This is an excerpt of a recent taping of our new You Tube Show and podcast we call The Solution Point – where, with our guests, we reveal solutions to everyday problems in life, business and law. In this taping we met with Raul Garza, a top CPA, and he shared with us some of the ways to overcome the hurdles and challenges of the second round of the PPP loan. Read here for more…
JMD: Welcome to the Solution Point podcast, where we look for solutions for your business, your life and the law. My name is Joseph Michael Dickerson. I’m an asset protection and board-certified estate planning attorney, and I’m here with my producer and co-host, Catalina Dickerson.
Catalina: The two-hand wave now. Hi, everybody.
JMD: So, today we have as our guest, Raul Garza. He is a top CPA. He has a lot of experience in business, business accounting, business tax issues, especially with international clients. So, without further ado, let me introduce Raul Garza. How are you doing, Raul?
Raul: Doing well, Mike. Cat, thank you very much for having me here.
JMD: Raul, what are some of the qualifications for the second round? If you got the first round, it doesn’t mean you automatically qualify for the second one?
Raul: That’s correct. Yeah. You don’t automatically qualify. The first round, pretty much everybody qualifies, assuming you had payroll. This time, they said, well, in order for you to qualify, you have to meet a certain requirement. One of them is, you had to have experienced a decrease of 25% or more in any quarter from 2020 compared to 2019. That’s the number one biggest hurdle. So, you don’t have to experience that for the whole year, just in any quarter. That’s the trigger point to get you into this program. Then the second obstacle to overcome is how to calculate the loan. So, one of the other complexities that we’re encountering is if you have one of these serial entrepreneurs that have multiple investments, now the SBA is saying, OK, you might have to include in the computation of the determination of the 25% decrease or more, the revenues of all these entities that you own more than 50 %, or that you control. So, you end up having situations to where one of your companies having experienced that 25 % or more, but once you aggregate all of them, you might not meet that threshold. But by the same token, you could have the opposite to where individually you don’t meet the twenty-five, but collectively you do. It could be a double-edged sword.
JMD: But you don’t you don’t get to pick.
Raul: You don’t get pick. What you do get the pick is, you get to make the assessment in the companies where you own more than 50%, it’ll be fifty-one or more. Or where you don’t necessarily have the more than 50%, but you do control the company; so, you have to incorporate that into these gross receipts.
JMD: So now this loan is a forgivable loan also, right? Like the original PPP had a forgiveness component. Does this also have a forgiveness component to it?
Raul: That is correct. It also qualifies, which right now, that’s what we’re dealing with. We’re dealing with the forgiveness application of the first one. And then once you get this and you meet all the requirements of meeting the forgiveness qualifications, you’ll also qualify for that. And they made it they made it easier to qualify for that. So, if you got a loan of one hundred and fifty thousand dollars or less, the application is significantly easier now, and you really don’t need to present any supporting documentation other than the application itself for forgiveness.
JMD: What are what are the things that that you need to spend the money on to qualify for forgiveness? Perhaps some people got the money because they said, Oh, let’s get the money, but you’re supposed to spend it on certain things in order to be able to get the forgiveness. Can you share with us some of the things that are acceptable spending for forgiveness?
Raul: Originally, they were asking for 75% on payroll and then the remaining 25% was very limited to rental expenses of personal and real property, utility bills, some interest and really that was it. With the version that came up in December of last year, they’ve expanded on that and they allowed is now for payroll only to be 60% minimum and the 40% in addition to the areas that I mentioned. Now you have other areas like operating expenses that you can include. You can also take into consideration any damages that you might have experienced because of the protesting that was going on, things of that nature. So, yeah, they made it a little bit easier for you to be able to spend the money and qualify for the forgiveness aspect of it.
Catalina: It’s basically, this is how you can spend your money to have survived 2020, get you out of 2020 and hopefully 2021 is not going to be a repeat. Right? But that’s fantastic news for those people because, I can only imagine the fear that they have. First, getting the setback back with covid, who knows how many employees or staff or affected, their livelihoods, plus, they get basically attacked and then having to deal with that.
JMD: Yes, and as a semi-serial entrepreneur myself, the biggest expense in most businesses, especially service businesses, is payroll. So, this PPP really is a shot in the arm for any business because probably the biggest single expense item is payroll.
