April 22 nd 2020 PEP South Central College

April 22 nd 2020 PEP South Central College Faribault FBM 2020 1

Payroll Protection Plan (PPP) - $349 B provision of the CARES Act • PPP provides a loan designed as a direct incentive for small business and farms • For employers, the amount of the loan is calculated by your monthly payroll costs and multiplying by 2. 5 • SBA will forgive loan if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities • The eight-week period begins on the date the lender make the first disbursement of the PPP loan to the borrower • At least 75% of the loan proceeds must be used for payroll costs. • If salaries decrease by more than 25% for any employee who made less than $100, 000 annualized in 2019 OR if the number of FTEs, the forgiveness amount will be reduced • The producers bank is the ultimate interpreter of the law!!!! South Central College Faribault FBM 2020 2

Payroll Protection Plan – Sole Proprietors • Lacks clarity – but has the most application to our farm base • Key questions a. Did your operation have positive Schedule F Net Income? b. Or Gross Payroll as defined i. iii. iv. Fica wages - but not the employers side of Fica Commodity Wages Employee benefits – health insurance – 401 K - Section 105 No workman's comp • If yes to any of the above – you are eligible for a forgivable loan South Central College Faribault FBM 2020 3

Payroll Protection Plan – Sole Proprietors • Example One– Loan Proceeds 2019 Schedule F demonstrates i. Net income of $12, 000 ii. Gross Payroll of $120, 000 • Total eligible items of $132, 000 divided by 12 x 2. 5 equals $27, 500 of loan proceeds South Central College Faribault FBM 2020 4

Payroll Protection Plan – Sole Proprietors • Example One (continued) – Loan Forgiveness • Post loan advance-eight week activity demonstrates i. $20, 625 of payroll and or owner distribution (waiting for clarification) ii. $6, 875 of other eligible expenses - rent – utilities – mortgage interest • Loan to be 100% forgiven (we think) • SBA is requiring full funding up front if the bank is selling loan to the Federal Reserve – take family draw in one transaction • For a loan to be 100% forgiven – 75% of the eligible expenses must be payroll and or owner distribution South Central College Faribault FBM 2020 5

Payroll Protection Plan – Sole Proprietors • Example One (continued) – Partial Loan Forgiveness • Post loan advance-eight week activity demonstrates i. $16, 000 payroll and or owner distribution - review ii. $11, 500 of other eligible expenses - rent – utilities – mortgage interest • Loan to be $21, 333 forgiven (we think) - $6, 167 loan at 1% interest to be paid in 24 months – first payment in 6 months • Didn’t meet the threshold of 75% payroll South Central College Faribault FBM 2020 6

Payroll Protection Plan – Partnerships, S Corps and C Corps • Gross Payroll as previously defined plus i. includes officer compensation – C and S Corps ii. Includes guaranteed payments – in partnerships i. e. LLC’s iii. Not owner draws! Can amend draws to guaranteed payments - discuss South Central College Faribault FBM 2020 7

Payroll Protection Plan – Partnerships, S Corps and C Corps • Example Two– Loan Proceeds – Partnership – S and C Corps 2019 1065 LLC Schedule F or 1120 S or C Corp indicates i. Gross Payroll of $120, 000 2019 1065 LLC or 1120 S or C indicates i. Guaranteed Payments of $50, 000 – LLC – (found on the front page of the 1065 – not in Schedule F) ii. Compensation of Officers of $50, 000 – S or C • Total eligible items of $170, 000 divided by 12 x 2. 5 equals $35, 417 of loan proceeds South Central College Faribault FBM 2020 8

Payroll Protection Plan – Partnerships, S Corps and C Corps • Example Two (continued) – Loan Forgiveness • Post loan advance-eight week activity demonstrates i. $26, 563 of payroll and compensation of officers ii. $8, 854 of other eligible expenses - rent – utilities – mortgage interest • Loan to be 100% forgiven - confident • For a loan to be 100% forgiven – 75% of the eligible expenses must be payroll South Central College Faribault FBM 2020 9

What is Fin. Pack-Financial Boot Camp • GAAP (Generally Accepted Accounting Principals) FSAB (Financial Standards Accounting Board) – the periodic table of accounting and finance • What is accrual – the matching principal – levels of accrual – interpretations • Assurance Statements – Reviewed and Audited – prepared to GAAP standards. Concerns • Managerial Statements – Hybrid statements that provide practical, logical and comprehensive information • Operating cycle – the minimum time needed to fully develop the income statement South Central College Faribault FBM 2020 10

What is Fin. Pack • Generically it is a financial analysis spreading program • Other similar programs i. Moody’s Analytics ii. bakerhill iii. Tyler Analytics • Heavily used in small business banking environments South Central College Faribault FBM 2020 11

What are Spreads • They define income/losses via a cash income statement and balance sheet inventory valuation changes • Examples of balance sheet changes • Prepaids and supplies • Accounts receivable • Hedging gains or losses • Crops and feed • Accounts payable • They can create an effective, timely, and low cost methodology in understanding a businesses financial condition South Central College Faribault FBM 2020 12

Perfecting a Spread - Fin. Pack • Recognize that agricultural operating cycles typically extend beyond 12 months • The spread pre declares income or loss prior to the complete operating cycle • Remember – what ever falls off the ending balance sheet must have a net zero impact to the next years income statement • Example – If there is 12. 31. 2019 grain inventory valued at $100, 000 on the balance sheet – it must fall off the balance sheet at $100, 000. If it doesn’t – you are incorrectly impacting two years of income statements • Our potential incorrect valuations on open inventory could be very significant in 2019!!!! • To perfect the 2019 income statement for a traditional grain/market livestock operation may take until the fall of 2020 - recognize these difference by adjusting the beginning balance sheet South Central College Faribault FBM 2020 13