May 4, 2020

Understanding All Of The Loan, Tax Benefits Available To Businesses During COVID-19

Federal Reserve’s Main Street Lending Program

The Federal Reserve announced on April 30 that it will expand the size and scope of its Main Street Lending Program (MSLP), which, when it opens, will provide loans to businesses struggling to keep their door opens in the face of the coronavirus pandemic. (Updated term sheets for each of the Fed’s three MSLP loan facilities are within the announcement.)

While it is still not clear yet when the program will be ready to take applications, the Federal Reserve said the MSLP will provide loans to companies with up to 15,000 employees or up to $5 billion in annual revenue, an increase from the 10,000 employees and $2.5 billion in revenue that originally had been proposed in the Fed’s initial announcement about the program.

Along with this change, the Federal Reserve announced key reforms that the Metals Service Center Institute (MSCI) called for, including clarifying that pass-through businesses’ distributions do not exclude companies from the program and a resolution of the credit calculation issue MSCI had raised in its April 16 comments about the MSLP.

To help broaden their understanding of the MSLP, MSCI recommends that its members check out the following resources:

  • The National Association of Manufacturers overview of the MSLP, which is available here.
  • The Federal Reserve’s comprehensive FAQ document.
  • An magazine webinar, which outlines when a company should apply for the MSLP and is available here.
  • Our own webinar with experts from the U.S. Chamber of Commerce, which is available here.

U.S. Small Business Administration’s Paycheck Protection Program

On April 27, the U.S. Small Business Administration (SBA) relaunched its Paycheck Protection Program (PPP), which provides forgivable loans to businesses with up to 500 employees. The move came after Congress passed and President Donald Trump signed legislation granting $310 billion in additional loan authority for the PPP. Ahead of the rollout, SBA released several new documents, including:

  • An overview of how companies can estimate their expected loan amounts.
  • An Interim Final Rule on corporate groups and non-bank and non-insured depository institution lenders that limits PPP loan amounts to $20 million for corporate groups, which are defined as businesses that are “majority owned, directly or indirectly, by a common parent.”
  • An updated Frequently Asked Questions

Additionally, while the SBA still has not released guidance on how the forgiveness of PPP loans will work, in new guidance issued May 1, the Internal Revenue Service explained how it will handle the tax treatment of deductible expenses for businesses receiving PPP loans. To prevent a “double tax benefit,” for example, the IRS will not allow taxpayers to deduct trade or business expenses (e.g., payroll) associated with forgiven PPP loans, which under federal legislation are not considered as taxable income. KPMG summarizes the IRS guidance here.

On May 3, the SBA and Treasury announced that, within six days of the PPP reopening, 2.2 million loans were approved with a total value of more than $175 billion. The average loan size since April 27 was $79,000. Click here to read SBA’s report that discusses where these loans are going.

Even though the new tranche of PPP money is going fast, businesses should still apply since Congress may decide to replenish it when it runs out. And because there is money set aside for smaller lenders, small businesses should check with their local banks or credit unions to see if they are offering PPP loans.

As a reminder, on April 29, MSCI hosted a webinar with experts from the U.S. Chamber of Commerce to discuss the PPP. Click here to watch.

More PPP information is available at www.SBA.gov/PaycheckProtection and www.Treasury.gov/CARES.

Other Aid Available To U.S., Canadian Businesses During COVID-19

In the event a U.S. business does not want, or cannot get access to either the U.S. Small Business Administrations’ Paycheck Protection program or the Federal Reserve’s Main Street Lending Program, it should consider other options to obtain federal aid during the COVID-19 pandemic. These include:

  • The Employee Retention Tax Credit, which is a $5,000 tax credit per employee for businesses who have been shut down or experienced a 50 percent drop in gross receipts. Last week, the Internal Revenue Service issued additional information about this program, which is available here. (Interested companies also can click here for the U.S. Chamber of Commerce’s guide to this program, and magazine has more information here.)
  • The SBA’s Economic Injury Disaster Loan (EIDL) Program, which provides grants of up to $10,000 for businesses. SBA’s information about the program is available here.
  • The IRS also has issued guidance for the CARES Act’s net operating loss (NOL) carryback provision. This provision allows companies to use tax losses from 2018, 2019, and 2020 to offset income from the prior five years. A new tax deadline extension also builds on prior IRS guidance and now allows firms to delay certain estimated tax payments. Per the IRS, “any individual or corporation that has a quarterly estimated tax payment due on or after April 1, 2020, and before July 15, 2020, can wait until July 15 to make that payment, without penalty.” A press release on the IRS action can be found here, and the guidance document can be found here. The IRS has announced it will be accepting claims by fax, rather than hard-copy mailing, for net operating loss refunds. More information on the temporary faxing process can be found here.

For more information on these programs, and for other important advice on how to lead and manage through this crisis, MSCI recommends visiting BDO’s COVID-19 portal, available here.

Information about the Canadian government’s financial and economic support programs is here.