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Two Winning Paths to a PPP Loan

Obtaining emergency government aid requires a stellar application, a strong tie with your bank—and a bit of luck, brokers say.

April 15, 2020

The federal government’s efforts to provide emergency relief to business owners and independent contractors during the coronavirus pandemic have come with challenges for many real estate professionals seeking assistance to cope with the sudden economic downturn. But brokers who’ve succeeded in obtaining loans through the Small Business Administration’s new Paycheck Protection Program offer valuable insights on the steps they took and what may have helped their requests sail through.

These applicants applied for the funds promptly, having pulled together all needed documents in advance of the April 3 opening date for submissions by employers. The brokers had long-standing, close relationships with the banks who approved them and followed the application instructions to a T. (The application period for independent contractors began April 10.)

Charles Hinckley CRS, GRI

Charles Hinckley, CRS, GRI

Still, quipped managing broker Charles Hinckley, CRS, GRI, who deposited his $7,400 check last Friday, “It felt like winning the lottery.” Hinckley and his wife Toshie Murrell, who together operate Network Realty in rural Radcliff, Ky., received the full $7,400 loan they sought through the PPP, as well as a $18,500 loan that he received by direct deposit for a separate dog day care business they own. They have two office staff members on their real estate payroll and submitted 2019 W-2s for those employees and tax filings for their company, which includes a property management business in addition to the brokerage. The company manages about 200 rental units.

Hinckley credits his banker, whom he’s known for 20 years, at Wilson & Muir Bank & Trust in Vine Grove, Ky., for keeping him on track. Initially he had included the 1099 commission income of his agents with his application. Hinckley’s banker advised him of the common mistake, clarifying that on the form he should list only employees paid through W-2s. “Like so many things in real estate, it’s all about the relationships,” he says about his appreciation for his SBA-approved lender’s help. Completing the electronic form with corrected information took him only about 10 minutes, Hinckley says.

If he didn’t have a strong relationship with his banker, Hinckley says, he would have applied at a bank where he had an escrow account. But his ability to obtain a loan promptly from his community bank has reinforced the broker’s belief that, for all the ways technology has propelled the real estate business, “it’s worth taking the time to get to know people face-to-face. You never know when you need to call on that relationship.”

His PPP application was approved on April 9. He received a check from the bank and deposited it the next day.

The forgivable loan Hinckley requested represents 2.5 times the monthly salaries of his two employees in 2019. Hinckley and Murrell will not have to pay back the $7,400 loan if they keep their employees on the payroll for the next eight weeks, under the terms of the PPP.

“This takes the pressure off. I have the ability to pay my employees without worrying if my tenants don’t pay their rent,” Hinckley says. “I’m really looking forward to the world going back to work.”

There is a $10 million cap on PPP loan requests for companies with a maximum of 500 employees (with compensation capped at $100,000 per employee on an annualized basis).

The eight agents at Hinckley’s brokerage, which reported $26 million in residential sales in 2019, are eligible to apply for assistance as independent contractors, but only two have applied for help and were still waiting for approval as of Tuesday.

Frustration has run high for applicants as they deal with banks overwhelmed by the volume of requests in the first week of the $349 billion program. Many found themselves rejected because they lacked a prior credit history with the bank where they applied. The SBA’s other relief initiative, the Economic Injury Disaster Loan program, existed prior to the pandemic; it was expected to turn around as much as $10,000 in emergency grant money more quickly—in as little as 72 hours. But Hinckley on Tuesday said he intended to withdraw his application for EIDL funds and file another PPP application as an independent contractor, which he believes will be more valuable. EIDL requests are intended to address working capital needs and are made directly through the SBA’s website, rather than through banks.   

While the process for obtaining SBA funding through the two programs is testing the limits of agents’ and brokers’ patience, the bottleneck is not surprising.  In the first nine days of the emergency offerings, the SBA has approved 791,000 loan applications, compared to under 60,000 for all of 2019.

Large-Scale Success

Anthony Lamacchia, ABR

Anthony Lamacchia, ABR

Anthony Lamacchia, ABR, runs a larger real estate operation in suburban Waltham, Mass., and received significantly scaled-up government relief. He applied for and has received four PPP loans worth a total of nearly $500,000. He has 47 employees at his four businesses: a brokerage, a property management firm, a development company, and the parent company. The majority of staff work for his brokerage, Lamacchia Realty Inc.

He believes that banks have an incentive to approve larger loans expeditiously because they affect more people at once. “The paperwork is the same whether the loan is for $20,000 or $1 million,” Lamacchia says. “We didn’t want to have to lay off or furlough our employees. And we’ll be well within the required 75 percent [retention] level,” he says, referring to rules stipulating the share of the money that must be used for payroll costs to avoid having to repay the loan.

“I have to give a lot of credit to my bookkeeper. We had really tight bookkeeping. Borrowers have to make it easy on the bank,” he says. Knowing that the bank wanted to see the average payroll cost per month for 2019, Lamacchia explains, “We presented a spreadsheet that matched the payroll. We made it simple for the bank to understand our numbers.”

Lamacchia says his company applied for the PPP loan at Northern Bank, a local institution where he’s had a relationship for four years, early in the morning of April 3. The company received an SBA loan number four days later, and loan documents arrived the next weekend. The half-million dollars in forgivable loans they sought showed up in the company’s account the afternoon of April 13.

The company is not seeking EIDL assistance, which is now capped at $15,000, a steep drop from the $2 million–maximum loans announced at the start of the rollout. The loan cap was reduced on April 10 in response to concerns about the funds running out quickly.

The National Association of REALTORS® has expressed concerns to Congress about how the sharp limits may reduce their usefulness to many small businesses and disproportionately harm independent contractors. The association continues to urge lawmakers to provide additional funding to both the EIDL and PPP programs to ensure that the SBA can meet the demand for these loans to assist businesses in need during the crisis. Learn more about NAR’s work, including its political advocacy efforts, in support of REALTORS®’ business needs during the pandemic.

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