The following is a transcription of the Podcast episode with Myles Bradley with Capital City Bank
CM
Hello all, welcome back, I am your host, Charles Musgrove, of The Answers That Count Podcast. Thank you for joining us for another great show. Hey, do me a favor. Hit the like button. Hit the subscribe button, hit the bell, the notification button to that way you’ll be notified when we post another video. We’re on all your favorite podcast channels, whether you’re listening or watching, make sure that you subscribe to the channel. You know what we do ? We try to bring those knowledge nuggets to you on a weekly basis. We’ve got people from all different sectors of business. And today we are we are really honored to have Myles Bradley with Capital City Bank with us today. Miles, thank you for joining us.
MB
Thanks for having me.
CM
It’s going to be a great show, Miles, is we almost gave him a promotion before the show got started. He is a vice president with capital assets, with Capital City Bank. Now, Miles is located over in Tallahassee, Florida but Capital City, they’re out there and they have branches located in the southeast. Miles, tell us a little bit about your expertise, what you focus on with the bank, and you can even drop in some some great information about Capital City Bank.
MB
Well, Capital City Bank. We just celebrated our one hundred and twenty fifth year. So we have a book out. I think you can download it on Amazon.And what I do is I specialize in working capital for businesses, and that typically means lending on their accounts receivable or inventory.
CM
Right
MB
I also run the factoring portfolio. And we just started a fairly new product in the banking world called supply chain finance.
CM
All right. So. I’m not a banking guy, I’m an accounting guy, CPA, but I deal with businesses that they’re getting loans right now, they’ve had the PPP loans. ,It looks like the you’ve been in competition with the federal government recently, with the with the federal government just putting all this money into the economy and making it really easy for businesses to obtain loans with the PPP loans, theE idle loans. Now they’ve got the ERTC credit. So there’s just a lot of I’ll call it not free money, but there’s a lot of easy money that’s out there right now that that is coming from the federal government and not the banks.
MB
Yeah, back in April and May, when the first round of PPP came out. It was a pretty big impact in my area because that’s what I do. You know, we lend on businesses accounts receivables, like for you to know what that means. Like you sell something to Walmart, it takes them 30, 60, 90 days to pay you. We financed that period in between when you delivered the goods and services until you get paid. And so when the PPP first showed up, you know, the first round, there were very few restrictions at all. And the federal government did put out they put out basically two and a half months worth of working capital for most of these businesses. So it did slow down my department, but it also increased the credit quality because we saw the account numbers. That would be the clients client like the Walmart in this example, they they sped up their payment terms and there was less collection time.So there were some positive impacts to my area, too. But I think it helped the businesses, most importantly, stay open. But yeah, there was free money floating around that definitely competed with some of the banking products.
CM
Yes. So you see the we’ve had a lot of discussion on the show here, actually, about where the economy is going. We’ve had a professor from FSU economics professor talk about the economic impact of all this money that’s being flooded into the market, what’s happening to our our GDP compared to the the annual deficit that we’re we’re incurring. So we’re spending and this this is not anything new for for 2020 or 2021. But we’re spending as the federal government, as a nation, we’re spending more money annually than we’re taking in. So we’re running a deficit. And when you compare that to the GDP we’re in, it’s getting worse. It’s not getting better. So if you look at all the I like to say in 2020 was the was the year that we’ve added a trillion dollars to our normal day conversation, it’s like a trillion dollars used to be, what, a million or a hundred thousand was in back in the old days now. Now we’re just spending a trillion dollars per surplus, per stimulus plan. And we’ve got this one point nine million trillion dollar stimulus plan that’s queued up right now. So, you know, where does it stop ? You’ve heard Janet Yellen talk about there’s going to be something big, something even bigger than the one point nine trillion, as if that’s not big enough. So where do you see that ? And this is kind of a macro looking kind of out of your your your department at Capital City Bank. But what happens on the macro level ? What do you see as a banker, this happening to the economy and the debt and the spending that the federal government is doing ?
MB
Well, it’s clearly reduce the cost of interest cost funds. And you can see that impacting the residential market. I mean, the housing market is on fire. I’ve never seen it like this. You know, I wasn’t a banker during the last downturn, so I didn’t experience that.
