Small businesses that have filed for bankruptcy, or nearing that step, might get their own shot at a Small Business Administration Paycheck Protection Program loan under a stimulus provision being debated in Congress, the Washington Business Journal reported. The proposal, filed as part of broader stimulus measures last week by Sens. Marco Rubio (R-Fla.) and Susan Collins (R-Maine) would allow the SBA administrator to open the forgivable loan program to companies that are, or plan to be, in bankruptcy proceedings — a category of businesses that the SBA had initially shut out of the PPP. The bankruptcy court must agree to grant these businesses a PPP loan, which would then receive a “super priority” designation to ensure the SBA would be paid back for any unforgiven portions, according to the proposal. The move could open up the PPP to thousands or more companies mired in the bankruptcy process as the coronavirus pandemic drags on and local economies struggle to reopen. The CARES Act, which created the PPP when it was passed in late March, was silent on the issue of awarding loans to those in bankruptcy, said Eric Holland, a partner at law firm Reed Smith LLP. But SBA regulations for the program barred companies from getting a PPP loan while in bankruptcy, or even if they were planning to declare bankruptcy in the near future — and that put stress on business owners genuinely uncertain about their company’s future or fearful that they may eventually need to head down the bankruptcy path, Holland said. The SBA's prohibition was modeled after its traditional lending programs, one of several such rules it applied to the PPP that block certain businesses from participating, including chambers of commerce and adult-oriented businesses. That has made the SBA the target of a series of lawsuits, and Holland said courts have been split on whether companies in bankruptcy should be allowed to participate in the PPP. Read more.
In related news, a group of more than 170 trade associations is urging Congress to allow businesses to get tax deductions for expenses associated with loan forgiveness under the Paycheck Protection Program (PPP), The Hill reported. "As part of the next round of COVID19 relief, we request that Congress reaffirm its intent and restore the tax benefits it intended to give distressed Main Street businesses as part of the CARES Act," the groups wrote in a letter this week to House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Mitch McConnell (R-Ky.). Groups that signed the letter include the American Farm Bureau Federation, American Institute of CPAs, the National Retail Federation and the National Association of Home Builders. Under the PPP, created by legislation President Trump signed in late March called the CARES Act, small businesses can get loans that are forgivable if the proceeds are used for payroll, rent, mortgage interest and utilities. The CARES Act specified that forgiveness of PPP loans is not taxable income. The IRS in April issued guidance stating that expenses are not deductible if payment of the expenses results in a PPP loan being forgiven. The guidance has been criticized by some key lawmakers on both sides of the aisle, who argue it goes against congressional intent. But Treasury Secretary Steven Mnuchin has defended the guidance, saying that businesses can't "double dip." The industry groups pushed back on the argument made by supporters of the IRS guidance. Read more.
