Significant developments in PPP and Main Street Lending programs
– Week of April 27, 2020
- Late Thursday, the IRS issued Notice 2020-32. In this notice, the IRS outlines that any expenses associated with loan forgiveness under the CARES Act Section 1106 (i.e.: covered payroll costs, rent, utilities, etc.) are not deductible for income tax purposes. This converts loan forgiveness from a non-taxable event into a taxable event. It remains to be seen if Congress intervenes and clarifies whether forgiveness was intended to be taxable.
- Also Thursday, Treasury and the SBA issued the 7th Interim Final Rule. This Rule limits the total amount of loans available to any corporate groups at $20,000,000.
- Earlier in the week, Treasury and SBA issued the 5th and 6th Interim Final Rules. These rules provided some clarification on the disbursement of funds and the start of the 8-week period. It confirmed what we already thought – all the funds must be disbursed at one time, within ten calendar days of loan approval and the eight weeks starts on the disbursement date. They also provided relief to certain seasonal employers by allowing them to base their loan amount on any 12-week period between May 1 and Sept 15, 2019. However, they did not address the fact that the eight weeks for forgiveness may not line up with the higher payroll months on which the loan was based.
- Finally, SBA and the Treasury issued several new FAQs this week. Most speak to the negative publicity the program has received surrounding larger, apparently well-capitalized companies getting loans and the meaning of the self-certification statement. The SBA announced it will review the files of any loan over $2,000,000.
They also issued an FAQ indicating a company that has had an ownership change after 2/15/20 may still be eligible for a loan even if the ownership change was in the form of an asset sale. We previously thought the new company would not have been considered to be in business on 2/15 but, with this clarification, the new company can use the payroll records and FTE data of the old company.
All the Interim Final Rules and FAQs can be found here: https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses
- Main Street Lending Program. The federal reserve released additional information on the Main Street Lending Program on Thursday. For businesses that are too big for a PPP loan or that have additional cash flow needs, the Main Street Lending programs may provide additional liquidity.
- An exemption for distributions paid for taxes (the CARES Act had indicated no dividends/distributions could be paid)
- A third lending option (there are now three different loan types under the program)
- 15,000 or fewer employees or annual revenue of $5B or less. (Note: Different from CARES Act in that employee size was 500-10,000)
- Can have a PPP loan and this loan, but cannot have other funding under CARES Act (i.e. funding for airlines, cargo carriers, and national security loans)
- Information on borrowers will be made public: names, type of loan, loan amount, interest rate, and types and amounts of collateral pledged.
- The program is fairly restrictive in what you can do now and in the future. We recommend that anyone interested should thoroughly understand the requirements.
Here are links to the release and to the FAQs:
https://www.federalreserve.gov/monetarypolicy/files/main-street-lending-faqs.pdf
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200430a.htm