How technology can help advisers talk to clients about PPP loans

As the coronavirus pandemic caused massive disruption to businesses everywhere, the United States government brought forward a solution to help companies stay solvent: the Paycheck Protection Program.

The program proved both popular and controversial. Large businesses used it as much as small ones did.

As we move into a new year and effects of the pandemic continue to dominate daily life, the SBA will deliver a second round of PPP loans.

In this article, I will provide you with the facts about taxes and eligibility for new PPP loans so you can decide if one is right for one of your clients’ businesses.

TAXATION AND ELIGIBILITY FOR NEW PPP LOANS

The question on the top of most advisers’ minds is about loan forgiveness and taxation.

The original plan was for PPP loan forgiveness to increase taxable income for business owners. However, the Consolidated Appropriations Act of 2021 made the loans truly tax free.

The next thing advisers want to know is if their clients are able to receive a second PPP loan if they already participated in the first round. The answer to that is yes, if they meet certain criteria.

Eligibility for a second loan requires a business to have had at least a 25% reduction in gross revenue in any quarter of 2020 compared to that same quarter in 2019.

Businesses must also have no more than 300 employees.

PAYING BACK A PPP LOAN

The Paycheck Protection Program is a loan and not a gift, and as such any money received has to be repaid — unless certain terms are met for loan forgiveness.

For most businesses, the total loan can be 2.5 times the average monthly payroll in the year prior to the loan. Hospitality and food services can get up to 3.5 times their average monthly payroll.

Payroll costs are the key to PPP loans. At least 60% of the loan has to be spent on payroll for the full amount to be forgivable. However, payroll isn’t the only expense the loans can cover. Funds can pay for mortgage interest, rent, utilities, uninsured property damages, and worker protection caused by COVID-19.

HOW TO HELP CLIENTS APPLY FOR PPP LOANS

As providers of comprehensive financial advice, a new round of loans gives advisers the perfect opportunity to deepen relationships with their business owner clients by advising them on the extended Payment Protection Program.

I asked Andrew Altfest, founder of FP Alpha — an AI-powered, comprehensive planning solution for advisers — to share his thoughts on how advisers can leverage technology to initiate the PPP conversation more easily.

“Advisers with clients who are business owners have an opportunity to encourage their clients to not only take advantage of PPP loans, but also introduce tax planning opportunities they could claim from remote working, like the home office deduction,” Altfest said. “The issue with providing high-impact planning like this, though, has always been having enough time and knowledge to do it.”

“But with the technology available today, advisers don’t have to be CPAs themselves, as they can adopt technology to instantly access the brain of a CPA,” he continued. “Advisers utilizing AI-assisted technology right now to automate their recommendations, hyper-personalize advice, and quickly take advantage of new opportunities like a second round of PPP loans are the advisers who are setting themselves up for accelerated growth in the years ahead.”

Congress has authorized up to $284 billion additional SBA loans. If an advisory firm has clients who could benefit, now is the time to reach out to a bank they have an existing relationship with to get started and apply.

Bill Vasil is a principal at ARM CPA and FP Alpha Tax Adviser