Intro:
Building materials manufacturers run a complex business, but we are here to help you plan for the future. Whether you are launching a new product, rebuilding a brand, trying to get thoughtful communication strategies in place or everything in between here on Constructing Brands, we will be talking with leading experts in construction, architecture, engineering, marketing and manufacturing to help make your building materials companies stronger and more profitable. With 15 plus years of experience helping building materials companies succeed and grow your host, Eric Lanel.

Eric:
Welcome to Constructing Brands. This is a special edition where we’re kind of opening it up and the goal here is to really dig deep into an area which is what’s going on right now with COVID-19 specifically. I’m so, so happy to have on Jim Nesci. Jim is the CEO of Blue Foundry Bank, which is a bank in New Jersey, a local bank in New Jersey. Jim has a lot of different experiences he pulls from as CEO. I’ve had the incredible pleasure of working with Jim for the last couple of weeks. He’s just filled with information and knowledge. Jim, thank you for joining our show today.

Jim:
Thank you for having me. I appreciate it.

Eric:
Where typically, we’re talking Jim to people who are responsible for making those critical decisions for manufacturing and building materials. If you’re listening, this is being recorded on the 23rd of April, a little after 3:00 PM. Let’s speak specifically the CARES Act and the payroll protection plan that went out last week and then the money ran out within a week or so.

Jim:
Correct.

Eric:
Can you shed a little light for folks who thought that they were in line or were told that they were going to be okay and then they found out they weren’t? What went on from your perspective as the person who’s the CEO of a bank?

Jim:
So I think the process is a little bit more complex than the average person realizes. And you and I, when we were working together, I asked you if you would be our first participant in the PPP program and I think I said something along the lines of it’s going to be a little bit bumpy and definitely a lot of bit of clunky, not well stitched together. You’re going to be first, we’ll make sure it happens, but it’s not going to be as smooth as we would like. The concept of a line that people have in their mind is not exactly accurate. It’s more of a many different lines that form simultaneously. Our process is 18 steps to get you from start to finish and we have hundreds of applicants applying at the same time. So it’s not one line, it’s 18 lines and we try to move you through each line and when you get to the front of box, number one, we then move to the back of line number two. That’s what I think is confusing to the public. It’s also a little bit more detailed as you know, than just filling out that form 24 83 I believe is the number that the SBA is using. So you fill out 24 83 but then there’s the bank’s process. A little bit further into it, you have to get through anti money laundering and then bank secrecy act. So two more steps that people just don’t realize how much labor goes into them.

Eric:
Wow. Yeah. And you know what, even first of all, it wasn’t bumpy at all. I thought your process and working with your team was smooth as, I could ever have imagined. So thank you. But I didn’t realize there were so many steps and I’m sure most people don’t realize that you’re juggling in this case 18 balls at once.

Jim:
Absolutely.

Eric:
Let’s start with the people who did. So they got in and they receive their funds.

Jim:
Yes.

Eric:
How does that work?

Jim:
So you’ve got a little bit of a timing element and you may recall we got the application in as quickly as we could and then we told you we would fund it as quickly as we possibly could to get the money into your account. We have 10 days from when we secure an SBA loan number to then fund your account. So in all cases we’ve funded all accounts in less than 10 days so that the applicant would actually have cash available to keep their business running. But that next eight-week period I think has a lot of unknowns in it. Generally speaking, 75% of the money has to be used to keep your employees employed on your books or paid. I won’t get into details about the accounting of it, but I think generically speaking, you and I both understand that it’s a method of keeping your employees engaged at your company. The money is supposed to be used to pay employees. That’s that 75% number. You hear a lot about in the media.

Eric:
So, Jim, something I didn’t realize, the bank has 10 days to release funds from when the application is accepted. What’s the point at which they’re happening?

Jim:
Sure. So it’s a little bit, again confusing to the public. You may hear a word called E-Tran. That’s the system that’s used by the SBA. We take your loan and we upload the loan file into E-Tran and what’s supposed to happen is we get back an SBA loan number. Once we received the SBA loan number, then we have 10 days to fund.

Eric:
So if somebody has heard from their bank, from their banker, we have you in, we have you in the system. We have your, you’ve been submitted let’s say, or something to that. Those are the different things I’d heard from people that they had heard. You’ve been submitted, we have your paperwork in. That should mean it sounds like that within 10 days they could expect to be funded. Is that right? Or what words can someone add if they have not yet been funded in, they’re being told this, what could they ask to specifically understand that and get a little rest that yeah, that I’m in the system.

