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Small business owners with troubled finances could receive additional funding from the paycheck protection program.
On Wednesday, lawmakers from both sides of the aisle handed out a summary of their $ 908 billion emergency aid package from Covid.
The proposal allocates $ 300 billion to the Small Business Administration, the federal agency responsible for overseeing the paycheck protection program – a forgivable loan created by the CARES Act.
The move, known as the bipartisan COVID Emergency Relief Act of 2020, would also include weekly additional unemployment payments of $ 300 as well as an extension of the forbearance of student loans through April 2021.
Funding would strengthen PPPs and provide more money to the hardest hit companies.
In general, borrowers are eligible for PPP lending if they use at least 60% of the proceeds on payroll. Partial lending may be available to those who don’t reach this threshold.
Any amounts not wiped off must be repaid and are subject to an interest rate of 1%.
In total, more than 5 million PPP loans were approved for a total of $ 525 billion.
Second draw for toughest hit
The bipartisan framework would allow the hardest hit businesses to take out a second forgivable PPP loan.
Eligibility for a second drawing of PPP cash would be limited to small businesses with no more than 300 employees that experienced a 30% loss in revenue in each quarter of 2020.
“Given the inequality in access to the first tranche, they may have had trouble getting the first loan at first,” said Garrett Watson, senior policy analyst at the Tax Foundation.
Large companies that had relationships with banks had their first problems with credit as early as the spring.
“Some small businesses had no access to it at all,” said Watson.
The proposal also provides for funding to ensure that smaller borrowers – namely businesses with 10 employees or less – and underserved communities receive assistance.
Forgiveness and deductibility
The proposal also expands the list of forgivable expenses covered by PPP revenues to include supplier costs, investments in plant modifications, and personal protective equipment required for safe operation.
Legislators also suggest simplifying the award process for those with loans of $ 150,000 or less.
Although the PPP loan is tax-free, according to the Treasury Department and the IRS, entrepreneurs currently cannot claim a deduction for the covered business costs.
The bipartisan proposal addresses this issue by allowing these deductions “in accordance with the intent of Congress in the CARES Act” under the Framework.
Given the inequality in access to the first tranche, they may have had problems getting the first loan at first.
Senior Policy Analyst at the Tax Foundation.
Indeed, lawmakers on both sides of the aisle have enacted laws that would allow corporations to do the write-offs.
Industry groups and tax experts have stated that not allowing these deductions would increase the tax burden.
Meanwhile, the Treasury and IRS said last month that business owners who “reasonably believe” that their PPP loans will be made cannot deduct the cost.
The timing of the proposal is crucial, said Watson.
“Hopefully it will clarify where companies are at the start of the tax season,” he said.
“I think part of this is because there are more runways for companies to have clarity about how their tax position will develop over the next year,” said Watson.