Raul: Yes. And I agree, Mike. And for that for that reason, I really feel I think every single one of us, we need to reach out to our elected officials, you know, and send them emails, give them feedback on what we’re going through because the assistance is out there; they’re just making it very difficult for you to tap into it. So, for me, if across the nation, banks have already approved and the SBA, more than half or half, that means that there’s been some banks and some people working within the SBA that have been able to overcome these hurdles. But at least here locally, my experience is I mean, I’m getting feedback…Well, it’s because the SBA has placed all these responsibilities, so we’ve got to make sure that all these things are taken care of. The problem with that is, I can understand, but if you already have a relationship with a client and you already know, how they’re structured, you’ve got to find a way to overcome these hurdles so that the money can get to the people that qualify. I don’t know the statistics of the people who have committed fraud, but I don’t believe it’s a significant percentage from the overall that are getting it and I think that’s what we need to take into consideration. But if we don’t voice their opinions, they’re not going to know, because it takes a while for them to respond. Let me give you some examples. I’ve actually had people that’s been rejected because around rounding. I’ve got one particular person that met the requirement of 25%, but when the banker did the computation, that banker or computer, 24.7 something percent and they rejected the application.
Catalina: And he’s not my banker anymore!
Raul: Well, I mean, that particular gentleman had to, which you do have a right, but you go with another bank and hopefully that bank will give you a better response. And like in this example, that’s exactly what has happened.
Catalina: Yeah, but all the time! That’s time lost and deadlines are not moving.
Raul: Well, payroll doesn’t wait. I mean, whether it rains, whether it shines, whether there’s interpretations. You’ve got to pay every pay period. And that’s why, to me, go to the document, the law that was enacted by Congress and look at the intent. But then unfortunately, it gets lost in the politics of it, the bureaucracy of it. And the result is what you said. The money doesn’t get there. And I mean, I don’t know how they’re going to react if you get to March 31st and it hasn’t been processed. I mean, technically, even if there is money, there come March the 31st, that’s it. That’s the cutoff.
JMD: Now, let me kind of shift gears a little bit and kind of do a plus one on the discussion. What if you’re one of the lucky or unlucky people, however you want to put it, that didn’t have that decrease in revenues of twenty five percent or more? What have you had, let’s say, a 10 or 15 percent difference in your revenues so you don’t
qualify for the PPP? Is there any other relief for those people? Are there any other programs out there to help people who maybe didn’t take such a big hit, but they still have to pay employees?
Raul: Unfortunately, right now, the two most attractive programs is a PPP that we just discussed and the employee retention credit, but they’re both based on having a decrease in gross revenues. So, in this particular case, for the PPP, you know, the benefit would come in the first quarter of 2021, but you would have to compare the decrease in any quarter of 2020 to 2019. The employee retention credit works very similarly. You can take a credit in 2021 which is 70%, up to $10,000 per employee. So, let’s say, if you have one employee and you meant the decrease in gross revenues of first quarter, 2021 versus 2020 of 20%, then you can get a credit of 70%, up to t$10,000 per employee per quarter. So, in my example, if you have one employee that you pay $10,000 per quarter, then the government would refund you 70% of the $10,000, which is $7,000. But in order to qualify for that, you have to have had that decrease in gross revenues. If you did not, then these two main programs that are out there, you don’t qualify for them. There’s a little exception to the rule on the employee retention credit, but you have to have been in a place, a city, or state that was mandated for you to be shut down. So, let’s say, like, our governor who recently came out saying we can open up and no masks, etc.; well, that doesn’t help to qualify for this.
Catalina: So, we’re still wearing masks here and I think that he did give language where it can still be a businessperson’s decision. We are requiring people to wear masks here because, here my wonderful, handsome husband, is too young yet to receive the vaccine and to healthy and I’m far behind him.
JMD: So are far behind. Yes.
Catalina: Well, God willing, we’ll get that soon. But it’s always better safe than sorry for sure.
Raul: Yes. Yes. For that for that credit, Cat, though, you have to have a government order. It can be federal, state or local. If we don’t have that, then you don’t qualify. So, let’s say you have somebody who doesn’t meet the 20% decrease, but you do have one of these government orders and let’s say, in effect, it affected you for two payroll period, then you would qualify for that credit for those two payroll periods. Going back to what you said, let’s have a politician that says, let’s say here our governor, I’m going to remove these orders, and everybody can operate as normal as before. No mask and no limitations. Then if you don’t meet the 20%, you don’t have the other mandate, so you cannot get the credit because of that. Politics will influence the application of this law and in this particular case.
A big thank you to friend and top CPA, Raul Garza, Owner of Garza Accounting Professionals for his insight and expertise on the PPP Loan and its impact on small business owners. You can find out more about Garza Accounting Professionals by calling his office at 956-727-4122. To see this episode and more on The Solution Point show, scan this QR code or visit us on YouTube and look for The Solution Point.