Jim:
Ask for your SBA loan number.

Eric:
Okay.

Jim:
That’s what I would advise people. There are many different phrases I think that banks use innocently enough and people that work at banks, so there’s the bank system that we’ve gotten you through our process, but then there’s also the process of uploading the application into E-Tran. So you could be fully committed all the way through on the bank side, but if the loan hasn’t been uploaded and you don’t have an SBA loan number, I would say you’re not completing your process yet.

Eric:
Interesting. I know that it seemed as though so many people that I had spoken with were told that they were okay, and they were, everything was going to be okay, but they, they didn’t know what that actually meant. And when the money ran out this last time, they hadn’t received their funding yet, but we’re being told you’re in the system and so they were confused. So it sounds like if they asked for the SBA loan number, that would mean that the money has already been accounted for. It just hasn’t been. Is that, is that accurate?

Jim:
Sure. I think that’s a fair way to say it, that the money has been allocated in the SBA program to the applicant and it may not be dispersed by the bank yet.

Eric:
First thing I’m hearing for anyone listening, if you have not yet applied to the payroll protection program and you’ve submitted and you’re working with a banker, find out if you have your SBA loan number. That’s an important question to ask the banker to know because when you do have that number, then you could at least know that you’re not only in line, but you’re in the, you’ve already been, your money is already kind of been accounted for. So it’s just waiting to be put into your account. So that’s a really important first thing.

Jim:
You’ve been allocated funds. Absolutely. And I think that’s an easy way to make the distinction and cut through what people are actually saying.

Eric:
So the next question. So I’ve now received my funds. What are you seeing people do? What is a, and I know I’m not looking for advice from you in terms of how to handle money, but in, in terms of, as a responsible business owner, I recognize that things are changing in terms of how I could self-audit. Like what should I look for? I know broad stroke, 75% should be going toward retaining and keeping my employees at or above 75% of the level in which they were prior to this incident happening.

Jim:
So what I would say is keep really good records. We don’t know how the program’s going to unfold or how it will be audited in the future. Things have been changing frequently with each iteration of the program. Keep really good records. You may want to consider keeping really tight tabs on the money so that you know the day the money was deposited into your account and where every dollar went from that initial deposit and the timing of which you use those deposits because you do have a finite period of time to use the money.

Eric:
And is that the eight-week period from which you were, you received the funds?

Jim:
I believe so. That’s something that you may want to fact check. I’ve heard different stories about when the period starts and how you do your accounting for payroll. That’s a definite question for your accountant, but those are some of the nuances that I think are going to be a little bit tricky. Each firm has different levels of sophistication. I’m sure your firm, you have an accountant, but how much he gets involved in your weekly payroll. It’s going to vary from company to company.

Eric:
When will it, so if I receive this and let’s make the assumption that it’s just as black and white as 75% is going to my employees and 25% is going to my overhead, my rent factor, the things that, at least at this point on a top glance it sounds like it is. And I see, wow, I have another X amount that’s left over after these eight weeks. How, how might I think about that, those funds?

Jim:
You know, I’m not really sure yet. I’m not sure how the audit process is going to actually come down. If it’s a self-audit or if it’s a, something that happens in your taxes at the end of the year or if it’s just going to automatically convert into a, you need to pay the money back at a 1% interest rate. That’s the other piece of it. So some of these loans will not be forgiven, but they’ll be converted into a more traditional like loan with a 1% interest rate. I would think. If you had extra funds or excess funds that weren’t used towards payroll, that would be what happens and then you would obviously make a choice what to do for your business, whether to keep the funding or to return it.

Eric:
And if I recognize that there was extra funding, I guess then it goes to the next question which is this was intended for an eight-week period of time. At the moment in time when it was done May was when the world was going to get back to normal, at least that’s back when we were talking about this and when I received the funds, so it could go either way. In my mind it was okay, well if the world gets back a little quicker, I would imagine there would be a change in that game plan of eight weeks. But if it goes longer and I remember you know, Mnuchin and people saying, well at that point we will issue another payroll protect. Have you heard anything about if in fact we decide that we’re not going to open anything up until September, let’s say, is there a plan in place that you’ve heard of or anything to that effect?

Jim:
You know, I haven’t, it’s really interesting. We like the general public are waiting to hear a lot of how this is actually going to work. I know it sounds hard to believe, but a lot of the banks acted on really good faith, believing that we would work hand in hand with the treasury and our regulators and we were asked to help make the program happen quickly and that’s what we did.

Eric:
Lightspeed.

