The U.S. Capitol is located in Washington, DC, United States on Thursday, October 1, 2020. Talks between Spokeswoman Nancy Pelosi and Treasury Secretary Steven Mnuchin on Thursday did not result in an immediate breakthrough in agreeing a new pandemic relief package as the House prepared to vote on a Democrats-only plan.
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Millions of small business owners on Main Street are running out of time. It’s not just another round of money they need from Washington to avoid contagion. You need clarity how to get forgiveness for the $ 525 billion paycheck protection program (PPP) Loans they received under the CARES Act. They also need to know the tax ramifications that await them if they apply for a loan by the end of the year.
The prospects for government relief remain bleak. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin continue to work to resolve differences over coronavirus stimuli 13 days before the U.S. presidential election. In the meantime, the small business sector is in the crosshairs of political game art.
Finance and Small Business Administration guidelines are not yet available on this critical issue. The SBA opened its lending portal for its PPP loans in August. Loans are forgivable when borrowers use at least 60% of the proceeds for labor costs. Even if a company breaks below the threshold, partial forgiveness can be an option.
A sensitive issue is whether PPP loans are taxed as ordinary business income or whether they are deductible as an expense. To date, 5.5 million small business owners have received PPP funding.
The SBA did not respond to a request for comment at the time of going to press.
“This is the biggest challenge small businesses face today, and policy makers are so preoccupied with struggling with each other that they are not dealing with the ramifications of PPP lending and all of its implications,” says Rohit Arora. CEO of Biz2Credit, an online small business business loan marketplace that partnered with the American Institute of Certified Public Accountants in August to create a free loan Lending tool. So far, 40,000 companies have applied for a package and 12,000 have applied for lending.
“The bottom line,” says Arora, “is that if this isn’t done right, more businesses on Main Street could go out of business. The government is only giving you one chance to seek forgiveness. My advice is not to yourself to hurry up. ” Be very thorough. Work with your CPA and all of your financial advisors. “
According to experts like Erik Asgeirsson, President and CEO of CPA.com, definitive FAQs on Treasury and SBA on forgiving PPP are expected soon, so many accountants, bankers and small business owners are waiting for the definitive guide.
“We think it is very likely that legislative action will be taken in this regard,” said Asgeirsson. “The hope is that loans under $ 150,000 will be lumped. But Washington has to work out the rules before the end of this tax year, we can’t wait until 2021.”
Arora insists, “This is not and should not be treated as a federal TARP program. What happened to the millions of business owners on Main Street earlier this year due to the coronavirus pandemic and economic shutdown was not their fault.”
In contrast, the US Treasury Department launched the $ 700 billion Troubled Asset Relief Program (TARP) to help the country’s banks after the 2008 financial crisis due to subprime mortgage loans.
Meanwhile, Asgeirsson says, “Accountants, auditors and bankers are trying to advise clients on what to do and everyone is crawling.” As he explains, so many business owners are in financial trouble and want to avoid problems with the IRS for the next year. It would be a double blow that could force them to close the shop.
Michael Lamela, CPA in Scotch Plains, New Jersey, has not applied for PPP loans for any of his clients. “I think it’s better to wait on the edge for the dust to settle.”
“Many banks are unable to cope with the volume of filing and before investing in technology infrastructure they want final legislation that sets out all tax and legal guidelines.”
Sean Flannery, a coronavirus survivor and co-owner of Sheelen’s Crossing, an Irish pub and bistro in Fanwood, New Jersey that employs between 15 and 24 people at different times of the year, has yet to apply for a PPP loan – over 50,000 Dollars he had received in June. “Without this help, however, we would not have made it. We would have had to close all of our employees and take leave of absence. We are waiting for the government to submit documents for the full approval of the loan.”
In the meantime, he has kept records showing how funds were spent on payroll and other expenses, and has kept formal books and records in preparation for the final guidelines.
Many senators and members of Congress recognize this is a problem and have put legislation in place to address this problem. The Small Business Paycheck Protection Act North Dakota Republican Senator Kevin Cramer, a member of the Senate Banking Committee, is co-sponsored by 30 Senators and supported by over 200 trade groups, credit unions, and the National Federation of Independent Business.
The bill streamlines forgiveness for Paycheck Protection Program (PPP) loans of $ 150,000 or less when the borrower presents a simple, one-page certification form to the lender. The roughly 4.2 million PPP loans of $ 150,000 or less make up 85% of all loans approved by PPP, but only 26% of the PPP funds delivered.
For business owners who have borrowed $ 50,000 or less, the SBA introduced a unilateral application for these smaller loans. It takes 15 minutes to complete the whole process for the 1% loan to be waived. However, many bankers report that the development cooperation form, which companies who meet certain qualifications can use to apply via a simplified process, is not as simple as advertised. It still requires some complicated calculations to be performed.
According to the Consumer Bankers Association, it is estimated that up to 80% of requests for forgiveness submitted by small businesses will require additional follow-up for banks to correct errors or find missing information.