*The IRS has stopped processing new Employee Retention Tax Credit (ERTC) claims for the time being. For more information, visit IRS.gov.

At a time when interest rates are on the rise, getting the financial backing you need to grow and maintain your small business can be challenging. Fortunately, there’s help. In this episode, Gene Marks and special guest, Skylar Swallow of Lendio, discuss how fintech companies are expanding their services to help small business owners qualify for additional capital through the Employee Retention Tax Credit (ERTC).

Executive Summary

0:51—In an attempt to provide some pandemic relief to struggling small businesses, many fintech companies, such as Lendio, are trying to help their clients get access to the Employee Retention Tax Credit (ERTC).

3:25—The Employee Retention Credit is a payroll tax credit for businesses that have experienced a revenue decrease of 20-50% or have had a government mandate that impacted at least 10% of their business operations.

6:11—Restaurants, fitness centers, and dental offices are among some of the industries that were still significantly impacted during the pandemic and therefore, most likely to qualify for the ERTC.

7:33—Business owners who filed for ERTC in 2020 have the opportunity to earn up to 50% of $10,000 per employee, or $5,000 per individual employee, based on their qualifications during that period; those that filed in 2021, are eligible to earn 70% of up to $10,000 per employee in three qualification periods.

8:03—With a credit limit of $5,000 per employee in 2020 and $21,000 per employee in 2021, business owners can earn up to $26,000 in tax credits per employee, for that two-year period.

8:50—Be wary of ERTC mills that claim you could qualify for large sums of reimbursement from the government; they may be quoting those amounts simply to target bigger companies.

10:15—Even if you haven’t applied for the ERTC previously, the IRS gives you three years as a statute of limitation to refile amended returns. The deadline for refiling for your 2020 quarters is April 2024, while the deadline for the 2021 quarters is April 2025.

11:01—Due to the amount of time it takes for the IRS to process your information, it’s best to apply for the ERTC as soon as possible so that you can avoid getting stuck in their backlog and receive your money quicker.

12:06—There are two benefits of utilizing a financing platform to apply for the ERTC: quicker service through technology and access to well-vetted tax preparers.

14:38—The cost to find out whether you’re eligible for the ERTC through a fintech company is typically a percentage of the credit amount. In Lendio’s case, this is 15%.

15:11—Lendio will waive the processing fee if you don’t qualify for ERTC.

16:59—There is an emerging market of lenders that are willing to finance businesses based on their ERTC eligibility, which means that these business owners may be able to access this extra capital while they wait for the IRS.

18:49—Rest assured that in the unlikely event that you get audited, Lendio will provide all the appropriate support.

19:28—As a small business owner, you should always double check your tax documents before signing them, regardless of who’s preparing them.



The views and opinions expressed on this podcast are for informational purposes only, and solely those of the podcast participants, contributors, and guests, and do not constitute an endorsement by or necessarily represent the views of The Hartford or its affiliates.

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Gene: Welcome to The Small Biz Ahead Podcast. We interview great experts and offer advice and tips to help you run your business better.

Gene: Hey everyone, it’s Gene Marks, and thanks again for joining me for another episode of the Hartford Small Biz Ahead Podcast, where we talk about different issues and things that affect you running a business, and hopefully give you some advice to help you deal with those issues. I’m here talking with Skylar Swallow. Skylar is with Lendio. First of all, Skylar, thank you so much for joining me.

Skylar: Yeah. Of course.

Gene: Skylar, first of all, what is your title at Lendio?

Skylar: I am the VP of marketplace development.

Gene: Perfect. And tell us a little bit… I know I’ve spoken to Brock, your CEO, a number of times. I’m a big fan of Lendio as a platform. Give us the 30-second pitch as to what Lendio does.