Jim:
Yeah, I was going to say we just, we don’t have all the details yet. You know what happens if you can’t return back to work? Maybe your state is, you know, a shelter in place state. We just don’t know what happens. And my guess is the rules will keep changing, right? This is uncharted territory. It’s never been done before. This amount of government funding has never been seen before.
Anything is possible. Again, I would just tell you keep really good records. And the other thing I think I would advise you on is make sure you’re doing what you believe is correct, right? If the money is generally for the purpose of helping your employees, well I would tell you, make sure that it’s generally used to help your employees. I think you’re always better off making an argument. If you truly believe in how you use the funding, I think you’ll be well-served to use it appropriately, correctly and then you won’t have to worry about, I used it for some other purpose.

Eric:
That makes sense. So, lesson number two, it sounds loud and clear. Keep really clean books and almost partition the money and where you could identify and clearly show how you are using it. When you use it, make sure your moral compass is in check, where if in fact things for whatever reason, are in question. You feel very comfortable that you could explain and defend why you did what you did and you can live with it. You’re good with the decisions you’ve made.

Jim:
Yeah, I think that’s it. I mean, you know, given your business and your relationship with businesses and the public appearance, you’d want to make sure that your moral compass is always pointing in the correct direction. I think you’ve seen some businesses actually turn back the money or hand it back in because they don’t want to be caught not looking correct, politically correct. So I think you can avoid that if you’re always using the money as it was intended to be used.

Eric:
If we could make that pivot now to anybody who had tried for payroll protection plan and has not yet received or missed out because the funds ran out again today, it’s Thursday, it’s 3:20. Has that been approved yet? At last I heard it had not yet.

Jim:
So we’re waiting and I keep looking up to my right. I have a big television on the wall. Congress is meeting, the next step is for Congress to vote. I don’t know that the votes happen yet. I haven’t seen it come across the TV set. And then it goes to the president for approval. And then this is another one of those great unknowns. How fast will the SBA tell us the window is now open? You know, will they say it opens on Friday or it opens on Saturday or Monday or Wednesday? We don’t know what’s going to happen next, but I can tell you that we have hundreds of applications ready to be uploaded into E-Tran and we’re nearly $2 billion bank, not a very large bank. The bigger banks will have tens of thousands of applications ready to upload into E-Tran once that window opens.

Eric:
So it sounds like unlike the first time that this went on about two weeks ago, this time, everyone knows what the paperwork is supposed to look like and what the process is.

Jim:
Yeah, so I think, I mean, so we don’t know exactly what happens next. You know, they may say, well you use the old form except there’s now a supplement or there’s three new boxes you need to check. So we’re just not sure what will come down. We have many hundreds of applicants ready on the old paperwork or the old process and I’ve told everybody, get them ready to get the loading dock if you will. And once the window opens, we’re going to upload them. If something changes, obviously we have to go back, call up all the applicants and get whatever additional information is now being required. So we’re just like you, waiting to see and getting ready to pivot.

Eric:
So if I was a business owner and absolutely needed these funds and I missed the first time and I guess it’s one of two places, either I’ve already submitted to a bank or a money institution, what would you recommend? Is there anything I could do to make sure I’m doing everything I can to be perfect in line? Is there, what can I do?

Jim:
Sure. I think I understand what, you’re asking, you know, if you have a banker, a relationship with an actual human being, this is where those relationships become really important is what I would say. If you can speak with somebody, ask where you are in the process. Is my application ready to go? Do you need anything further from me? Make sure you’re communicating with an actual human being. That’s the best advice I can give you. You know, I work at a smaller bank and we believe in relationships and actually reaching out, picking up telephones. It’s a little bit harder, I think, for the large banks to do what the small banks do. Now we might process 700 applications in total. In fairness to the bigger banks, they’re processing tens of thousands. Maybe it’s time to start a relationship with a local bank. I know it may sound self-serving, but it may help you get those really important funds in an emergency.

Eric:
Well, you don’t have to tell me that twice. If you’re any business, you need to know who your banker is, who your attorney is, who your accountant is. You need to have relationships with people you work with, right? That’s a big lesson that I think has come out of this. And if you don’t feel comfortable that you have these relationships, well it’s time to take a step back and try to assess why is that? Are you aligned with the bank in this case that you’re working with? Do they have similar goals and objectives? Are you the right size for them and they for you?