But I mean, this is the hottest I’ve seen the residential market since I’ve been a banker. What they’re doing differently this time, you know, they have you have to support your revenue reduction for this PPP round. So I think they’re trying to, you know, rein in some of the government aid a little bit. So you have to prove that you’re in need. Back in the beginning. I don’t know.I’m not doing anything with… and I don’t know what I would have done because we didn’t know how the virus spread and sent people home. You basically shut down businesses by force. And I think those businesses actually going out of business, going into bankruptcy, laying off people would probably been more detrimental to the entire economy. So I think that the second round of PPP is better. It’s targeted for businesses that need. I think that should be the approach going forward. I don’t know what it will be because, you know, we have a new administration, but I think the targeted, really impacted industries and especially the ones have kind of been forced to shut down by the government or restrict their sales capacity. I mean, that’s a government that’s basically like taking. And you’ve shut it down. So the government, if they shut you down, they have to compensate.
CM
Yeah, I totally agree with that.
MB
But it is a risk for the economy. Yeah. All the debt we’re taking on.
CM
Yeah. That’s fair. Yeah. And there’s a not to get into the veer off into the political discussion on this. You can take sides one way or the other. But the fact is that there’s a lot of money that’s been flooded into the economy and it’s coming from the the, the the federal government, which means that technically has to be paid back in the future. So then then the numbers just get so huge that it it really brings into doubt whether or not we’ll be able to pay that back or when and what happens to the strength of the dollar. Because, as you know, the the dollar is backed by trust and hope and faith and not a gold standard or any other standard.
MB
So you did do a podcast on Bitcoin, right ?
CM
We have done that. So we have talked about Bitcoin. You know, what’s what what really happens when when people get worried about the security in the markets. And we’re looking at these bubbles right now and they go to scarce assets. So that’s really where a lot of the smart money is going now is in scarce assets. So scarce assets are real estate. I mean, there’s only so much real estate and then prime real estate. And then a lot of people call Bitcoin a scarce asset. Even though it’s a digital. You can’t touch it. It’s a digital. It’s a digital asset. So, yeah, I mean, I think that is that really makes people pay attention to what’s going on in the markets. We’ve got so many bubbles right now. We’ve got a I think you’ll acknowledge we have a debt bubble. We’ve got as you as you said, a housing bubble. So you’ve look you look at the housing prices, especially in in the state of Florida. I think in the at least in northwest Florida, we’ve seen record year in 2020 with with the demand for housing and the pricing for housing. I mean, people are they’re fleeing other states coming to Florida, buying real estate sight unseen. And it’s not like they’re buying a $10,000 lien to. They’re buying million dollar homes in the state of Florida without even stepping foot in them. So the demand is is really just off the chain when it comes to the housing market. And, Miles, we talked about this before. There’s a there’s a definite correlation between the cost of money, interest rates in that housing bubble.
MB
Yeah, I mean, I’m not willing to say it’s a bubble yet, because, like you said, there are people coming in from out of state, especially South Florida. I have a buddy that does a similar business that I do down in Delray Beach. And he was telling me just about the influx of New Yorkers, New Jersey coming down, buying property, one that’s most of their dreams, their whole life anyway. Right ? Right. And then all the restrictions. And, you know, people for the first time that I can remember are fleeing urban areas. So, you know, I don’t know that it’s a bubble yet. It could be. But it’s definitely with the with the cost of money, making your ability to buy more house. Right. And and demand drives up the price. I definitely think there’s inflation risk. That’s probably the biggest immediate risk is there’s going to be some inflation risk. And, you know, is there going to be the future demand to support that or is it a bubble ? I hope not, because we saw the bubble last time. So I’m hoping that it’s just the increase of people wanting to move to Florida for the weather and maybe less restrictions in some other places so they can do more.
CM
Yeah, you know, we’ve got several factors in play now, and a lot of it’s just driven by what happened in 2020 with with COVID and with the like you said, the government forcing these businesses to shut down or reducing their their capacity. And a lot of states, they’re still living through this reduced capacity at a minimum, so that forces people to leave and go to places where they can earn money, where they can earn a living. So it’s yeah, I think that that if you had it all to do over again, would there be the forced shutdown that we went through in 2020, I don’t know. But if the government forced that then like you said, it really makes sense for them to come in and, and help support those businesses.