Skylar: Yeah. Absolutely. So at Lendio, we’re a marketplace for small business lending. So we do pretty much every type of business financing out there. And recently, with the pandemic and everything that’s happened, we’ve really wanted to step in and help business owners with pandemic relief. And so we played a really big role in PPP. We also have gotten into ERC and trying to help business owners get access to the Employee Retention Credit as well.

Gene: All right. I’m really glad, because we came to the right place. We want to definitely talk to you about the Employee Retention Credit. It’s funny that you bring that up. Someone may ask, you’re listening or you’re watching this, and you’re like, why would I be talking to a fintech platform about a tax credit? But 2023, and I just wrote about this recently in The Guardian, is a… It’s quickly becoming a challenging year for a lot of businesses to get financing. We’re in a higher interest rate environment, and so it’s making financing a lot more expensive, and for startups and smaller growing companies, because of this they’re finding there are more hurdles placed in their way to get financing. And then there’s the ERC, the Employee Retention Credit, which suddenly, it’s pandemic related, but it can be a potential form of financing for a small business. So Skylar, why don’t you tell us what you know about the ERC, and then I’m sure I’ll have some questions for you.

Skylar: Yeah. Absolutely. And I can just touch on a little bit of what you’re talking about. Fintechs and tax credits haven’t necessarily been closely related in the past. I think there’s a lot of room for opportunity and growth, though, in that space. One of the things that we’ve noticed early on in ERC is a lot of the tax preparation firms, the people that do this, are less technologically inclined. So super smart individuals, understand business, understand taxes extremely well, but they don’t know how to streamline and scale processes as well. And so us jumping into this space was a great opportunity for us to provide what is part of our DNA, which is a high-tech and a smart touch solution for our clients, where they can talk to us when they need to as well as use technology to accomplish these processes that can be highly complex, and can be simplified through technology.

Skylar: But to answer your question a little bit more, Gene, just on what the Employee Retention Tax Credit is, it is a tax credit that was passed as part of the CARES Act a couple of years ago. Same legislation as PPP, for those individuals that are familiar with that. And the Employee Retention Credit is a little bit different in that it’s a payroll tax credit. So nobody has to be profitable to qualify for ERC. They really just had to be impacted in one of two ways.

Skylar: The first way that a business had to be impacted to qualify for ERC is, either they could have a revenue decrease of 20% or 50%, depending on the qualifying quarter. That’s more of the cut and dry scientific type of way to qualify. And then probably the more likely way for individuals to qualify for ERC is based on government mandates. And so they had to have a government mandate that impacted at least 10% of their business operations. And those are the two main ways to qualify.

Skylar: That second option is… On the Lendio side, where I think we have been able to identify great tax preparers that do that back end processing for us, and all of our tax preparers actually have a legal team go through every single one of our client’s files for government order qualifications. They look through a repository and a database of government orders that took place during that time, cross check that against data that we provide them based on what the business has told us about how they were impacted by the pandemic, and their legal teams provide an output that is verified, ready to go, ready to be submitted to the IRS.

Gene: Okay. So critical about whether or not you’re eligible or not, and you summed it up really, really well, there is that revenue test, or whether you’ve been impacted by COVID, either a full or a partial shutdown.

Skylar: Yep.

Gene: And there are so many businesses that were impacted by COVID in specific quarters, either in 2020 or 2021. Don’t you feel like, for starters, pretty much any restaurant in the country… I mean, even Florida had partial shutdowns during COVID, I’m from Philadelphia, our city was really shut down. I mean, not great. So first of all, wouldn’t you say there are definitely some industries, like if you’re a restaurant, if you’re watching this or listening to this and you own a restaurant, there’s no question you should be finding out if you’re eligible or not for this tax credit. Is that a fair statement?

Skylar: Yeah, 100%. Restaurants are a great industry for qualifying for the Employee Retention Credit. A lot of people don’t realize how much money is really out there for them, and that’s what we want to help them do. Other industries similar to that, like dental offices, even think of elective surgeries, orthopedic surgeons, things like that.