Jim:
Yeah, that’s, I think that’s a really good point. Making sure you’re working with a bank that’s the right size for you. I think in round one, many of the people who applied at larger banks felt like they didn’t get a fair chance. What might’ve happened is their applications weren’t complete. They may have needed more information and it’s really hard for a small business owner to have all that information ready in quite the same way that the large corporations can do. They have full time CFOs. I don’t know about your business, but I’m guessing you don’t have a fancy CFO on staff ready to fill out these documents when the bell goes off. You have to do the work yourself. You have to go procure documents, call up an accountant, an attorney. If you’re at a big bank, you may be competing with professional CFOs, so making sure that you’re at the right size bank for you. I definitely agree with, you know, make sure the fit is mutual. It’s a good size for you and a good size for them.

Eric:
So if I am a business and I’m in line for, well let’s say I’m now the other side, I haven’t found a place that I could submit. At this point, I would imagine, on the first go around a lot of people, it seems like a lot of businesses owners found out that either A, because they didn’t have lines of credit so they didn’t have that relationship with their bank regardless of the size of the business and how much money they have if they didn’t have a credit scenario submission on their behalf wasn’t going to happen. That was one scenario I believe. So there was that scramble even if you were completely prepared. Wow. I thought the banking relationship I had was great. I didn’t realize I needed a line of credit with you to be, brought into this. And the second scenario, it seemed as though was if you were with a big bank quite frankly, and your business just didn’t have either big enough credit or you weren’t on their radar to the extent it’s where those relationships and what it seems like. Is that similar to what your?

Jim:
Maybe a slightly nuanced way of saying what you said is you want to be a full client with your bank. You want to have deposits and loans, not just one side of the balance sheet. I think many businesses don’t take lines of credit. They don’t want to borrow money to run their business. They prefer to run on cash. And while I applaud them for that thought process, I think you probably want to establish lines of credit before you ever need them. You should test your lines of credit from time to time to make sure they work and make sure that you have a full relationship with whatever bank you choose. That’s what they’re looking for and I think that’s what you, the business owner should definitely be looking for. And I would tell you the other thing is, as your business grows, you may want to have more than one bank so that you can, to use your words earlier, pivot when one bank maybe wants to do a loan of one variety or another, maybe they don’t want to do that. Maybe they’re filled up in that particular loan category. Who are you going to pivot to? What’s your backup plan? So again, small business owners should definitely, as your business progresses, consider having more than one bank to do business with.

Eric:
So, the third lesson here is have a backup plan. And I think that’s a great one, whether it be a line of credit that you don’t need, but you have, or a relationship with more than one bank. So that way you feel comfortable that you have different working with different people for different
reasons.

Jim:
Sure.

Eric:
So now let’s talk about if I’m looking down the line towards the future, whether I’ve been funded now or I feel like I’m going to be funded in this next tranche, are there other lines of credit or different things that maybe as a business owner, I might want to think about?

Jim:
Sure. I think it depends on your industry. So in your particular industry, I think you’re going to stay quite busy. People need lots of services that you provide. So if you don’t have a credit line, something to definitely consider. How are you going to do your banking? How are you going to pay your people? What services are required? Are there any supply chain cracks that you need to worry about? Those are the things that I think you might start thinking about how well financed are your supply chain providers, so anybody you’re doing business with that’s critical for you to deliver your product or service to your end customer. Start thinking that through a little bit. Where could the break in the supply chain happen and how would it impact you financially?

Eric:
That’s good advice. And I know for building material companies specifically, it’s their import, export supply chain is really where they’re focused right now. And then obviously are they getting paid on time by the people that are there?

Jim:
Crucial, right? I mean how are your receivables, are they stretching out? Are they going from 30 to 60 to 90 how much cash do you have? What’s your cushion? I work at a bank, so capital is the first thing I look at every morning. And the last thing I look at at night, what’s my capital level? I think every business owner should get used to asking themselves, can I make it for three months? What happens if I can’t get my receivables to come in on time? What will I do?

Eric:
Three months? Is that the number that typically you like to think about in terms of a business?

Jim:
I think from a small business perspective, you know, a three month might be a starting point and I think you know beyond three months might start to get a little bit unreasonable as far as an expectation for the average small business holder or a small business owner. I don’t know. I would almost ask the audience that question. Like what do they have in their coffers, in their capital. Is it three months? Does that feel like a number that’s right for their business? And also, I mean it depends on so many different factors. And what’s your receivable turn look like? Is it 15 days? Do you get paid once the job is done or do you typically wait 120 days to collect? I’m sure every industry has a different number what they feel comfortable with. But as a starting point might want to look for 90 days’ worth of can I cover everything, if nothing came in?

