EPISODE 53: DHG's Denny Ard joins Growthcast for another update on regulations affecting the Paycheck Protection Program (PPP), including the Economic Aid Act, updates to the Employee Retention Credit and revisions to applications for PPP loans in 2021.
[0:00:09.7] JL: Welcome to today’s edition of DHG’s GrowthCast. I’m your host, John Locke. At DHG, our strength relies on our technical knowledge, our industry intelligence and our future focus. We understand business needs and are laser-focused on company goals. In this ever-changing world, DHG’s GrowthCast provides insights and thought-provoking conversations on topics and trends that address growth opportunities and challenges in the current and future marketplace.
Thanks for joining us as we discuss tomorrow's needs today.
[0:00:42.3] ANNOUNCER: The views and concepts expressed by today's panelists are their own and not those of Dixon Hughes Goodman LLP. Always consult the advice of your legal and financial professional before taking any action.
[0:00:58.3] JL: Today's topic is once again the US government PPP loan program. And we welcome back Denny Ard, a DHG partner and leader of the DHG Solutions Lab.
Denny, happy new year and welcome back.
[0:01:10.4] DA: Happy new year, John, certainly great to be back. It's already, we're nearing the end of January already and the end of 2020 and the first of 2021. I've started with a bang with respect to PPP and other government assistance there.
[0:01:29.3] JL: Yeah, at the beginning of the new year, as I recall reading the US Department of Treasury and the Small Business Administration addressed the amendments made to the PPP program as a result of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, or more simply the Economic Aid Act. So, Denny, what can you tell us about the Economic Aid Act? And specifically, the new guidance that's been conveyed, and what that means for PPP recipients?
[0:02:01.0] DA: Yeah, John. I'm happy to kind of talk about that. And I may just back up a little bit before the first of the year, and the gannets that came out there. Back at the end of the year is really when we were hit with the Consolidated Appropriations Act. That was a huge bill that was really passed through the House and the Senate the week before Christmas, and then signed into law by the President on December the 27th. And there were really good things that were included in that. And a couple of big highlights, John, I've made where we knew that PPP loan forgiveness would not be considered taxable. But there was still uncertainty as to whether or not you could deduct the expenses given rise to the forgiveness.
So, the Consolidated Appropriations Act is allowing you to do that, in essence, you get to double dip a little bit where you don't include the forgiveness and taxable income. And you also get to deduct those expenses, giving rise to the forgiveness. So, really good stuff came from that. And they added in some additional qualifying expenses to help businesses ensure that they're maximizing their forgiveness. Another really big thing was they said, “Hey, we're going to make a second loan available for PPP borrowers.”
So, if you're a business that had a first loan, you've got 300 or fewer employees, and you can show a reduction in gross receipts in any quarter of 2020, when compared to 2019, and you spend all your first loan, you've got an option to go back to the well for a second time. So, wanted to take just a second and highlight some things from that act, because under that there were a lot of businesses that can take advantage of the provisions that were in there. When they came out and kind of issued the clarifying guidance and different things after the first of the year, the Economic Aid Act, really, a couple of highlights for that it expanded eligibility. So, now 501(c)(6) businesses, some marketing organizations, news organizations that were in business on February the 15th of 2020, and have less than 300 employees are now eligible to participate.
There was an additional expansion of expenses for forgiveness, really, the cash comp piece stayed the same from the previous guidance. There was some additional non-cash compensation. They threw in group life and disability insurance, health vision and dental insurance. So, there was some different things that came out like that, that I think will be very beneficial.
[0:04:41.8] JL: Yeah, and those are some significant expansions to the original program. So, that's pretty exciting for a lot of our clients, I know, out there to hear about. Actually, speaking of hearing about things, I heard that there were two new PPP applications released and are those is the same as last year's PPP appropriations?
[0:05:03.7] DA: Well, they actually went through and revised the application. So, the first one I'll talk about really is the one that would allow for a business to make a second draw of a PPP loan. So, again, part of the eligibility is 300 or fewer employees, you must have spent all the first draw, you can show a reduction in gross receipts of 25%, or more for any quarter of 2020, when compared to 2019. So, that was really the first application that's focused on the second draw. You're limited to the amount of your first one on that, but you know, your calculations to calculate the amount of the second draw, they're consistent with previous guidance on the first draw, but you can use average payroll for 2019 or 2020, whichever one provides the best results there.