Gene: Fitness centers as well. I was just listening to a podcast this morning, somebody was being interviewed who runs a fitness center, and she was shut down for weeks at a time. She was in Los Angeles. So again, just being partially effective is really a big deal. And as far as the type… We’re going to get into the numbers, and just what people can be eligible for. But let’s also remember, you pointed out there’s a payroll tax, so it’s based on your employees. So it’s really, if you are eligible for this, you can get potentially money back on the payroll taxes you paid, which means that even if you had employees, so you could be a for-profit, you could be a non-profit business, just if you had payroll, then you would be part of the pool of potentially eligible people. So that’s good. Okay. Let’s talk about some dollars. So what can we get back?

Skylar: Yeah. Really great question. So the IRS… Everything is broken down based on qualification quarters. And so in 2020, individuals have the opportunity to earn up to 50% of $10,000 per employee, or $5,000 per individual employee, based on their qualifications during that period. 2021, it’s 70% of up to $10,000 in three qualification periods, Q1, Q2, and Q3. And so they can earn up to $21,000 per employee in 2021, $5,000 per employee in 2020, so total of $26,000.

Gene: So it could theoretically be $26,000 per employee that you can get back, per employee. But here’s a big however. Again, if you’re a business owner like myself, you’re probably getting lots of emails from a lot of the ERTC mills that the IRS calls them. And they’ve warned us about this. The IRS had a special notice late last year about this. Where they’re saying, “You could be getting $26,000 back from the government per employee with the Employee Retention Tax Credit.” How realistic is that?

Skylar: Not everybody’s going to qualify for the full $26,000, but it can be very substantial. So at Lendio, our average is right around $80,000, it fluctuates up and down from there. Other businesses, they’ll advertise a little bit larger credit, $300,000, 130, 150, whatever it may be. It’s largely because they’re targeting large clients. Whereas at Lendio, we want to serve both large businesses and small businesses. And so, smallest of the small, largest of the large, they’re welcome to come to us and we’d love to help them out. But not everybody’s going to qualify for that $26,000, that’s where that $80,000 average comes in, but there’s a lot of opportunity.

Gene: Okay. The reason why… We’re not having a conversation, you and I right, now about PPP, because PPP has expired. We are having a conversation about the Employee Retention Tax Credit, because that has not expired, because there is a period of time that you can file an amendment to your payroll tax return. So even if you didn’t take this credit, say in the third quarter of 2020, you still have time to go back and amend that tax return and claim that credit. So can you talk a little bit about, what’s our deadline here? What is the timeframe?

Skylar: Yeah. So we just talked about qualification quarters. So if you think of those two periods and the amounts in 2020 and 2021 that you can qualify for, the IRS gives you three years as a statute of limitation to refile amended returns. The deadline for that refiling for 2020 quarters is going to be April of 2024. And then for 2021 quarters, it’s April of 2025.

Gene: Yep. So we still have time to apply for this. It’s not until April of 2024. However, I’m sure you’re advising your clients or prospective clients that they might want to get the ball rolling sooner rather than later. And can you explain why you think that would be good advice?

Skylar: Yeah. There’s a couple of things that we can tap into there. Ultimately a lot of it comes back to what you talked and hit on at the beginning of this. A lot of businesses need access to capital right now. The IRS, at the short end, has been three to six months in processing these credits. On the long end, I’ve seen eight to 12, 12 plus. And so that’s really the urgency. Get your place in line. Obviously you can file up to deadline day, as long as everything was mailed before then you should be good to go, the IRS will process your credit. But it’s getting that cash in hand, and the longer you wait, especially with tax season coming up, you’re going to have more filings. And so the earlier you can get in, the better right now, so that you can reserve your spot in line.

Gene: All right. That’s great. So Skylar, you are competing against CPA firms and payroll companies, because they’re all out there offering this. So tell us, why would I go to Lendio as opposed to my accountant or a payroll service?