MB
And you know, we look at it kind of with our south eastern goggle’s right. I have some participation loans with some banks out west where their states were restricted much more than Florida and Georgia. Right. And you can see from some of their clients income statements that the government shutdowns, you know, it looks a lot different on their income statement than maybe someone in Florida and Georgia. And so there are parts of the country where I mean, it has been drastically more impacted than our region. I think we take that for granted sometimes. You know, a lot of businesses didn’t fully shut down in Florida, but they did. And a lot of states and, you know, we had to do something. So I think the first round of PPP was good. I like what they’ve done with the you have to support your revenue reduction and you were impacted. They made it much more challenging to get the PPP and process it this time for sure, from a bank’s side. But yeah, I think that as a country we’re going to see if these people are moving here and you know, the home demand, the home demand also I think we talked about earlier, could be that people were cooped up in their house and just getting tired of seeing it, feeling cramped. Maybe both spouses are working from home and they said, I can’t do this. And so they just want bigger house. I don’t know. We’ll see. I imagine within the next year we’ll have a pretty good idea.
CM
Yeah, I think there’s a lot in flux when it comes to real estate. We see what’s happened in the real estate, the the personal residence, and then we see there’s an impact over on the commercial real estate as well. So as those people are fleeing the big cities, then what does that do to the commercial real estate market in those big cities ?
MB
I think the big cities are going to have a really hard time rebounding, like the New York’s, the L.A., the Chicago’s. I mean, if you’re paying for real estate in Manhattan, you’re paying to be in Manhattan. And if your people can’t go in the office and you’re probably getting taxed higher now, you’re paying a higher price per square foot for sure. And everybody is forced to work from home. And all of a sudden you notice, well, we’re pretty efficient doing this. Yeah. Are you staying in Manhattan ? Uh, probably not.
CM
Yeah. I think that’s a I mean, we’ve seen just anecdotally, we’ve seen people we’ve seen the news reports on people leaving New York. We’ve seen them leaving California. There’s been a lot of big players that have left California and they’re leaving because of the tax situation and compounded with the restrictions that have been placed on them in those states. So I think we’ll see that continue.
MB
And I think Florida and Texas, I mean, Texas is clearly the beneficiary of like a Tesla. Florida Rick Scott, when he was the governor, spent a lot of his time recruiting New York companies down. And that could also drive up. You know, it’s driving the demand for houses. I think the CRE market is going to look a little differently. Some people are going to say, hey, I don’t need this prime real estate and this much, I have a client through participation in Park City, Utah, and they were paying some around $15,000 a month for 12 offices. Park City is pretty expensive place, but they started it when they started work from home. They decided that they got with their landlord. They did a sublease with the tenant and they kept two offices and a boardroom. One so the assistant can be there to check mail processing anything that comes in one for a flex situation like someone needs to come in there for construction. The in-laws are in town, they can’t work whatever. And then a boardroom for client meetings and they love it. And it saved them $10,000 dollars a month. So I think it’ll look different. And yeah, you know, there’s a theory that with the CRE market that there will still be the demand because people are going to say we’re going back the office, but we need to be spread out. We need, you know, personal bubbles,
CM
Yes, I definitely see that that the that the it’s going to change there. People are going to adapt to that. And I think the scenario you just you just described, where they have the access to a boardroom, they have flex space so that they can come in and work. They still need that physical presence of of some type of office. But they don’t need as much room as they had before. They don’t need all the dedicated offices they had before. Or they may may make the decision, like you said, that they need they still need an office setting, but they need to have their their bubble space so they don’t need to be in in a group room where they have a bunch of people in one room on top of each other. So you can see that definitely changing. The bigger the office, the bigger the the the commitment that you have, probably the more risk that is of changing.
MB
I mean, I imagine there will be a smaller appetite for, like your strip enters getting financed, you know, just because there are very few credit tenants left. Of course, everybody wants to Publix right right now, but who goes in those side ones ? You know, it’s probably not a credit tenant. It’s probably a mom and pop shop. And, you know, they were competing with Amazon, Walmart and all these places already. And then COVID happen and people leaving the house less. Some people are getting more comfortable buying things from Amazon, Walmart online. So I don’t see that coming back as quickly as maybe the office type space, you know, where you can just spread out or you may sublease it with another company rocking chair. And just have a couple of dedicated offices. But I think it will be some office space demand still, I don’t know about the strip centers. I’m not a CRE specialist, so I’m not going to speculate too much. But I would think that would have a reduced appetite for sure.
