Episode 047: The State of PPP Loans [Funding, Forgiveness and Audits]

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As companies continue to utilize the Paycheck Protection Program (PPP), some are still applying for funds, some are navigating the forgiveness process and others are now facing a PPP audit.

No matter where your company stands in the PPP process, it can be difficult to know what to do and what to expect.

In this episode of the Wrap, Adam West, CPA (Warren Averett’s in-house PPP expert) and Mark Woods (Senior Vice President and SBA Executive Director at Southpoint Bank) join our hosts to discuss the current state of the PPP program, what the future may hold for PPP and what it all means for companies looking to take advantage of it.

After listening to this episode, you’ll be able to:

  • Grasp the current landscape of PPP lending and know if there are any remaining available PPP funds
  • Move forward with tips for pursuing PPP loan forgiveness
  • Gain a basic understanding of who is being audited and what is being considered in the PPP auditing process
  • Understand how PPP and the Employee Retention Tax Credit relate to each other when it comes to eligible wages and loan forgiveness
  • Know how Shuttered Venue Grants and the Restaurant Revitalization Fund interplay with PPP
  • Gauge the longevity of the PPP program

Resources for Continued Learning:

This episode reflects our views at the time it was recorded. Information within should be used as reference only. We recommend that you talk to your Warren Averett advisor, or another business advisor, for the most current information or for guidance specific to your organization.

Commentators: (00:00:00) Hey, I’m Paul Perry. I’m Kim Hartsock  and you’re listening to the Wrap, a Warren Averett podcast for business leaders designed to help you access vital business information and trends. You need it so you can listen, learn, and then get on with your day. Now let’s get down to business.

Kim Hartsock: (00:00:22) Hey, Paul.

Paul Perry: (00:00:23) Hey Kim, how are you today?

Kim Hartsock: (00:00:25) I am great and glad to be back with another episode of the Wrap and today’s topic is something that I have probably gotten more phone calls on in the past year than anything else. And of course, that means we’re talking about PPP.

Paul Perry: (00:00:40) Absolutely, looking forward to this conversation.

Kim Hartsock: (00:00:42) Yeah. So we have one of our partners with us today, Adam West, and he was with us in the last season, talking about PPP as it was rolling out. So welcome back, Adam.

Adam West: (00:00:52) Glad to be with you guys.

Kim Hartsock: (00:00:54) We have with us our guest today, Mark Woods, who is senior vice president and the SBA Executive Director at Southpoint bank. So welcome Mark.

Mark Woods: (00:01:02) Have you good afternoon.

Kim Hartsock: (00:01:05) So Mark, if you want to just take a few minutes and further introduce yourself to our listeners. Tell them a little bit more about what you do at Southpoint Bank.

Mark Woods: (00:01:11) Sure. I’d be glad to. I was hired by our CEO, Steve Smith, to really start up their Government Guaranteed Lending division. Southpoint Bank had not had any Government Guaranteed Lending whatsoever, whether it be SBA, USDA. I guess it was a little over a year ago that Steve actually hired me the week before PPP started. And, uh, I had been in this VA lending for about 15 years and Steve hired me to come over and start the SBA division for Southpoint.
And we got up and running and got our systems together in one week. And we started inputting PPP the Monday, then it started, and he had impeccable timing or he foresaw something, but that’s pretty incredible timing on the bank’s part. Yeah. He said he was lucky on the timing. I’m not sure lucky about the hire, but he was lucky on the timing for sure. And it’s been a great, it’s been a great time at Southpoint.
They’re very eager to help clients. We’ve helped a lot of clients during this PVP tab and both with just PPP loans, but also SBA lending. So, uh, it’s a good bank and I’m fortunate to be there.

Paul Perry: (00:02:16) Well, Mark, we’re glad to have you with us. And those that were on the listening last season. Uh, remember Adam, Adam is a partner in our tax department and kind of runs, um, heads up PPP, uh, expertise for the firm. So, um, Adam, anything, anything you want to expand on with, with what you do?

Adam West: (00:02:35) Thanks Paul. Um, it has been, you know, as we look back over the past year, really crazy that you know where we’ve been and where we’ve come with PPP rolling out, but you know, a little over a year ago, and then we’d had a second draw alone, all the changes that we’ve had.
So just really, I think unprecedented that changes and the amount of funding, uh, that we’ve seen over the last year.

Kim Hartsock: (00:03:02) And I joke with Adam because he is our Warren Averett expert on all things PPP. And I’ve joked with him, ask him if he was going to get a tattoo of PPP because it was so memorable and so much a part of who he was this past 12 months, but we are very grateful for Adam and all the knowledge that he was able to share with us and our clients related to this program.

Adam West: (00:03:24) My wife vetoed the PPP tattoos.