Skylar: Yeah. Great question. So if you break the Employee Retention Credit down, it’s over 170 pages of tax code, just for the credit loan. A lot of CPAs, knowing that ERC isn’t going to be around forever, haven’t taken the time to really understand that tax code inside and out. And so you mentioned the IRS’s memo on ERC mills and things like that. There’s certainly things that we can talk to, at some point in time I’m sure we’ll talk a little bit more about that, on things to avoid and watch for.

Skylar: But the biggest differentiation for Lendio is our technology. We’ve built what I think is the best ERC application that exists in the space, helps streamline all the data and documentation that you need to package up and get that in front of a tax preparer, and we’ve done the vetting for you. So we’ve interviewed a lot of different tax preparation firms, and we’ve partnered with two that we’re very confident in right now. We mentioned the process that their attorneys go through [inaudible 00:13:17] the government orders section, that was one of the prerequisites we were looking for. And these are people that we trust, that have integrity, that we feel like are doing it right.

Skylar: And so those are the two biggest reasons. Our ability to provide a quicker service, obviously you’re going to have some time that is required to process these credits, with the amount of review that is required from a CPA or from a tax attorney, but we help streamline that process through technology.

Gene: That’s great. And you just brought up something that is interesting for people that are listening or watching, is that Lendio is a fintech, a financing platform, but at the same time for this specific type of service, you’ve partnered with tax preparation firms on the backend. So there is that assurance that is being done by people that specialize in those areas. And I think that was a really important thing to say. We don’t have to get specific, but I’m curious, tell us a little bit about costs or fees or how this works. What I’m most curious about is that there are a lot of businesses that don’t know if they’re even eligible for this Employee Retention Tax Credit. And is there a cost to find out if they are eligible, or how does that work?

Skylar: Yeah. Great question. The way we’ve structured everything on our end is, we don’t want people having to worry about the cost until they know what they can actually get back. And so we charge a 15% fee based on the credit amount. That fee is not actually charged by Lendio, it’s charged by the tax preparation firms that we work with. And that’s pretty much it. And so we’ll do all the work, we’ll make sure we do everything to maximize your credit, and then we can get that number in front of you, and you can determine whether or not that makes sense for your business.

Gene: So does that mean that if I came to you, my company, I have 10 employees, and I said, “I don’t know if I’m eligible for the ERTC,” Lendio would look at it, and if you came back to me and were like, “Gene, you’re not eligible for anything, sorry,” I wouldn’t have to pay anything?

Skylar: Correct. Yep. That’s it. And we try to also save you time. What we don’t want you to do is… It can be a document intensive process. We’re talking about payroll statements and tax forms for almost a two-year period of time. And so the very first step in our process is a pre-qualification form. We want to have a clear idea whether or not you qualify, so that we don’t waste your time. So we’ll get that in front of you to begin with, and then if it looks like we should dive further, we’ll take you on and hold your hand through that process to the extent that you want us to. Again, that’s where the smart touch comes in. We have people available to talk and answer questions, or if you’ve got it on your own, the application’s pretty self-explanatory, and you can walk through it on your own as well.

Gene: Okay. I actually do have a curve ball question to throw at you, so prepare yourself here. And if you don’t know, that’s fine, but it just did come to me because you guys are a financing platform. Has there been any type of a boutique market of people that will lend money to businesses based on them getting this tax credit in the future? You’re nodding, so I’m glad that I’m not completely coming out of left field. So what have you seen? You just said it could be three to six months before we actually get it. If we needed the money now, could we get an advance on that from somebody? Have you seen that?

Skylar: Yeah. I’m going to be a little bit reserved here, because there’s some new products that we’re going to come out to market with in the near future, that we’re really excited about and we think will be a great benefit to our clients as well. That being said, yes, there are plenty of lenders that have emerged. There’s a wide variety of how they’re doing this. The biggest challenge that we ran into, we’ve piloted a few programs, currently in a pilot right now, and the one I’m most excited about will start here in the next few weeks for us.