CM
So you’re looking you’re helping the bank right now, process these PPP loans, the round two. So the the PPP loans have been very popular, the fSBA 504 loans and the 7a loans. So I know they they’ve changed even the requirements on the f504 and the 7aloans to make them again easier for the for the borrower to obtain those loans and to reduce some of the fees on that. So let’s kind of let’s go through some of those. Let’s start with with the PPP round two. So let’s put those bullet points up on the screen, John.
MB
Well, you know what I’ve seen from the PPP loans round 2 where a bunch of people, they got the first round loan apply. Not everybody qualify because they didn’t have the 25 percent revenue reduction. And how that worked, as you could pick any quarter and compare it to the previous year. So all you needed was one quarter like Q2 to be, you know, 25 percent reduced from Q2 and 19 from 20. Some people, you know, you saw them have great fourth quarters and maybe not lost money for the year, but they still had a 25 percent reduction in that quarter. I think demand is slightly higher than we anticipated
CM
The demand for for PPP round 2?
MB
Yeah, and it’s also been a lot more difficult because first round, the SBA basically had no firewall. As you know, people in the industry saying if you submitted it, you attested to it and you put it in your tax I.D., in your payroll information, you got through. The second round. They you know, you hear about the people that bought Lamborghinis and all of this with their fraudulent money. So they tried to stop that. And it really slowed the approval process. It caused a lot of errors the year some of them were correct. Some of you know, it says the business tax id is submitted as social and that’s the exact same number, just the hyphens in the wrong place. Right. And that could have taken a week to clear it up because the SBA clearly isn’t staffed, probably, nor should they be for this type of demand at one time. But, you know, it’s been much more difficult. They they have restrictions on certain types of industries and it mainly is going off of your NAICS. So, yeah, if you’re a 72 where your hospitality, whether that’s restaurant or hotel, you get three and a half times versus two and a half times. If you have a 52, you could be like one that I’ve been working for two weeks. It’s a pawnshop, but because there are 52, so are lenders in your NAICS and their lenders aren’t eligible and they get somebody with the authority to look at that and say this isn’t a lender to remain the jeweler.
It’s been extremely difficult as happened. And as I think the pipeline frees up some of the SBA staff, I mean, it’s been getting better and faster.
CM
So when you when you’re this this goes back even like it was in PPP round one, when you said 2 1/2 times, we’re still and still is still a payroll based program. So it’s two and a half months
MB
Of either you’re 2019 or you’re 2020 payroll.
CM
So it’s two and a half months of your payroll over those periods that they that they allow for in the program. So now they’ve allowed for if you’re in the hospitality based on your your net code, then you’re able to get three and a half,
MB
Three and a half times. Yeah. And it’s pretty substantial in some cases, you know. We’re seeing a lot of the hospitality industry and some in the hospitality industry are event planners, and there’s no venues. And the guy told me I built this building. We were having two events for 200 people a week. And I got my you know, I got licensed. And the move into this new building start doing this in February of 2020.
CM
Well, yeah, that’s when everything shut down.
MB
I put all my eggs in this basket to have a virus come up and nobody wants a 200 person event. Nor should they probably right now. But you don’t think about those type of things when you think about the restaurants, the hospitality. But, you know, people, caterers. Right. You know, with these big venues, some of these people work four or five nights a week doing these things. And now you have a drastically reduced audience. And maybe once every two weeks.
CM
So that’s a big change.
MB
It is nice that you are able to help out. As frustrated as I can get with the SBA, when you see someone you know clearly needs no fault of their own restrictions in place and you can help them and know that they can pay their employees, that that does give you the motivation to, you know, keep plowing through these. As frustrating as it can be.
CM
Yeah, it’s definitely is is needed and it’s necessary for there’s a lot of businesses that are suffering. And I do give credit to the to the program and how it was set up that that money is designed to be used to pay employees. So what you’re doing is you’re keeping paychecks coming to employees instead of them being unemployed and lining up at the unemployment line.
