My interview with Senator Marco Rubio on the Paycheck Protection Program For Small Businesses

Listen to “My interview with Senator Marco Rubio on the Stimulus For Small Businesses” on Spreaker.
     

I interviewed Senator Marco Rubio,  the Chairman of the Senate Small Business and Entrepreneurship Committee who discusses how small business owners can get part of the Federal Stimulus through the Paycheck Protection Program (PPP). He emphasized how this is unlike any other economic downturn since the government, through “sheltering in place”, has effectively shut down many small businesses.

Valuable information not previously available:

1. Banks are being paid 5% of the loan amount up to $350K and then a lesser percentage to process the loans. You must go through one of 800 banks that are partnering with the SBA to get a PPP.
2. Senator Rubio thought that a loan through you bank should happen very quickly since you already have a relationship with them.
3. He emphasized that the Paycheck Protection Program is meant to be a grant program and not a loan. They expect to forgive most of these loans if the guidelines are followed.
4. Interest rates are now 1 % for the program (up from .5%)
5. You can get this loan even if you have laid people back as long as you hire them back.
6. Senator Rubio did not think you would be required to send alot of documentation, but I am now seeing this vary by bank. I have read they may be afraid they will be held liable for fraud of their applicants. The initial application is simple  and should be on bank microsites soon.
7. Beginning April 10^th, independent contractors can apply to this program.
8. Senator Rubio expected that more stimulus is on the way when we get to the recovery part of this.
9. There is a payroll tax credit for all employees against your 2020 taxes that is in addition to this, but there are limits (and your business sales must have gone down 50% to qualify currently).

Interview Transcript:

00:01 Barry Moltz: A lot of small businesses are taking the brunt of this economic shutdown, they’re laying people off by the hundreds of thousands; in some cases, they’re losing their life savings with businesses closed, but the federal government passed a $2 trillion assistance program last week with billions allocated to small business. Here to talk about the programs that the federal government has to help small businesses is Senator Marco Rubio from Florida, who’s the Chairman of the Committee on Small Business and Entrepreneurship. First of all, Senator, thanks for joining our show and how are you and your family doing during this crisis?

00:33 Marco Rubio: Well, thank you and we’re doing fine. Where everyone is working from home and trying to get the word out as much as we can, thank you for having me on the show and I hope everyone listening is doing well and then following all the advice of the experts.

00:45 BM: I hope so. Well, most small business owners, as you know, are really suffering and they think that this $2 trillion package is a good start, but there’s a lot of confusion out there as where small businesses should really start. Where do you think they really should begin in getting assistance if they’re looking for their small business?

01:04 MR: Well, I’m gonna tell you theoretically and ideally where the easiest entry-point is to this program and that is the bank that you already have a relationship with. Let me explain to you how it works. A small business that qualifies, meaning you either meet the SBA guidelines for small business or you have 500 employees or less, it’s not both, it’s either or, you go to a lender, and that lender would be able to forward to you a grant in the amount of 250% of your monthly payroll before the crisis and before you were forced to close down or before everything started closing down. And as long as you spend that money on payroll, benefits, rent, utilities, those as long as you spend it on a combination of those things you won’t have to pay any of it back. If you decide to spend it on for a different purpose, a year from now, it turns, it doesn’t become a loan until a year from now. A year from now when the books closed it turns into a 1% loan.

02:00 MR: I say the ideal place to go is the bank you already have a relationship with, because when they open the account, they already confirmed your business status, they already confirmed that you’re a real business with a real employment identification number and so forth and they also, if your operating account is with them, have instant insight into your payroll and what it is you pay people and what it is you spend on that expense, so that I think is going to be the fastest way for most people. There’s over 800 banks that are pre-approved to start immediately. And so hopefully people are already in that process that started yesterday, on Friday, yesterday. And so we hope that that process will accelerate here and the banks will do everything possible to save their clients and their business.

