After months of partisan disputes, on December 20, 2020, Congress negotiators finally agreed on a new $ 900 billion aid package for Covid, including an additional $ 284 billion for the Small Business Paycheck Protection Program (PPP), which was created as part of the original coronavirus help. Aid and Economic Security Act (or CARES Act) in March.
This new package provides additional funding for companies that did not receive PPP money in the first round, especially minority and women owned companies. Additionally, it gives companies a second chance at PPP money if they experience significant losses in 2020 from their 2019 earnings. The exact percentages have yet to be determined.
The bill also addressed what is probably the biggest open issue with PPP: the deductibility of the expenses paid on the forgivable loan. The previous position of the Trump administration, largely led by Treasury Secretary Steven Mnuchin, has been that corporations could not, as usual, deduct expenses paid with PPP funds because the loan is forgivable and not taxable income. According to the administration, the tax deductions would be “double-immersed” in addition to the grant. The business community has been in turmoil over this adverse tax consequence, which is now being corrected.
How small businesses can benefit from a new aid package
In addition to the tax break, the new invoice offers small businesses the following:
- Funds for companies that have received the first round of PPP funds but can qualify for another bite of the apple if they can see significant losses in 2020 in 2019
- Funding for nonprofits and news agencies that were ineligible in the first round
- $ 15 billion for live venues, independent cinemas, and cultural institutions
- $ 20 billion in targeted grants under the Small Business Administration (SBA) Economic Injury Disaster Loan Program
- Tax deductions for business lunches
- Funds designed for “very small” businesses that provide loans through municipal lenders such as Community Development Financial Institutions (DDFIs) and Minority Depository Institutions (MDIs). This includes $ 9 billion in U.S. Treasury capital investments in CDFIs and MDIs, and $ 3 billion in the CDFI fund to support low-income and underserved communities.
PPP loan forgiveness
The PPP program closed on August 8, 2020 after approximately 5.2 million companies applied for and received the loans. If companies use the funds in accordance with the regulations, including spending at least 60% on payroll to keep employees and the additional funds for rent, utilities, mortgage payments, and interest on existing debts, they can seek forgiveness and that Loans obtained convert into a grant that does not have to be repaid. In particular, due to confusion and concern about the program, approximately $ 130 billion in funds were not used at the end of August.
Most of the companies that have received PPP loans have started asking for forgiveness. The process includes applying by the lender who provided the loan and providing documentation that the funds were used appropriately. For most companies, this means that the payroll is documented through reports. Most payroll companies specifically provide this for this purpose and the expense receipts. Lenders have 60 days to review and approve the application before submitting it to the SBA for review. The SBA has 90 days to approve the application or request further information from the borrower.
Other items from AllBusiness.com:
On October 8, 2020, the SBA, along with the Treasury Department, issued new guidelines that will allow borrowers with PPP loans of $ 50,000 or less to self-certify that they have used the money appropriately and receive full forgiveness. While this final tentative final rule, dealing with the PPP loans, continues to require borrowers to submit documentation such as a payroll service provider, it provides a new, simplified form and “check the box” procedure for forgiveness. Borrowers can use the new SBA Form 3508EZ to apply or wait for their lenders to update their online application portals.
The SBA justified this relaxation of the requirements because the majority of PPP loans were less than $ 50,000. According to the SBA, there are 3.57 million outstanding PPP loans of $ 50,000 or less of the 5.2 million issued, which equates to approximately $ 62 billion of the $ 525 billion PPP loans.
This exemption has long been sought by lenders and the business community, albeit at a higher level. Initially, these interested parties asked for forgiveness of $ 1 million, or between $ 250,000 and $ 500,000. Those numbers proved too ambitious and the SBA settled on the $ 50,000 level.
Assessment of the “economic uncertainty”
Companies that have received loans over $ 2 million are not so lucky. The SBA has stated all along that these borrowers are under scrutiny. However, on October 26, 2020, the SBA released a draft Form 3509 asking borrowers to document their economic uncertainty at the time they applied for the PPP loans. In the first applications, all borrowers had to confirm that “the current economic uncertainty makes this loan application necessary to support the day-to-day operations of the applicant”. Typically, when applying for an SBA loan, borrowers are required to demonstrate that they do not have adequate liquidity or credit elsewhere. Hence the credit is required. SBA did not request this for PPP, and now it appears that certain borrowers will need to document their needs retrospectively or possibly be refused forgiveness and face legal ramifications.
The new form would require information such as gross earnings, cash on hand, dividends and distributions, outstanding debt, and compensation from highly paid owners and employees. Despite the fact that it is less desirable for many companies to provide this information to the government, how the SBA will assess the “economic uncertainty” at the onset of the Covid pandemic also arises. While some businesses spun, survived, or even thrived, they couldn’t predict the economic impact of Covid in March 2020. Now, along with the passage of this new aid package, the SBA, they are facing another phase of lockdowns and restrictions. It will be difficult to find companies that don’t deserve PPP loans and subsequent forgiveness.
The Associated General Contractors of America filed a lawsuit against the SBA and the Office of Management and Budget on December 8, 2020, alleging that these new forms and disclosures were both procedurally incorrect and a violation of due process. The procedural argument is based on the fact that the SBA did not publish the new forms in time for comments. The due process argument, which is likely to have more merit, is based on the fact that companies shouldn’t be held responsible for successfully weathering the Covid storm after self-certifying the need for PPP funds. Many interested parties will be closely following this litigation.
While the new aid package will certainly be welcomed and desperately needed by small businesses, it remains to be seen whether the money will go to the small businesses that really need it to survive, or whether the same well-resourced, larger companies will raise the funds. And as always, we can expect new and evolving regulations, probably in the near future.
RELATED: SBA Facilitates Paycheck Protection Program Loans Of $ 50,000 Or Less
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