MB
Yeah. And what you know, one thing I wanted to point out, a lot of sole proprietors don’t think they’re eligible because it’s just them. Yeah, but they are. And, you know, they can get two and a half times their net income on Schedule C, and it’s shocking sometimes if you run across somebody that you may work with normally through it and you’re like, hey, I don’t think I’ve seen your PPP app ? I didn’t think I qualified. Like, how many people actually don’t think that they qualify ? That may. And so with this podcast, you know, hopefully I can tell some people who are struggling, you might qualify, you know, contact your banker wherever you are. I mean, it it could be impactful for keeping your business to flow. And you probably qualify unless you’re a lender, you know, some ineligible they maybe even some nonprofits eligible this time that they were not eligible last time. The only thing the only one I’ve seen that’s not eligible is a 501c7, which I’ve seen one of those. But they’ve opened it up because normally nonprofits are not because I’ve seen Devon.
CM
What is the C7, is that a PAC or what is the C7?
MB
The C7 is a member owned club. And so, you know, normally the nonprofits can’t get SBA loans like churches. Right. And these things. But the SBA has opened up 7a requirements because people technically falls under 7a. I say that during these PPP rounds, you you can do nonprofits. You you know, there’s some commercial real estate stuff that normally I think, you know, the SBA tries to focus on Owner-Occupied type of 501c7.
CM
So broad brush the PPP program Round two is based on payroll, either two and a half or three and a half months of payroll. And you have to demonstrate a decline in business from 2020 to the comparison period in a previous year.
MB
Same quarter
CM
Same quarter, both years. And the total amount that you can qualify, is there a limit on that ?
MB
Yeah, they so round one. If you didn’t get round one, you can apply under round one now and that’s 10 million if you’re going up for a second draw, it’s capped at two million,
CM
Two million, so PPP round two is capped at two million. Even if you did get round one,
MB
IT’s only capped at two million. If you got round one. If you didn’t get round one, you can apply under the first rule requirements and you could still get ten.
CM
OK, and what is the what what what are they saying about how long this money is going to be available?
MB
They’ve only been releasing that once a week and last week there was one hundred million I think of 284 billion. So that’s a billion, not a million but last week, all these errors that I’ve been telling you about, these holds, right. I read that Wells Fargo, Bank of America and Chase, they submitted their submissions, which are hundreds of thousands of applications. They have between a 30 and a 50 percent error. We’re at a hundred billion dollars last week with the big boys having a 30 to 50 percent error so with that, you know, I imagine over the past 10 days, they released Sunday as of today. I couldn’t see how we’re not over 154 to 175 billion because I think there will be a pop because they let some lenders certify some of the smaller errors that you can resolve yourself. And so I would imagine that you’re going to have a significant pop over the last week of some of those errors are going to be cleared up.
CM
So of the 1.9 trillion, how much what’s the total amount that that they’re looking at spending in this round 2?
MB
284 billion
CM
284 billion
MB
$284 billion is the PPP budget.
CM
So you expect by the end of this week they’ll be over half of that ?
MB
Yeah, I certainly do.
CM
OK, so there are probably another month that these that the money is going to be available.
MB
Yeah, I think it ends March 31st, March 30, but it could be sometime in March. So don’t hold me to it. Google it. But yeah, it in March but I imagine it doesn’t all get used, but a significant portion of it will.
CM
OK, let’s let’s jump to a couple of the other SBA programs, and we’ve we’ve got them up on the screen now. So people are probably cheating heads. So roll back one, John.So so we have the the 7at program. The 7a is another program. Tell just kind of broad brush what explain what that would be targeted for.
MB
It’s usually Owner-Occupied, it’s either equipment or real estate. It’s a guaranteed loan, unlike the 504, which we’ll talk about in a minute now. And it was typically they’d guarantee seventy five percent. The SBA has said that they will increase their guarantee to 90 percent as long as their guarantee does not exceed three million seven hundred fifty thousand.
CM
So that guarantee is of benefit to the bank.
MB
So which is probably a benefit to the client because the bank probably wouldn’t, you know, write that loan.
CM
Exactly. So it’s a float. There’s no less collateral requirements on the on the borrower.
But what it does is it most likely loosens up the the restrictions that the bank would would apply to that borrower.
MB
And they waive the guarantee fee,
CM
The guarantee fee,
MB
And thee the annual servicing fee for the life of that loan.
CM
OK, so that. That’s a big deal, so and a million dollar 7a loan, what would that guarantee fee be?
MB
It depends on the type of loan, but it would have been anywhere from 1 1/2 to 3 1/2 percent, 3.75.
CM
So that could have been 15 – 35k dollars.
