$349 Billion Paycheck Protection Funding Hits Loan Limit

On April 16th the SBA posted on their website that they could not “accept new applications at this time for the Paycheck Protection Program or the Economic Injury Disaster Loan (EIDL)” programs based on a lack of appropriations. In other words the programs have quickly run through the funding offered in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). While Congress, Treasury, and the President are negotiating additional appropriations above the initial funding of $349 Billion, it begs the question, what do businesses do now?

First off we want to stress that businesses that have been approved for funding through the Paycheck Protection Program (PPP) or who have applied for the EIDL should not worry about the status of their applications. That said companies that were waiting to apply will now be put in a holding pattern to see if Congress will appropriate more funds. While they are waiting what can businesses do to ensure cash flow in the coming months.

Income Tax Provisions:
The CARES Act contained many favorable income tax provisions. This included relaxing the rule around Net Operating Loss carrybacks, allowing for the immediate expensing of Qualified Improvement Property, and increases to the amount of business interest that companies could write off. All of these are favorable to many businesses and may allow them to amend their 2019, 2018, and potentially older returns to recapture overpayments in taxes. For many businesses this could lead to increased cash flow in the short term. Additionally there are tax credits related to employee retention, and delays in employer payroll taxes that companies are eligible for if they do not participate in the PPP.

Reducing Costs:
Most businesses have already gone through some level of cost reduction. Businesses in the coming weeks will have to look very closely at their expenditures to ensure unnecessary expenditures are not being made. Unfortunately for some businesses this could mean additional layoffs or staff reductions. While the PPP required that staffing and salary levels remained relatively stable, the law does allow companies to rehire employees without losing their PPP forgiveness. For many companies hard decisions will have to be made in the coming weeks and months.

The current lack of appropriations does not mean that these programs are gone for good. Congress, Treasury, and the President are currently negotiating an additional $250 billion to keep the program afloat. However without the security of these programs businesses need to look at additional measures to ensure continued operations. If you have any questions about the CARES Act or ways specialty tax studies can generate cash flow in this trying time, please reach out to your McGuire Sponsel representative.