Kim Hartsock: (00:03:28) So let’s start with that. Let’s start with, um, PPP and, you know, there were two rounds. And so maybe Mark, can you update us on where it stands today? Is there remaining funding if somebody did not get into round two, is there still available funds or is that already closed?

Mark Woods: (00:03:46) So it has been a, a large process, even the second one, as much as the first one was, but, uh, there is still a little bit of funding left in the bucket. I just, there’s not as much activity now as there was early on in the second round, but you’ve got about… 26 billion or so left. Uh, which that sounds like a lot, obviously what we’re talking about these billions, but will go very fast.
You’ve got till the end of may. Um, but the activity has definitely slowed off and tapered off, especially in the last couple of weeks. What you see now are a lot of people that are trying to that get PPP. So now they’re trying to apply for the second round of PPP.
So they’re doing both within the same timeframe, little bit of a glitch there. In fact, for the fact that the government makes them go ahead and spend, they have to have used the money for eight weeks before they can apply for their second round. So it depends on when you apply, but there’s going to be some of that going on.
So not only do you get your first round, but you get your second round in what is called the second round of PPP.

Kim Hartsock: (00:04:54) Yeah, that is interesting. I had a client who was not eligible the first round, but the legislation was changed. And so you’re right. They were able to apply for both at the same time, essentially, which was fantastic for them, but, um, somewhat of a unique situation.

Paul Perry: (00:05:10) From a forgiveness perspective, and I guess that would be part of the next conversation is, um, what are we seeing from the forgiveness side of these loans that people need to be aware of, that they need to focus on that they need to keep in mind as they, as they move forward?

Mark Woods: (00:05:27) You know, I, I would encourage everybody that if you’re looking to get your forgiveness done is one to go ahead and do it now.
They told us that’s how they were gonna roll out the PPP forgiveness for the second round. We’re all going under the assumption that it’s going to be just like it was done during the first round. But so you don’t get really, if you will lost in the shuffle, if you haven’t planned for forgiveness after the first round.
Do you need to go and get that done? Uh, we’re already seeing some issues with some of the forgiveness that were done in the first round. Um, getting lost in the shuffle, if you will, and haven’t even been addressed yet. And originally the government said SBS had 90 days to review them. Well, we’re seeing loans that are 140 days and have yet to be reviewed.
So if you really want to get your forgiveness done, I would tell people it’d be a problem. And go ahead and get started. We’re also seeing a lot of auditing now, which I had not seen really up until the last couple of weeks. And we’re seeing loans from as little as $3,000 up to a million dollars being audited.
So you’re getting it across the board, the auditing. So, uh, I guess that we could, if you would apply it to your taxes, You know, we don’t know who’s really getting audited, but go ahead and get them in and get it done. And if you do have to go through the auditing process of a PPP, you’ll be on the front end of it, getting it done.

Adam West: (00:06:51) Mark, what are you seeing on the auditing front? Are there particular items that they’re looking at or is just right now, is it mostly just random questions or kind of things of that nature?

Mark Woods: (00:07:01) As far as the, what, who they’re auditing, it’s just kind of a random, but what they’re asking for is, is generally the same.
They’re sending out a form letter that asks for four or five items. Occasionally you’ll get one that asks for a couple more. That’s not standard. That’s generally the larger loans, but every loan generally has. What I’m finding interesting is if you remember originally, when we submitted, when you first started doing forgiveness, you had to attach your documents to your application when you submit it for forgiveness.
The new iteration has changed the process to where now, if you’ve got one that they’re usually not have to submit the document backup documentation, you just have to keep it secure. In case the SBA comes back to audit you.
Well, what we’re finding now, when you get audited is they are requesting that documentation. Um, and we found some of our audits. They had already submitted a lot of that documentation. And the government still says, Hey, please submit this. The unique part about that was in the email where they let us know about the audit.
They attached all the documents to the audit. So it seems a little redundant, but we’re just turning around and sending them back all of the documentation they had already sent, plus some other certified information that the government is asking for, but for the most part, it’s all the same audit letter.
Um, give or take one or two items. Uh, and it’s not a very, you know, I’m sure people are going, Oh, that’s gotta be a painful process. A lot like a tax audit. It’s not, it’s really, we asked you to do, when we asked you to fill it, fill out a PPP. Now we’re asking you to send us the documentation proving you did what you said you were going to do. That’s really all it is.

Commentators: (00:08:53) To receive a monthly newsletter with The Wrap topics, then head on over to https://warrenaverett.com/thewrap and subscribe to our email list to have it delivered right to your inbox. Now, back to the show.