MB
Yeah. And you’d pay probably 50 to 75 basis points for your annual guarantee and servicing fee. And so it’s a pretty impactful number and part of the servicing fee is waived on the bank to encourage us to, you know, obviously make more business loans.
CM
Yeah, that’s a that’s a big incentive. And the. I know we got that up there so that the 7a typically is for equipment and the and the amortization period on that is is a lot shorter. It’s about 10 years.
MB
I don’t know that off top of my head, but I was going to say the they also with the 7a something that we typically don’t do, but a lot of lenders do. The 7a loans are used for the blue sky financing. I think Goodwill’s the technical term. But, you know, if you’re buying a company over the asset book price, whatever, the premium you pay is good will. And most banks won’t finance that. But with the SBA guarantee for that, you know, you can make it make more sense for the bank to lend that if there’s a higher guarantee on it. So I think that may help with some acquisitions over the next year for sure.
CM
Yeah, I think that’s a that’s a good sign. That’s a positive sign that hopefully that will incentivize businesses to be sold and and even even purchased. So that’s good.
MB
So I don’t know if you won’t to talk about the SBA Express, this is one, you know that we haven’t done many of at the bank. But you can use it for a line of credit for working capital or a term loan. It’s typically been capped at three hundred fifty thousand. They increased it through, I believe, October to a million and they said in October they’re permanently raising the cap to half a million dollars, which I think is a good thing. You know, it’ll help people get money and there are a lot faster to get it, cheaper to get.
CM
So the the payback period on that, my guess is that’s going to be the amortization period is going to be shorter than it is for
MB
I think they’re typically around five years.
CM
Five years. OK, that’s good to see that they’re doing that. And I think that makes a lot of sense that.
MB
And they’ve increased the guarantee on that from 50 percent to the bank to 75 percent.
CM
OK, so that incentivizes them by making those loans as well. Yeah, good. So we’ve talked about equipment loans and blue sky, which would be an intangible asset. And now we’ll jump to the 504. So the 504 is on real estate owner occupied real estate
MB
They do equipment too.
CM
They do equipment too in the 504? But that loan is differently, is structured different. So explain how that structure difference between the SBA and the and the bank.
MB
So the 504, it gives the client a 90 percent funding rate at closing.
CM
90 percent, which that’s most. If you just go out and get a regular commercial loan is going to be 75 percent.
MB
Typically. And how it’s structured is the bank takes 50 percent as note A. There’s two notes you sign here and then note B the SBA takes you out after 90 days unless you do the 504 bridge, which is interim lenders that will come in and take the bank out immediately. And that, you know, I view that as a credit enhancement for the bank and the client because they get at least 20 year long term fixed second note on that property and it’s fairly cheap. So you don’t have to worry about interest rate risk. You’ve got a twenty year term on that. So your payments are fixed. It makes the bank underwrite a little easier because we don’t have to worry about interest rate risk or any of that on, you know, the 40 percent that the SBA takes out in note B.
CM
Yeah, so those 504 and when I see clients that are possibly qualified for that, I really encourage them to do that because there’s that is such a great loan. The loan program to get in right now is the 504 the the the interest rates on the SBA side are going to be there. They’re in the 3s right now, if I’m not mistaken. Are they even lower than that ?
MB
I haven’t seen one because I’ve been pretty deep in PPP over the past six weeks, but I know they’re fairly low right now.
CM
So you get that at least a twenty year amortization for the for the SBA part and the rates are going to be incredibly low even on the bank, 40 percent is probably going to be in the fours at most right now so you’re looking at a in the threes on half the loan and a four on the other side of the rates are incredibly low
MB
And the second note’s long term fixed. I mean, that’s a big part
CM
Yeah, that long term fixed is a big deal. And even on the bank side, I think the they’re required to at least amortize that over a ten year period. So that’s going to be an attractive payment program as well for the bank side of that 504 for that.
MB
As you know, I mean, the SBA has been making payments for SBA loans. There was six months and then they extended it depending on when you got it. And how much would the industry there’s, you know, multilevel tiers, but they extended most of them for at least three more months of the SBA making payments on your behalf on this. So that’s beneficial to the client. I’d be lying if I was saying it wasn’t beneficial to the bank because it reduces your lien on that collateral, so I think it’s beneficial all around. Yeah, the 504 is a good product.
CM
It’s a good product. So you have to go through is it the CDC that that’s running those ? So there’s going to be CDC in different areas that partner with the bank to make those 504 loans.
