistakes in the application process.
“I think there’s going to be a lot of incorrect information that’s loaded into these (applications) and the government is going to be in a situation where they’re going to have to try to make some decisions: Did people do this as malice or was this just in the face of just overwhelming (circumstances) and just trying to get through?” Morgan said.
In the case of Avanti Law, Guzman ran into a situation where she needed to provide the firm’s number of employees as of Jan. 31. While her payroll showed she had 22 people, one of the employees had left during the first week of January and the payroll records reflected his last paycheck.
“Obviously because I’m an attorney, my mind is always focusing on accuracy and making sure there’s no information that is a problem or incorrect, but I can see how many people could get information wrong,” Guzman said. “I can see how someone who is running a business and not used to have all these loans in place could be providing information that not necessarily is correct and getting in trouble for that in the future. … I’m hoping that this doesn’t become now the base of potential defendants in the future because of problems with these applications.”
As for other unintended consequences, Morgan said while the new loan programs cover sole proprietors, they may also face difficulty in applying because they may lack the necessary information and also have a larger application than S-Corporations or C-Corporations.
“People that weren’t prepared and didn’t keep their documents in a good order, it’s going to be a little bit more difficult, and those are typically the people that need it more than the people that are organized,” Morgan said.
His best advice for small businesses: “Get it in as fast as possible.”
“Realize it’s just like applying for a home. You’re not on the hook for anything until you actually agree to the terms,” Morgan said. “You just want to get the application in.”
EDITOR’S NOTE: This story has been updated from its original version.