Eric:
Are there any other words of wisdom, advice, anything you could tell somebody who’s waiting in line and isn’t sure if they are going to make it in this round because they missed it the last round and they’re desperately in need of it. What would you recommend to them?

Jim:
So the one thing that I’ve noticed, with our applications is completeness. So we take the application digitally online, you go to our web portal and you fill out the app. And I’ve seen some people try to shortcut the application or just put X’s in a field that’s required instead of answering the question fully, what happens is human being then has to go in touch it and it puts you into a new queue. Instead of doing that, do your best to answer the question. If it asks you for tax records, make sure you put the right document into the system. Whether you use our system or any other system, you don’t want another way of getting pushed to the back of the line. So fill out the application completely accurately. Make sure you’re reading the questions and the little notes that help you answer the questions.

Eric:
The reality is if I could just recap what you’re saying, make sure first and foremost, if you have not received funds and you’re in line for it, make sure that you filled out your form correctly and make sure you’ve done everything that’s necessary so that you don’t get passed over or missed or put in a different queue, as you’re saying, critical one. Two make sure that when you do receive your funds that you keep tight tabs on it. Three, make sure that your moral compass is pointing in the right direction, not only with, keeping track of the funds but executing them, clean books that make perfect sense that you could clearly show, almost separating the funds. And that sounds like it makes a lot of sense. It sounds like the next is there is a 1% interest rate that will be tacked on the funds that aren’t used. So make sure that, you know, at the end of the eight week period, at least at this point in time from the day you received your payment to eight weeks out or thereabouts, that’s the period of time that the funds were meant to cover. So draw that line in your books as well.

Jim:
I think you’re on the right track. Yes.

Eric:
And gosh, if you have not received, make sure that you get in line and you fill out that form, right. Because I’m guessing this money’s going to run out yet again.

Jim:
That’s what we’re speculating that it’ll go and half the time, as you indicated earlier, people are, bankers know a little bit more than they did the first time and they know the customer knows a little bit more of this time as well. So it seems like they’re going to go even faster. The one difference I would tell you if you get into a desperate situation, it seems like they’re carving out some portion of the funding for small banks to hand out this time, so it won’t all be absorbed by the larger banks and their customers. So you may want to hunt around for one of those community banks wherever it is that you live and see if they have availability to get access to funds for it.

Eric:
So actually, there are two questions that came at me. One is, well somebody told me that they were putting applications in multiple places and they were told that, that is the smart move to put applications all over the place because once it is received, then the others can be canceled. Have you heard anything, or does that make sense strategically?

Jim:
You know, it’s a hard question for me to answer. One, it creates a lot of work for each bank. The process takes each bank a few hours. I probably wouldn’t recommend that everybody fills out multiple apps at multiple banks. But what I do understand is you can only get one loan. So whoever gets there first would get the SBA number. At least that’s how I understand the program. So you can’t get more than one. But again, there’s a lot of people working and many banks, like many organizations, they’re working from home, they’re doing this to help customers. And each loan for us takes us several hours. So I really wouldn’t encourage people to generate a lot of excess work in the system. Work with your bank that you now get it done right the first time. Have a backup plan who you’re going to call. But I don’t know that I’d recommend or suggest calling several banks.

Eric:
And if you are one of the people who miss this next round, what would you recommend?

Jim:
You know, I wish I could tell you; I think we’re all in the wait and see mode. I don’t know if there’ll be a third tranche. We don’t know when states are going to reopen, what new programs may come out. This administration seems very much in line with helping small business. So my heart tells me that whether it’s a new round of funding or some other program available for small business, I think a lot of people are working really hard to make sure globally small business doesn’t come to an abrupt halt. But you know, if the funds are available today, that’s the first order. That’s the first priority. Try to get the application in. But if you can’t, call your local bank, see if you can do private loans, work with your accountants, work with your attorneys, see what’s best for your business.

Eric:
I think that the biggest loudest message I could throw out is make sure you’re working with a bank that you could reach out to and make sure that you’re doing everything to make it super easy for them to process your loan. Jim, anything I miss?

Jim:
No, I think thank you so much. I really appreciate you giving me and Blue Foundry Bank the opportunity to speak with you today. So again, our appreciation. Thanks so much.

Eric:
Well I thank you. Thanks very much.

Jim:
Thanks.

Conclusion:
Thank you for listening to another episode of Constructing Brands. Your feedback is how we thrive. So please leave us a rating and review on your favorite platform. And if you want access to even more great information, go to constructingbrands.com.