MB
Yeah, they’re geographically based, so it’s going to be different in every area. But you have to work with the CDC on the 504 because they work with the SBA to sell bonds on that long term fixed rate.
CM
Right. Right. And again, if you’re joining us right now, we’re looking at the bank side of this and we’re talking about another example of how inexpensive money is right now. And and I hate to say it, but it’s how easy it is to get loans as well. So we’re kind of laying some some front line foundational groundwork for are we in a debt bubble right now.
So let’s go to to the second part of that slide, John. SBA Express, you mentioned.
MB
This is the multitiered you know, it depends on when you got your SBA loan, on how many months they’re going to basically make your payments for you and extend it based off the date and the industry type.
CM
So this, again, is the SBA stepping in and they’re not only they’re not only like pushing out that the payments are being made and forgiven you for a period of time, but they’re making the payments for you.
MB
So, yeah. And the funny thing on this one, which you’ll probably enjoy, I read a notice from the SBA that said, basically, lenders stop shortening your amortization to match our payment amounts. So I guess they were doing five year notes. So this is not a grant program. This is over. I was like, you know, who thought of that and actually did it ?
CM
Did they get any of those through?
MB
Apparently, that’s enough that the SBA sent out a notice, but that that made me chuckle.
If somebody thought that and then said I’ll risk it and submitted that to enough that the SBA lenders had to send out notice and ask them tostop that.
CM
I guess it’s better to ask for forgiveness, not for permission.
MB
They obviously didn’t ask for permission.
CM
A bit of humor there with the SBA and the creativity of some of those business owners and the bank going along with it. Yeah, yeah. You got to respect that creativity. Anything else highlights here we want to mention?
MB
No, just because it is all variable based on when you got it and what type of business you have. So I just I look up the the payments at the SBA said, no make on your behalf. They’re going to do it for a limited amount more time until their funding pool runs out. You know, if you’re thinking about looking into it now, check the bulletin points to see, you know, what your business would qualify for the SBA to make payments on your behalf because they are going to stop it when the funding runs out.
CM
So is there anything left on the third page, John? This is the these are the NAICS codes, which are the industry codes that your business is in.
MB
Yeah, that’s what I said taking about 72, that’s restaurants. That’s the SBA is love right now to try to support all those and the hotels because light travel.
CM
Right. So Miles, we have we’ve talked about the PPP program, the SBA 504, the 7a program, the SBA Express loans. All of these are loans that are geared to helping the businesses survive during this difficult time that we’ve had in 2020. And what we started 2021 with so those things probably have a duration that they’re going to last is probably you’re probably good for 2021. I know we said the PPP program is going to run out and the end of March, assuming they spend all the money then, which most likely they will. Where do you see this going ? I know the rates are are extremely low right now and. Do you see the current administration changing that, those rates to the Fed chair, changing those rates?
MB
I don’t think you’re going to change rates. I think they’re going to keep that as low as possible. You know, Janet Yellen, the old Fed chair, is now in charge of the Treasury. She was the quantitate that say she was the brains behind Bernanke for quantitative easing. So I don’t see her allowing interest rates to increase in the near future. You know, and they probably should stay low so that businesses can afford their debt. And, you know, in in this economic uncertainty a little bit, I hope that over the next year, some businesses you really take off, you know, my my business line, the factoring we help start ups and, you know, people that are rapidly growing. And so I hope and yes, some people that had credit problems because we’re underwriting their client. And so I think that over the next six months, there’ll be a lot of people coming to finance their AR because either either they’re growing or they had a credit bullet during this. But I don’t see rates going up. I mean, I do hope that they keep enough stimulus out there to get us through to the vaccines. And people are comfortable to get out there and do more and spend more. But, yeah, I don’t I don’t foresee them increasing rates over the next year. And that’s not official bank promise. But I can’t see why they would.
CM
But I think you would advise people to lock in what they can now on their long term debt so they get those those guaranteed locked down rates as long as they can.
MB
Yeah, because I don’t think they’re going to go much lower. And so, yeah, I would lock it in.
CM
Well I hope they don’t go below zero.
MB
Me to. But you know, some of these are these programs with the stimulus, they only last until the legislation’s funding run out. And so if you’re considering refinancing or, you know, financing something the long term, the sooner the better because you don’t want the funds to run out for the program.
CM
That’s true.