[0:05:58.5] JL: Well, this is all moving at lightning speed, I can tell. Any other significant updates to the PPP just recently?
[0:06:08.5] DA: One big thing I'll share that came through with the Consolidated Appropriations Act was the Employee Retention Credit, or ERC, as people refer to it. Back when the Cares Act was first passed, there was an option to have the Employee Retention Credit, and the PPP, but it was really you had to choose one or the other. So, one of the great things I think that came out of the Consolidated Appropriations Act was businesses can now actually take advantage of both if they qualify. So, you can have a PPP loan and still be eligible to receive the Employee Retention Credit. And so, I think that was huge for businesses out there and I think it's big, and I think it's something that businesses should really pay attention to.
For 2020, the ERC credit could be as much as $5,000 per employee for eligible businesses. And I think, if you're a business that was either completely or partially shut down for 2020, this is definitely something that you should pay attention to. And you know, they did allow you to do both now. You can have the Employee Retention Credit in the PPP loan. But if you do have a PPP loan, the one thing that you got to be careful about is you can't use the same payroll related expenses to qualify for the ERC that you use for your PPP loan forgiveness. So, I think that businesses will have to be careful about that.
So, depending on where you are with your PPP loan forgiveness, and you think you're eligible for ERC, it's worth sort of figuring out where you are in your process. A lot of people have you completed their PPP loan forgiveness, submitted it to their lender, and the lender has submitted it to the SBA. For those, we're not really sure kind of what happens at that point. Well, the SBA allow for forgiveness application to be resubmitted. If you need to go back and adjust wages, so that you can participate in both the ERC and the PPP. I'm not sure what happens there. We're kind of waiting for some guidance. But if you've submitted your PPP loan forgiveness application to the lender, maybe it's worth following up with a lender to see where they are in the process. If you think he may be eligible for ERC, it may be worth holding off in asking the bank not to submit to the SBA until you've had a chance to get your arms around the ERC, and whether you qualify and what expenses would help you qualify because you have to revise your PPP loan forgiveness based on those qualifying expenses.
So, if you haven't submitted your forgiveness to the lender yet, maybe you want to hold off until you can figure out the interplay between the ERC and PPP. Some advice we've certainly been given to our PPP borrowers and clients out there, if you're unsure about PPP, and the interplay with ERC, I would definitely reach out to your tax advisors and kind of get thoughts and opinions on that. The big, John, is really PPP borrowers are really nearing the time where they'll have to start making loan repayments over the next several months. So, this interplay with ERC and PPP is big, and I think that if you're looking to capitalize all both of those, it’s time is probably of the essence to kind of go ahead and get your arms around what that means and that way, you're not delayed. They’ll get in your loan forgiveness in for PPP, and you don't have to start making any loan repayments.
[0:10:02.1] JL: Yeah, so these are some exciting new elements to the program and I think from an eligibility standpoint and qualification, and really, just kind of what has happened over the last, especially three or four months making sure you've pulled all the right levers, asked all the right questions and relook at your situation. So, Denny, thanks so much for this. This is a great information, very timely. Appreciate you and your team staying on top of this.
[0:10:29.5] DA: John, thank you so much for having me. We're here to answer a question if there's any borrowers out, any clients, businesses out there that have questions on this. I would also like to refer the listeners to our knowledge here. We've been super busy posting some of these knowledge share articles out to our website. We cover a lot of this stuff, we're trying to stay on top of it. So, if you have questions, please reach out or I would definitely refer you to dhg.com and our knowledge share site where we're trying to house all the information as soon as we can digest what comes out and push it out in the form of an article.
[0:11:06.9] JL: Great.
End of Interview
[0:11:07.3] JL: Thank you for spending time with us today on GrowthCast with Denny Ard, the leader of DHG’s Solution Lab. And we're going to be having Denny back again soon to discuss even more details around the PPP applications. And Bill Walter of DHG PPP Task Force to discuss how government contractors are uniquely impacted by the recent PPP changes.
I'm your host, John Locke, and I look forward to reconnecting with you soon on an upcoming episode of DHG GrowthCast.
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