A dreary winter awaits small companies amid Covid’s aid efforts

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It will take more than a second paycheck protection program draw to get the most vulnerable small businesses through the winter, tax experts say.

Congress is back to work out new relief measures this week. House Speaker Nancy Pelosi and Senate Minority Chairman Chuck Schumer backed a bipartisan $ 908 billion stimulus plan on Wednesday while Senate Majority Leader Mitch McConnell pushed ahead with his $ 500 billion package.

Both plans allow the stricken business owners to draw another draw from the Paycheck Protection Program – a forgivable credit program designed for battered businesses.

Typically, applicants under the program are eligible for loans if they use at least 60% of the proceeds towards payroll expenses. Those who fall short can be partially forgiven.

According to the Small Business Administration, more than 5 million PPP loans have been approved, which is $ 525 billion.

However, tax experts and entrepreneurs say these efforts are falling short – especially for bars and restaurants that again face the prospect of closing their doors on rising Covid-19 cases.

“If you turn on the TV and hear that by the end of the vaccinations, the pandemic will be under control in the second or third quarter, you will have to survive for more than six months by 2021,” said Ed Zollars. CPA and partner at Thomas, Zollars & Lynch in Phoenix and trainer at Kaplan Financial Education.

“How do you pay the six month bills if you are a restaurant that has little or no revenue?” he asked.

PPP and another loan program, Economic Injury Disaster Loans, have come under fire due to the risk of fraud, abuse by bad actors, and the fact that large, well-established companies with lender links have received millions of dollars.

Further attempts to fund small businesses with emergency funding need to be revised to ensure that funds go to companies that really need them.

“We had to close, reopen, and close – we are constantly building inventory that costs money that is unforgivable,” said Kevin Boehm, co-founder of the Independent Restaurant Coalition and co-founder of the Boka Restaurant Group in Chicago.

“”[Restaurants] were disproportionately affected by the pandemic, but we are the ones who haven’t received the PPP loans for most of the time, “he said.

About two months of funding

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With the introduction of PPP under the CARES Act on April 3, applicants were able to take out two and a half months of payroll or $ 10 million in loans.

This was a major issue for small businesses, especially bars and restaurants, as much of the land was under lockdown and there was no certainty when the restrictions would be lifted.

“That is the fundamental flaw in the program when it started,” Zollars said. “‘We pay two and a half months of wages and after eight weeks everyone would be back to normal.’ That was enough to get us through. “

Entrepreneurs faced with reopening restrictions used PPP funds to pay workers to stay home or work fewer hours.

The CNBC | SurveyMonkey Small Business Survey for Q4 2020 has broad support for another round of Covid-19 incentives and relatively high support from small business owners from both political parties for more funding for the Paycheck Protection Program.

Q4 2020 CNBC | SurveyMonkey Small Business Survey

The entrepreneurs also had eight or 24 weeks to use the proceeds, but some ran out of funding well before the end of the period

“With the CARES Act, the theory was that eight weeks would solve the problems,” Zollars said. “It didn’t. We’ve been playing around there ever since.

The future looks even worse as the cases of Covid-19 cases spin and the prospect of being at home restrictions resurfaces.

“Winter is coming literally and metaphorically for many businesses in America, and those businesses focus on a few sectors – mostly food and lodging are high on the list,” said Brett Theodos, Senior Fellow and Director of Community Economic Development Hub at the Urban Institute.

Not just loans

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Rather than just having access to a second line of credit, experts believe a combination of tax credits and employer grants will be required to help the hardest hit businesses in the months ahead.

For example, California Governor Gavin Newsom announced on Monday a three-month extension for taxpayers paying less than $ 1 million in sales tax as well as $ 500 million in small business grants.

The relief comes precisely when many districts of the Golden State reinstate the strictest restrictions.

In the meantime, there are legislative efforts to provide grants for pub bars and restaurants.

The 2020 Restaurants Act made it into the previous home pandemic relief act, the Heroes Act. However, it is missing from the bipartisan framework proposed this week.

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“It’s like they took us into the desert with no water and wondered why we were thirsty,” said Boehm of the Independent Restaurant Coalition.

“There’s no indoor dining in Chicago,” he said. “We have definitely led, and we still cannot get a specific bill for our industry.”

Tax professionals also target tax breaks for employers with sick or paid workers.

The law that introduces these loans, the Families First Coronavirus Response Act, expires later this year – just as Covid-19-related hospital stays hit new highs.

“I think it’s still 30 days, but if they let that go – even if it’s reintroduced retrospectively – it’s going to cripple people across the country,” said Adam Markowitz, registered agent and vice president of Howard L Markowitz PA CPA in Leesburg, Florida.

Individuals also need relief, including the $ 1,200 stimulus testing that was noticeably lacking in the recent proposals.

“If consumer spending falls, it will have an impact on companies that are not directly affected by Covid, but whose consumers are affected and stop spending,” Zollars said.

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