MB
I mean, longer am I debating doing this over the next year as well when I decide to make funding for it, because I don’t know how much the Treasury can actually issue that. Yeah, I think they’ll be a couple more rounds of stimulus put in after I’m. You know, you don’t know there’s going to be directed to businesses. It could be straight to consumer. I mean, that’s part of what you don’t know about this administration’s plan is for. Well, if they run out of PPP money, they’ll just replenish it. Well, you don’t know that it could be direct to consumer. And so if you are a business and you’re looking to fix your interest rate and your cost or one a long term deal, I would say get it while you can. I mean, because you don’t know this administration is going to be, as you know, small business focused as we were set up through 2020. It could be. It’s just no guarantee.
CM
It could be. And it’s, you know, what was tacked on with this 1.9 trillion dollar, I’ll call it a stimulus plan is the fifteen dollars an hour minimum wage across the board increase. So. That’s whether that stays in the in the bill. I don’t know, but that’s we’ve seen that in over 30 states so far, over 30 states have passed this push to 15. So if they do that on a federal basis, it’ll it’ll take care of the rest of the states. And, you know, in the state of Florida, we have the benefit of the tip credit, which this federal bill does not does not do that. So that’ll really punish businesses even more so.
MB
Yeah. And I read last night, I don’t know if you saw that the Walton’s family net worth dropped by 13 billion dollars yesterday because Walmart agreed to a 15 hour minimum wage.
CM
So, yeah, and there’s been a lot of discussion on that
MB
So this is what big business is doing.
CM
Yeah. We see the big, big businesses already moving up on the minimum wage and what that.
What really happens, a lot of people are saying, is that the big businesses will survive, the big boxes will survive, but what that does is it just really crushes the small business. If you’re in the hospitality industry, if you’re a restaurant and you pay tip wages, then it’s just going to be it’s going to change that business and there’s going to be a lot of businesses that just don’t survive it. So it’s it’s not a it’s not a good thing. It’s another example of government intervention. So we’ve got all this the stimulus money out there. We’ve got the fifteen dollars an hour kind of teed up. We’ve already seen it in states where we hear the the talk about just forgiving student debt. So it really makes you wonder where does it stop ? I mean, you just can’t keep writing checks.
MB
Yeah, I mean, I think Biden said he wasn’t going to cancel the student that yesterday. I did read that. But the you know, if they increase that, it’s kind of the thought on the stimulus as a whole. If 15 dollars is approved and if we let businesses fail because we don’t, you know, stimulate the economy, you know, how is the tax revenue going to be there to pay it back ? So it’s a I think you have to walk it back slowly. And I don’t think you can just cut it off because, you know, you need these businesses to stay alive, whether that’s through what they can pay in wages or just outlast the virus so, you know, they’re a tax engine for the government in the future.
CM
Yeah, you got to have these business businesses survive. You’ve got to have them productive to paying normal taxes. And they got to be incentivized to work and to generate revenue not just for themselves, but for the generate business and jobs for their employees.
MB
Yeah, I mean, a lot of people, you know, as far as on income tax state, but what the businesses pay their people, they have to pay a federal income tax. Right. And so, you know, you want as many people employed as you can. And I think that you have to do that by keeping as many businesses open as you can. And why may not make logical sense in a statement to say you need to reduce taxes or, you know, keep taxes low to pay off the debt ? I think you do, because if you shut down the engines, the, you know, generate the tax revenue and you have a few, you can’t tax them 100 percent, right ? Exactly.
CM
So go back to the Laffer Curve and look at that. So Laffer was one of the economic advisors for Ronald Reagan during his term. So that’s a subject for another day. But, Miles, anything else you want to touch on with Capital City Bank, where the banking industry and what we’re seeing right now on the money side of our economy ?
MB
I would just like to say, if you have a bunch of AR because your clients are taking a little while to pay you and you need the money now give me a call so we can look at financing that so your business can continue to grow and you can pay people
CM
Good. Miles Bradley with Capital City Bank, thank you so much for being our guest today. It’s been a great show that we’ve had today. I hope that we brought some great information to you on the PPP loans, the SBA 504, the 7a. If you’ve got any questions, drop me a note in the comments and we’ll get you an answer. I am Charles Musgrove, your host of Answers The Count. Thank you so much for joining us again. Hit the subscribe. Hit the like button, Will be.
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