Skylar: But a lot of these lenders are lending out the cash flow of the business. And we think there’s a real opportunity here because of the work that our tax preparation teams are doing, our partners are doing, that there’s so much validity to the credit, it is backed by the IRS, that there may be some opportunities for individuals to get into this space and provide advances on these credits that don’t require payment, or require very minimal payment, and allow that client to get cash in hand, at least a portion of the credit up front, so that they can put that to work in their business today while they wait for the IRS to process their credit.

Gene: Okay, great. Almost done here. This is great, a lot of very, very important information. I’m a CPA, so therefore I always think on the dark side. So worst case scenario, we get the Employee Retention Tax Credit, and then a year later the IRS audits me, and there’s a problem. So how would that be handled? Say we use Lendio to do this. Tell us about how you stand by the work.

Skylar: Yeah. I appreciate that question as well. Both of our tax preparation firms do provide audit support on the back end. Now, what you have to understand about an IRS audit is that they audit everything. It’s not just going to be the Employee Retention Credit that they audit. They’re going to audit everything across the board. And so that support is limited obviously to the work that they did around the Employee Retention Credit. They also will put out packets to individual clients and make sure there’s very firm, sound data backing the filing itself.

Gene: That’s good. And I do want to remind people that are listening and watching this right now, that in the end, as business owners, our tax returns are our responsibility. So Lendio can do their services and that’s great, but we’re the ones that are going to be signing off on it. And if there are any problems, this isn’t just necessarily the Employee Retention Tax Credits, anything on the tax returns, the IRS comes to us, because the buck stops with us. So we should always be reviewing the calculations that outsiders are doing on our behalf, just to make sure that we understand them, before we put our signature to the page.

Gene: Skylar, this has been great. Is there anything else that I’m not asking you or mentioning, either about the ERTC or Lendio’s services around them?

Skylar: No, I don’t think so. I think we’ve covered the basics and a lot of the other things just get more nuanced file by file. This is one of those things that is highly complex when you dive into it. There’s a lot of nuances to the program. The overall high level view is pretty self-explanatory and cut and dry. But when you start getting into actual preparation of these files, it does get highly complex. And so I just recommend that, whether you go with us or someone else, make sure that you have some experts on your side that understand this thing inside and out.

Skylar: And to your point, Gene, obviously there are certain aspects of our process that we have to rely on the customer telling the truth and giving good integrable answers. And so obviously in the event of an audit, if the answers that were given to us at certain stages of the process aren’t correct, obviously we can’t do anything there, but as long as everybody is honest, straightforward, to the point, I think we provide a pretty great service. And there’s other great individuals out there as well. I know people have great relationships with their CPAs and things like that, but just have that professional that can help you through the process.

Gene: Great. Skylar Swallow is with Lendio. We’ve been talking about the Employee Retention Tax Credit. Thank you so much for joining us. It’s at Lendio.com, correct?

Skylar: Yeah, Lendio.com. You can find it under ERC, or just search ERC Lendio and you’ll be able to find that online.

Gene: Thank you, Skylar. That was great. Thank you so much. And thank you guys for listening and watching The Hartford Small Biz Ahead podcast. My name is Gene Marks. If you have any advice or if you need any tips or help in running your business, please visit us at smallbizahead.com, or sba.thehartford.com. Again, my name is Gene Marks. Thank you so much for listening or watching. We will see you again very soon. Take care.

Gene: Thanks so much for joining us on this week’s episode of The Hartford Small Biz Ahead podcast. If you like what you hear, please give us a shout-out on your favorite podcast platform. Your ratings, reviews, and your comments really help us formulate our topics and help us grow this podcast, so thank you so much. My name is Gene Marks. It’s been great spending time with you. We’ll see again soon.

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