02:48 BM: Well, the application I looked at, it seems really simple, Senator, it seems like you just gotta fill your name in, your tax ID number, what your payroll is, why do you need the money. Do you think banks are gonna be asking for typical information like the tax returns and personal financial statements?

03:05 MR: No, there’s no reason to, and in fact they’re not supposed to, because, number one, the banks have no skin in the game, none, they’re being paid a fee of 5% to loans up to 350, and then it scales down all the way to 1% for the larger ones, they’re being paid a fee to basically process paper, because it’s 100% guaranteed by the federal government, they have a guaranteed buyer, if they decide they don’t wanna hold… If it turns into a loan, and they don’t wanna hold it, so they’re really, they don’t even have liability if you mislead on your form. So bottom line is, the banks are basically just being used as a distribution point and being paid a fee to do it by the government, so there is no credit check, there is no underwriting, there is none of the things that come with a loan, because this is not designed to be a loan. In fact, the only reason why there’s a loan provision on the back end of it, is because we wanna make sure that as much of that money as possible is being spent on payroll. That’s why it’s called the Payroll Protection, Paycheck Protection Program.

04:05 BM: Right. My understanding is that you want 75% to be spent on payroll, right?

04:11 MR: Yeah, theoretically. I mean, obviously, people could spend more, but we want them to at least maintain the payroll possible. Now, look, there may be some instances in which you can’t do that, you can’t find people to work or you’re in an order where… Or even if you ask them not to work you can’t even find people to put on payroll. You’re not gonna go out and find a perfect stranger that’s never worked before and put them on payroll. And that’s why there are provisions in this on the back end for mitigation.

04:33 MR: So, as an example, let’s say that you in the middle of this crisis tried to hire 10 employees but you can only get six of them back, the other four were gone, and you’re not gonna go out and pay some four strangers that have never worked for you before a paycheck when you don’t even know if they’re any good. But four months, five months later when things got back to normal, you went ahead and hired four more people. You would be able to, at the end, show that and say, look, we tried to hire people, we couldn’t find good, we hired most of them back, but not all of them, and there’s an opportunity for them to basically say, alright, we’ll forgive that, because we understand you made real good efforts, and so there’s a provision in the Bill for that as well.

05:12 BM: Senator Rubio, this brings up a really good point ’cause a lot of small business owners are asking what happens if I’ve already closed my business down, I run a spa or I run a bowling alley. Can I still get this loan forgiving, if I hire ’em back later. It seems like you can.

05:26 MR: You can, and you can also, by the way, go back to the people you laid off and say look, I know you’ve been laid off to two weeks, I’d like to pay you for the two weeks that I laid you off, or I’d like to hire you and pay you to have you on board, so that when we re-start that you’re here. In that sense, we think many small businesses would love to be able to pay their employees if they had the money in the bank to do it. They don’t wanna let their employees go, but they just don’t have the cash. It depends on the industry. There are a lot of people out there, for example, that might run a restaurant where you’re allowed to run take out, but you’re not allowed to have in-dining. Well, you can’t really keep… The revenues for take-out don’t make sense, it doesn’t justify a full payroll.

06:05 MR: But now, with this in place, you might be able to bring some people back and pay them their salaries that you were paying them before. And there’s also, by the way, unrelated to the Paycheck Protection Program, but complementary to it, there’s a new tax credit that you will receive at the end of the year for whatever monies you spend on payroll. So there’s another incentive as well for when things get back to normal. So we’ve tried to create as many incentives as possible, because it’s good for the worker, but frankly, it’s also good for the small business. It’s gonna be tough for a small business to shut down… Imagine, let’s just say, a restaurant again, and all of sudden you have to go out and hire a bunch of new people that you’ve never worked with before that you have to train from scratch. There’s the startup impediment there could prohibit you from starting, that could really prohibit a lot of people from starting. So, we wanted to address that as well.

06:52 BM: So how soon do you hope that the money will start flowing to small businesses once they’ve applied to the bank?

