Jan. 19, 2021 COVID Round Tables (Part 4)

Returning today is Gene Marks from the Marks Group PC. He is an author, a speaker on small business expertise, and a CPA. He has presented at Scaling New Heights. He was one of our guests on the Round Tables back in March for the CARES Act when we were trying to figure out what was happening with coronavirus relief, and previously spoke at our January 5 Round Tables. He writes regularly for The Hill, the Philadelphia Inquirer, Forbes, Entrepreneur Magazine, and The Guardian, and appears regularly on MSNBC, CNBC, Fox Business and Fox News. He’s the author of six books on business management and comes to us today compliments of our friends at Patriot Software, a leading payroll provider which works with QuickBooks Integrated Payroll.  

Joe Woodard: For the employee retention credit, do you need to show a 20 percent reduction in revenue per quarter? 

Gene Marks: Yes, for the quarter that you're claiming it in. It's available through the first two quarters of 2021. So if you want to claim the credit for quarter, you must have been impacted in that quarter. 

Joe Woodard: So you mentioned several loan types in there and the forgivable nature of those loans. Can you restate those?  

Gene Marks: We're talking about forgivable loans. These are not PTP loans and or economic injury disaster loans (EIDL). These are either Section 7A loans from the SBA or 504 loans. The 504 program has loans and microloans. With 7A loans you can borrow up to $5 million. With 504 loans you can borrow up to $5 million. And with 504 microloans you can borrow up to $50,000. 

You can use the money for nearly anything. You can use it for working capital. You can use it to buy property, equipment and real estate. You can use it to buy buildings. You can use it to buy another business and inventory as well.  

To obtain the loans themselves, you have to go through a due diligence process with the bank, because it's an SBA banker that gives out these loans. The bankers have been really incentivized to give out these loans. Before this bill, the bankers were on the hook for 25 percent of the loans and the government guaranteed 75 percent of it. Now, the government will guarantee 90 percent of those loans. So the bankers are only on the hook for 10 percent and they've waived all the loan guarantee fees, which can be significant. So if you already have a Section 7A or 504 loan that's great news. Go to your banker and tell them that you've got it. And if they haven't notified you already, you will get immediately three months of principal and interest completely forgiven on this loan. Your principal balance will continue to go down, but you won't have to make payments on it and your interest is forgiven as well. 

If you're in a hard-hit industry like restaurants, leisure and accommodations, you can get another five months forgiven. That's eight months of your existing loan’s principal and interest, up to $9,000 a month, completely forgiven if you have an existing 7A or 504 loan. If you are looking for financing this year to do whatever you're going to do this year, stop your search and go to a bank that offers Section 7A or 504 loans. If you get the loans through an SBA banker for a new loan before September 20, 2021, you'll get the first six months of principal and interest completely forgiven, again, up to $9,000 per month for those loans. It’s an enormous benefit that's going on all throughout this year. And we're going to be encouraging our clients, particularly ones looking for new financing to go through the SBA Loan Program, so they can get this huge loan forgiveness. 

Joe Woodard: That's a chance to get beyond this initial way, because right now all we can see is the fact that we're spinning around in aerated water. But on the COVID-19 resource page of our website, there is guidance for you to guide your clients through the storm, which is continuing. Gene has given you a powerful place to go if you should have to pull the lending trigger with your clients.  

Okay, we talked a lot about K-1s and passthrough entities. But what about the sole practitioner that files a Schedule C? Would the net income be your income for purposes of the PPP and SBA loans? 

Gene Marks: For a calculating new loan amount, it absolutely is. So if you're a sole proprietor or practitioner, you really do have a choice to make. It's the same choice that you had with the first rounds of PPP. Do you take out a PPP loan or do you file for unemployment insurance? The rule is that you can only do one or the other. So, you know, because unemployment does include sole proprietors and independent contractors. Right now, unemployment insurance provides an additional $300 per week from the federal government plus your state benefits through the end of March, and President Biden is now pushing forth a big stimulus program where he wants to bump that up to $400 per week through the end of the year.  

If you’re a sole proprietor or an independent contractor, it might be easier to get unemployment rather than going through the process of a PPP loan, particularly now that the states are up to speed on all this. If you do want to go through the process of a PPP loan, there are tax considerations, because the unemployment benefits are taxable. But PPP loans are not, at least not on a federal level. So you have to be careful on a state level. But a PPP loan might be up your alley. You use your Schedule C income to determine your income for a PPP loan. That's your compensation. And if you haven't filed your 2020 tax returns because you want to calculate your average monthly income for 12 months, you can base it on your internal records, your planned filings for 2020, or your 2019 tax return. The PPP program allows you the option to use both 2019 and 2020 income for purposes of calculating your loan amount. 

Joe Woodard: Very nice. Does the shutdown have to be in the same quarter for which you want the employee retention tax credit? 

Gene Marks: It does. 

Joe Woodard: I've been seeing that only the first through the third quarters of 2020 can be reviewed for the 25 percent reduction in revenue for a comparison of quarterly income. 

Gene Marks: Earlier, it was a full year. You're absolutely right that the original drafts of the bill required you to use the first through the third quarters. But yes, the banks have been notified that they can use the fourth quarter.  

Joe Woodard: I believe that the idea behind that was that the legislation was passed on an accelerated timetable, it would have been in the fourth quarter. It did pass in the fourth quarter, but close to the end. 

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