Kim Hartsock: (00:09:06) So Mark talked about auditing and that there’s kind of a sampling of, of different loans that are getting audited. But specifically, you know, we were told that loans over $2 million would be audited. And the sense I’m getting from clients is that no one’s really had much movement if they had a loan over $2 million. So is there a backlog for those loans? What’s the process looking like from your perspective, for those specific loans over $2 million?

Mark Woods: (00:09:35) That’s a great question. I, I attended the NAGGL conference and for those that aren’t familiar with what NAGGL is, NAGGL is the national association of government guaranteed lenders. They work very closely with the SBA division and are our voice to SBA, if you will, for all of the government guaranteed lenders that are out there.
And that conference is always very informative and they had a breakout session strictly around auditing, especially the loans that were over 2 million, uh, they had SBA representation there and SBA indicated to us that. They realized that they had a backlog and they were very much aware of it.
There was really no rhyme or reason why they had the backlog, but they were aware of it. And their goal was to address that. And they knew they were going to start addressing it in a very timely fashion. I’m not sure what that is and I wouldn’t dare say what kind of timeframe that is, but I have yet to see movement on the loads that we have at our institution that are greater than 2 million and in discussions with other bankers in and around the area.
Our peers are seeing the exact same thing. Um, I, in fact, this morning through some emails, we had some exchanges that one bank only had one loan over 2 million. They had submitted everything and had not heard a word. And it was at 135 days. So it really, there is no rhyme or reason. I think the good news is SBA realizes they have this backlog, they realize something has to be done and they are committed to getting to it as fast as they possibly can.
It’s been very difficult on those companies that are over 2 million on how they want to, you know, how are they going to put this in their taxes? It was a big headache for them and still is – not knowing when and how the taxes are going to be coming due. It’s been a source of frustration for some of these companies and SBA realizes that and they want to address it as fast as they possibly can.

Paul Perry: (00:11:31) So let’s shift gears a little bit, Adam, any additional guidance out there being released related to kind of the interplay between PPP and ERC, the employee retention, credit, any, anything new from that perspective and what you’re seeing?

Adam West: (00:11:44) It’s clear that you can’t use the same wages for both PPP, forgiveness and ERC.
Uh, what the guidance did, was it from the IRS? Is it address that issue and basically allows the taxpayer or the borrower to choose, to pick and choose wages and to maximize their PPP forgiveness and their ERTC. If they’re eligible. We were advising at the end of last year to when the new legislation came out, that allowed PPP borrowers to now take advantage of the employee retention credits.
We were advising generally to hold off on the forgiveness application for PPP, just because we were concerned that if you put those wages on your own forgiveness application, that those wages wouldn’t be eligible for the employee retention credit. The IRS guidance did confirm that to where if you’re using those wages for forgiveness on your forgiveness application, then those wages can’t be used for ERTC.
And the best example I could give you, let’s just use round numbers. Let’s say you have a hundred thousand-dollar PPP loan, but you use the 24 week cover period. So you, you used 300,000 of wages on your forgiveness application in that situation, only the 100,000 that you actually needed for forgiveness would reduce eligible wages for purposes of the employee retention tax credit. All of those excess wages, the 200,000 above which you actually needed for forgiveness would be eligible for the employee retention credit, assuming you meet the requirements. So what we’ve seen is a lot of PPP businesses that are eligible for ERTC one they’re picking and choosing which wages to use, uh, for each one. And they’re also filling up that 40% bucket when it comes to using some of the non-payroll cost to increase the amount they can claim under the employee retention credit.

Kim Hartsock: (00:13:54) So Adam, there’s also two additional programs that have come out recently. One is the shuttered venue grant, and the other is the restaurant revitalization grant. And I think there’s some confusion there over if you’ve applied and received PPP, does that automatically disqualify you from those from those two programs? So can you shed some light on the way that those interplay with each other, as well?

Adam West: (00:14:18) So great question, Kim. So there has been a lot of confusion about the restaurant revitalization grant and the shuttered venue grants initially. And we still get a lot of questions. A lot of people think that these have to run through a lender. You actually apply for these directly with the SBA. With respect to the shuttered venue grants, that program launched earlier in April, and you’re eligible for a grant based on a percentage of your revenue loss from ‘19 to ’20.
Then the restaurant revitalization grant launched Monday, May 3rd. And for the first 21 days of the application process and submitting applications, the SBA is prioritizing applications from minorities. But after that, the program will open up to everyone else. There’s roughly 28 billion allocated to that program. And just real quick, cause we’ve gotten this question a lot on the revitalization grant: the quick high-level loan calculation or the grant amount for that program is you take your 2019 revenue over your 2020 revenue. You take your revenue loss. And then you subtract out the amount of PPP that you received in rounds one and or two. And that’s how you arrive at your grant amount.