07:00 MR: Well, frankly, theoretically, okay, now, every bank’s gonna have different procedures, but theoretically, it should be able to flow immediately. In essence, let’s say that I’m a small business, 10 employees, and I have an account with the small business division of a local bank or one of the national banks, they’ve already confirmed that I’m an employer. They already did all that due diligence the day they opened my account, they already know what my payroll is. I may even be using the services they provide, there are a lot of… A bunch of these banks provide payroll services for small businesses, so for them the confirmation is instant.

07:31 MR: And by the way, if the banks get it wrong they’re not gonna be held liable, they’re held harmless for that. So really, there’s no reason why they couldn’t immediately disburse those funds into that account. Now, I can’t speak for every bank, and whether every bank’s gonna follow that procedure, what I’m increasingly comfortable with, is that the banks, particularly the bigger or national ones, but a lot of the community ones, are going to take care of their customers, of their depositors.

07:54 MR: What I’m more concerned about are what happens to the people and the small businesses that either have a banking relationship with a bank that doesn’t participate, and that’s why there’s a practice for bringing additional banks into the mix. And what happens to those small businesses then and independent contractors too who are covered by this, 1099 employees who may not have a regular banking arrangement, there are people that don’t use the banking system for the way they conduct their business, so that remains to be seen. But that’s the ones I’m more concerned about, and that’s why we’re trying to… Treasury is doing everything possible to create an alternative ramp for additional financial servicers to be a part of this.

08:32 BM: So Senator Rubio, if you are a sole proprietor or you’re an independent contractor, and you’re part of the gig economy, can you still take advantage of this program?

08:42 MR: That’s correct. And they will begin… Applications for sole proprietors will begin April 10th, which is I guess six days from now. And the rationale for that is, they need to… We’ve never done that before, so they need to create a new set of forms and guidelines for how we’re gonna verify payroll in those situations. But the goal here as well is to understand the nature of our economy, the guy that cleans your pool, the guys that do your landscaping, the people who drive an Uber car, these folks, it’s kind of a new dynamic in our economy that has really taken off in the last decade.

09:18 MR: And so it’s gonna take us just a little bit more work to sort of create the parameters for that. Now, that doesn’t mean sole proprietor, there are sole proprietors who are S corps and so they’re the only employee, things of that nature, they would be treated as a business concern. We’re talking about people that work on a 1099 basis, and may not necessarily be incorporated in any way, but work for themselves, and can show some record of it, and that’s what they’re creating. So, that will begin six days from now, Friday, April 10th.

09:51 BM: Now, my understanding is that as part of your payroll, people that get paid over $100,000 don’t qualify.

09:58 MR: The first $100,000 do.

10:00 BM: Oh it does?

10:00 MR: Basically up to a $100,000… Yes, the first $100,000. So if you have an employee that makes $150,000, you can pay up to… You can pay them what you want per se, I mean, theoretically. But when they calculate what your monthly payroll is, any salaries over $100,000, they will only take the first $100,000 into account when determining your eligibility amount.

10:27 BM: So I asked listeners of the program to send in questions because they knew I was gonna interview you. So I got a couple of questions I wanna ask you. One comes from Chris Keith, he said that, “With almost 10 million Americans filling unemployment in the last couple of weeks, do you foresee us doing something like Canada did with covering more costs, or France, where there’s a steady stream of payments to Americans or American business owners?”

10:50 MR: Well, I think that really would have to be part of whatever we’re gonna do to recover from this. And as I tell people, and we have some experience with this, unfortunately, because of natural disasters and hurricanes, one of the keys is… The first phase in all of this is the acute phase, the what we’re in right now, and that’s the midst of the emergency, and how can we provide people assistance in the middle of the emergency and in the immediate aftermath?

11:16 MR: The second phase after any disaster is always the recovery, and what are the monies that are needed to recover, what are the programs that are needed to recover? And so I think it’s very difficult right now to speculate entirely on what all the recovery efforts are gonna have to be, ’cause I think first we have to take a damage assessment. But I think given what we’ve already done, there are a lot of options on the table, and I think one of the things that gives us confidence, and I would separate… And a lot of people compare this to 2007, 2008, and even 2001, there’s a big difference between 2007 and 2008, and right now.

