In Colorado, 104,402 forgivable loans were approved by the Small Business Administration as part of the first round of the Paycheck Protection Program (PPP) this spring. The application deadline for the second round of the program*, created for small businesses, nonprofits and independent workers negatively impacted by pandemic-related economic disruption, has been extended until August 8.
Britton Nursery, a wholesale grower of perennials in Colorado Springs, was approved for a PPP loan in April. The company’s Chief Encouragement Officer, Kirby J. Thompson, CCNP, CGG, answered several questions about his experience with the program.
CNGA: Why did you apply for the PPP?
Thompson: I heard about the loan forgiveness, and received some business counsel from accountant and attorney friends, who said, “You need to apply for this and apply for it as quickly as possible.” I was told it would be an oversubscribed program. As a first-come, first-serve application process, I jumped on the application process right away. We also decided not to pursue the Economic Injury Disaster Loan (EIDL), which was in flux for a longer time, because it’s not necessary for our business during the spring when our revenue is so far ahead of other times of year.
How were you planning to use the funds?
At the end of March, we were very concerned about what the impact of the coronavirus and the world getting shut down was going to have on our business. We considered what we grow as a luxury item because it is ornamental; Britton doesn’t do food crops or veggie starts. We wondered: are we going to have to cut our production or our crew?
We decided we were going to step out in hope and optimism that people were going to want flowers. We didn’t let anybody go. In fact, because of the PPP, we hired a couple extra workers. If you are going to give me money to keep people employed, we’ll hire more!
When I applied in the first week of April, I was trying to hedge my bets after a period of heavy production. I wanted people on the ground to get work done. If they are going to say we are essential, we are going to rock and roll.
How was the application process?
I have a good relationship with the local branch of our bank, Farmers State Bank. They are small and know us. We’ve worked with them for 20 years, so we’re not just a number in line. I got on the phone with the bank to find out how it worked and what I should do, and was told I was the first business to ask them for it. They didn’t even have an application put together yet. From the beginning, the loan officer and general manager were pretty sure the funds would be readily available, so that gave me more impetus to get the application done quickly and jump through those hoops.
I filled out an application from the SBA and sent it over to my loan officer, who helped guide me through the additional documentation needed. I literally submitted my complete application on the day that the SBA started accepting them. After about six days, my banker called to say my application was approved, and transferred the money to our account. After another three to four days, the government had already used up all of the PPP funds, and was planning another round.
Did the application process take a lot of your time?
It was actually fairly tedious to go through and transfer the information that I could create in QuickBooks reports into the SBA’s required spreadsheet templates with payroll separated into line items for each employee with 12 months of payments. They wouldn’t just accept documents generated from QuickBooks, so I had to create four reports on their forms going field by field. The data entry took several hours. Besides payroll, a different worksheet had to be filled out for the loan summary.
The applications also included pages of certifications, with different statements that the owner must certify in good faith by initialing next to them. We had to certify that the funds would be used to maintain workers, we wouldn’t receive another loan during the same period, we would not commit fraud, and so on.
What helped you get through it most efficiently?
I’m a huge advocate for QuickBooks. I’ve used it for almost 25 years, because it allows me to do things like this at the click of the mouse. I don’t have to call another company to get our payroll data, and it is accessible to me at any time. With QuickBooks I was able to give that information to the SBA relatively painlessly, even though I had to go through their hoops of spreadsheet management. I just copied and pasted all the names of 20-some employees into their forms and entered the data exported from QuickBooks into their Excel spreadsheets.
What is the timeline for using the PPP funds?
Eight weeks. The net amount of the PPP loan was calculated by 2.5 times the average monthly payroll from the past 12 month period, which basically that amounts to 10 weeks of payroll expense. The “Covered Period” is the term the SBA uses for the time they look at for proper usage of the PPP funds after they are awarded, which is an 8-week period and was April 7 to June 2 for us.
What has the financial impact been for your company?
When the loan was approved and the money came in, it let me loosen my belt financially. Typically this time of year, we are already using credit at the bank, because cashflow is not lined up with the expense of production at the beginning of the year. Eventually revenue lines up in the summer, usually in June, and we pay back the credit.
The PPP loan prevented me from using the line of credit that I normally use to pay for payroll this time of year, so we saved by not paying interest. That savings allowed us to make some new purchases.
Since the PPP funds needed to be earmarked for payroll and some utilities and rent, I went and took some of that liquidity that local bank stuck in my account and bought a truck, increasing our infrastructure and ability to deliver plants to customers. It ended up being an unbelievably good move at a time when we have almost unprecedented demand for plants, almost shortages.
How will the loan forgiveness work?
I don’t know how it will shake out. When I got to eight weeks, I was emailing my banker about what to do to get forgiveness. He didn’t know, and neither did Congress and the SBA. In June, the SBA was still figuring out the process of applying for forgiveness I understand that the IRS will allow these loans to be forgiven, but we still report it as income and pay taxes on it. We spent much more in payroll in eight weeks than we got from the PPP, so it seems to be a slam dunk in terms of us qualifying for forgiveness since part of it is based on how much you spend on payroll during the loan period.
The SBA put out an application for loan forgiveness, and it looks extremely straightforward to me. I just put in information that I spent the funds on what I said I would spend them on. It looks like I print a P&L (profit and loss) statement out of QuickBooks, and it will show I qualified for forgiveness. The complicated part is how I will do bookkeeping on the tax returns. I don’t think it will be complicated once they make a decision on how to process these.
Have the rules around the PPP changed much since you got it so early?
We just had to be like you are when riding a horse and ride in the saddle loosely to manage the bumps. It continues to be an interesting ride, trying to figure out what exactly is going on, like taking steps in the dark. I take comfort in how many plants we continue to sell. All our wholesale customers seem to be paying bills on time and surging as well. It makes us feel good about making these decisions financially.
At the end of June, I was looking at our year-to-date statement and our net income was almost to the dollar double what it was last year. Of course, our expenses are way up as well. When we look at the bottom-line numbers and they are twice what they were last year, we know we still have a lot of summer to work, but we are optimistic – we are all tired but pretty optimistic.
Would you recommend applying for a PPP to other businesses?
It’s most beneficial for business that have relatively large payroll expenses. For a landscape contractor or small nursery owner with a couple hired employees, it may not benefit them as much.
We have 25 employees so it ended up being a great shot in the arm. Absolutely, it’s a slam dunk. For us, it was a good, prudent thing to do. We’ve yet to see what the financial implications will be for the government and economy at large. I don’t see how this $7 billion won’t play out any other way but to increase the rate of inflation, but in the short term, it’s been very good for our business.
*For information on the PPP, go to https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program.