This is why a second spherical of small enterprise PPP loans might fall brief
Senator Mitt Romney, R-Utah speaks as non-partisan members of the Senate and House of Representatives gather to announce a framework for new laws to fight coronavirus at a press conference on Capitol Hill on December 1, 2020.
Kevin Lemarque | Reuters
Senate Majority Leader Mitch McConnell, R-Ky., Overturned a new Covid-19 bailout bill hours after its proposal on Tuesday, leaving small businesses unsure of their future.
Bipartisan lawmakers launched a $ 908 billion aid package Tuesday morning. The measure was dead in the water that afternoon when McConnell refused it.
The move would have earmarked $ 288 billion in aid to small businesses, including the offer of a second round of corporate loans under the Paycheck Protection Program – a forgivable loan program established by CARES this spring.
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PPP loan recipients are generally eligible for loan if they use at least 60% of the proceeds to cover labor costs. Those who fall below the threshold can be partially forgiven.
McConnell’s veto sends lawmakers back to the drawing board where they may have another opportunity to tweak the business relief.
Just offering more PPP funds may not be enough for companies with financial difficulties, tax experts said.
“You will have a group of people who will be concerned about getting more PPP funding,” said Megan Gorman, founding partner of Checkers Financial Management in San Francisco.
“They didn’t get the guidance they needed for the first round and they are figuring out if they can do it,” she said.
Constantly changing instructions
Senator Angus King (I-Maine) holds a card as non-partisan Senate and House members gather to announce a framework for new laws to fight coronavirus at a press conference on Capitol Hill on December 1, 2020.
Kevin Lemarque | Reuters
Aside from offering a second PPP loan draw, the proposal, repealed Tuesday, would have ensured that recipients of aid would not be taxed in the first round of forgivable loans and it offers simplified forgiveness for loans under $ 150,000, said Rep. Josh Gottheimer, DN.J., at a press conference on Capitol Hill Tuesday morning.
He was among the lawmakers working on the proposal.
More than 5 million PPP loans were approved earlier this year – $ 525 billion.
The program encountered some difficulties during the year, including the steady introduction of “Frequently Asked Questions” guidelines from the Treasury and Small Business Administration.
Another point of contention was whether small businesses could deduct expenses covered by the loan.
The position with the Treasury Department and the IRS was that borrowers cannot deduct expenses as the loan is tax free. On the other hand, the legislature has proposed laws that allow depreciation.
The Treasury and IRS said last month that business owners who “reasonably believe” that their PPP loans will be made cannot deduct the cost.
All of this has created more confusion for businesses: if the expenses can’t be deducted, they can increase their income on paper and increase their tax burden, according to tax professionals.
The new framework legislator released on Tuesday mentions “deductibility” but it doesn’t give details on how that would play out for small businesses.
Cold feet from potential borrowers
Even if small businesses could use the funds, they are skeptical when it comes to getting help that creates more complexity and uncertainty.
“From this first round, you will have post-traumatic stress disorder,” said Tony Nitti, CPA, partner with RubinBrown Tax Services Group in Denver.
“If they fix the problems from the first round, borrowers will have more interest,” he said. “If people know that there is a lump sum loan of less than $ 150,000, a lot of people will sign up for it.
“But nobody wants to go through this process that we have gone through again,” said Nitti.