Paul Perry: (00:15:47) Will we ever see PPP again? Is this, is this the start of something? New going forward. Is this something we can expect to see – what your thoughts around that area?

Adam West: (00:15:57) So I’m curious to see what Mark thinks about this and what he’s hearing in the industry, but what we’re hearing some chatter about is, possibly in the next fiscal crisis, PPP being another tool that Congress uses to stimulate the economy.

Mark Woods: (00:16:12) No, I don’t know. That’s a great point. And that’s kind of, what’s been talked about, I mean, there was already around in NAGGL, they were discussing a round three of PPP and, you know, it depends on your political views and we could get into how we feel about that.
And I don’t know if that benefits anybody, but I don’t know how much is too much. And how far have we gone and when does it need to stop? Um, you’ve got so many people now that are staying home and not working, whether it be from unemployment benefits or where they got their money through a PPP and the venue is still shut or whatever it might be.
And we’re hearing a lot of in our industry and is concerning for us and how our businesses are going to be going forward is that has now made the labor force be able to demand more, whether they’re going to get jobs. And is that the right thing for these businesses who have struggled coming through COVID to now, when they got to hire new employees?
Instead of the rate of let’s say they were hired at $10 an hour. Now you’ve got to hire him at $15 an hour. Where is that going to stop? And PPP itself serve the purpose of allowing them to keep what they could have staff. But if you’re a restaurant, couldn’t stay afloat. If you, in other words, if you aren’t making enough money, even with PPP to keep the doors open, PPP really didn’t help you necessarily.
It may have let you keep your voice all into a, hopefully you could open the doors again. But when you open the doors again, where you going to be able to function? So I really think the government’s going to have to take a step back and look and say, okay, what did PPP really do? What did it benefit?
Um, what industries maybe did it benefit? And if we use it again, it may need to be used for these industries. And we use a different tool for these other industries, but I don’t think you’ll ever see again… and, uh, I’m not the government, but I don’t think you’ll ever see again an across the board PPP program like we’ve seen this time. Not only because of the industries using this but because of the amount of fall.
I think you’re going to see it more calculated, a more defined program by the government. If we do have another crisis of this level, PPP served purposes in some areas, but where we are now, I just don’t believe we’ll ever see PPP like we saw at this time ever again, I just don’t know how the economy can withstand it either to be frank.

Kim Hartsock: (00:18:32) So this topic certainly has created a lot of conversation and, um, I think. The first few months, the program rolled out. It was a lot of anticipation and excitement, but, uh, that some confusion over, you know, how would it work, how do you qualify? And then on the backend, same type of anticipation and excitement and confusion on how will it be forgiven and what will the process be? So here on The Wrap, we always try to wrap it up in 60 seconds or less. So what would you want the listeners to really leave with from this conversation as it relates to the PPP program?

Mark Woods: (00:19:12) You know, I would say to be precise in your reporting. Go ahead and get your forgiveness submitted. If you haven’t already done it. Hold on to all your documentation, at least for six years, you never know what could be done and make sure if you’re still in it and you’re using your first one. Now use it as it’s been told to be used, be accurate in your reporting, be precise with your lending institution, what you’re doing and how you’re asking for, for your forgiveness. Many errors we’ve seen where somebody said, well, I’ve used it all, but I didn’t fill out my application. Right. Well, once it’s submitted to SBA and you get that forgiveness back, there’s no correcting it.
So be precise, be smart, use it the right way and get your applications in for forgiveness.

Adam West: (00:19:57) So just to piggyback off what Mark said, definitely dot your I’s and cross your T’s when you’re completing your forgiveness applications. And I think the big development over the last couple of months has been the guidance from the IRS.
From a tax standpoint has been the guidance from the IRS, addressing the interplay between PPP and the employee retention credits. There is some opportunity there. So just being aware of the opportunity there to pick and choose wages and maximize the benefit under both programs, I think is a big takeaway for our listeners.

Kim Hartsock: (00:20:30) Well, Adam, thank you so much for coming back and Mark, thank you for being with us today. I think this topic is not, not over yet. We’ll continue to talk about it and we appreciate your time.

Mark Woods: (00:20:40) Thank y’all for having me. And if we can do anything to help Southpoint banks there, we would more than glad to help you on, but thank you for giving me time today.

Adam West: (00:20:48) Thanks, Kim and Paul. It’s always good to be with you guys. Thanks guys. Thanks Mark.

Mark Woods: (00:20:52) Enjoyed it.

Kim Hartsock: (00:20:58) Take care.

Commentators: (00:20:59) And that’s a wrap. If you’re enjoying the podcast, please leave a review on your streaming platform to check out more episodes, subscribe to the podcast here, or make a suggestion of other topics, you want to hear: visit us at  warrenaverett.com/thewrap.

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