11:48 MR: In 2007 and 2008 we had a sector of our economy that made bad decisions, almost collapsed the economy with them, and asked to be saved because of their bad decisions. In this case, we’re talking about businesses that were doing very well or well, that were vibrant, and that were viable, and the government told them, “You cannot open, you cannot function, you cannot service your clients or customers, your employees can’t come in, you can’t operate.” And so we have basically ordered business in America to shut down, and so that’s a very different situation from what we’ve had before. And the truth of the matter is, if we go through this crisis and collapse our economy on top of it, we’re not gonna be able to recover, we’re not gonna be able to do some of the basic things that we’re gonna need in the immediate aftermath of this.

12:32 MR: And so that’s why I think a lot of options are on the table, and I know there’s thinking already going on, but we’re gonna have to wait and see, and have a full assessment of what this means and what it… But I do anticipate additional relief will follow this at some point.

12:46 BM: Yeah, a question that Franklin Koch asked is that, “Do you really envision, once to reactivate the economy, some kind of FDR approach with a New Deal where we actually put people back to work, creating things or infrastructure in the government, or out there in the world?”

13:00 MR: Well, look, I think infrastructure spending as a jobs program is always a difficult prospect to take into account. It’s a very specialized industry. We need infrastructure spending in this country and right now we could do it by borrowing money, basically for free. So it gives you the opportunity to pay for tomorrow’s projects at today’s prices, right? So if you allow me to pay for something that costs a lot of money in the future for less money today, that makes a lot of sense. And so I think that is gonna be a part of something that we do. But I also think that this is an economy that has many sectors that were doing well and that will, given the appropriative support, can go back to doing well in the future.

13:43 MR: This is different from the Depression. This is different from other eras in which you had some major structural issues in the economy that created the downturn. The downturn here is entirely because the government mandates. The government’s basically telling people, “Don’t travel. Don’t go out to eat. Don’t go shopping. Don’t go to work.” So everything stops. And I think the minute you lift the brakes on it, it’s not gonna automatically go back to the way it was, but I think you’re gonna have a lot of economic activity which you don’t normally get when you’re in the midst of a depression. Those businesses are there and we’re just trying to keep them alive so there’s something to restart.

14:18 BM: Yeah, I think we’re all hoping for that V-shaped recovery. The final question I wanna ask you, Senator Rubio, is, what’s your overall message for small business during this historically tough time?

14:29 MR: Well, I would say to them, number one, they’re gonna be a big part of this country recovering, and it’s the reason why you saw so much bipartisan support for this program, because everybody recognizes that when you look at the… Just the sheer volume of jobs and the sheer number of firms in this country that qualify as small businesses, they represent a vast majority. And so we can’t have an economic recovery that leaves behind 90% of our companies and 60% or so of the jobs, and everyone recognizes that. The difficulties they face right now are extraordinary and unprecedented and they don’t have… I told everybody I was fighting on behalf of the people that don’t have lines of credit that they can draw down on for 30 days. I’m talking about people that have bank accounts they can draw on for six days, who basically are cash in-cash out every week, whose hopes and dreams have been tied to these businesses.

15:21 MR: And the message I have for them is, there is extraordinary bipartisan support for the industry. We had no issue whatsoever countering support to help them in this effort and I don’t think we’re gonna have an issue from a partisan perspective in garnering support for them in the future if we need to do more. This is our attempt, our first attempt to do something just to help you keep your head above water, but I know we need to do more. We all know we need to do more and we’re prepared to do more, but when the time comes.

15:46 BM: Well, Senator Rubio, thank you so much for helping small business owners during this very difficult time. I know we’ll get through this together.

15:53 MR: Yes, sir, thank you so much for having me.

15:54 BM: Thank you.