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The White House has begun informal talks with Republicans and Democrats in Congress about what to include in another round of coronavirus relief legislation, officials said yesterday, while predicting further U.S. jobs losses in the coming months, Reuters reported. Officials in President Donald Trump’s administration, including Treasury Secretary Steven Mnuchin and White House economic adviser Larry Kudlow, said they were holding discussions with lawmakers on issues including potential aid to states whose finances have been devastated by the pandemic. Another White House economic adviser, Kevin Hassett, said future legislation could include food aid to help Americans struggling with hunger amid widespread job losses that have ruined the finances of many people. It also could include broadband access for those who lack it, Hassett added. While Democrats, who control the House of Representatives, are moving to unveil new legislation as early as this week, the White House signaled it is in no hurry to pass another relief bill. Since early March, Congress has passed bills allocating $3 trillion to combat the pandemic, including taxpayer money for individuals and companies to blunt an economic impact that includes an unemployment rate to 14.7% in April after U.S. job losses unseen since the Great Depression of the 1930s. “We just want to make sure that before we jump back in and spend another few trillion of taxpayers’ money that we do it carefully,” Mnuchin said. “We’ve been very clear that we’re not going to do things just to bail out states that were poorly managed.” Hassett said that the U.S. unemployment rate could rise to somewhere “north of 20 percent” in May or June before the economy moves into what administration officials have said will be a robust recovery in late 2020.

The Small Business Administration did not direct private lenders to prioritize minority- and female-owned businesses as Congress intended when they started implementing a $669 billion loan program under the CARES Act, a federal watchdog concluded in a report released on Friday, the Washington Post reported. The findings from the SBA Office of the Inspector General add to growing concerns about whether $2 trillion in Cares Act stimulus funds are being distributed fairly amid the economic fallout from the coronavirus. Last month, the Treasury Department had to warn well-capitalized, publicly traded businesses that they would probably not be eligible for the program after several national brand names reported receiving tens of millions of dollars in loans under the Paycheck Protection Program (PPP), while many small businesses without strong banking relationships struggled to get loans. In the report, SBA Inspector General Hannibal “Mike” Ware listed the failure to incorporate guidance on lending to businesses in underserved communities among the possible SBA failures in complying with the CARES Act — although he concluded that the SBA has “mostly” been aligned with the legislation.

When the federal government relaunched its small business aid program on April 27 with an additional $310 billion, lenders and business advocates warned the money would dry up within a few days, the Wall Street Journal reported. Nearly two weeks later, more than 40 percent of the money remains available, according to figures released yesterday by the Small Business Administration, even as small businesses continue to suffer from the fallout of the coronavirus pandemic. Several factors appear to be behind cooling demand, including the Treasury Department’s decision following an uproar to exclude public companies and others that could obtain funding elsewhere. Another reason: Some borrowers sought duplicate loans from several lenders as a backstop against loan denials or delays, according to bankers and small business advisers. Bigger banks found that more than 10 percent of their applications were duplicates, according to loan brokers and industry officials. Some smaller lenders reported that half their applications were rejected because the applicant had gotten a loan elsewhere. But the likely biggest reason for the slowdown is that many business owners have concluded that the SBA’s Paycheck Protection Program simply doesn’t meet their needs, lenders and others say, or they are waiting for the government to clarify the terms under which loans can be forgiven. The program is generally aimed at companies with 500 or fewer employees, and it requires them to spend 75 percent of their loans on payroll to have the loan forgiven. Many small retail businesses, such as restaurants and hair salons, say that is a problem because they remain largely shut down and are operating with skeletal staffs. Read more. (Subscription required.) 

In related news, when American companies recently applied for U.S. government loans meant to help small businesses survive the coronavirus crisis, they had to certify they needed the cash to cover basic needs like salaries and rent, Reuters reported. The money, up to $10 million, was meant to tide them over for eight weeks. Some recipients, though, had considerable cash on hand. Forty-one publicly traded companies that got the emergency aid already had enough to cover basic expenses for two months or more when they applied for the funds, a Reuters analysis found — even if their revenue dropped to zero. Thirty had three months or more of cash. Six had enough to last at least until December, according to the review, which was based on average monthly operating expenses from 2019. All told, these relatively flush 41 companies were able to secure $104 million in government aid, at a time when legions of smaller companies with little in their coffers were being turned down. Seventeen of the 41 recipients had market capitalizations of at least $100 million. Read more.

The embattled small business lending program at the center of the Trump administration’s economic rescue is running into a new set of challenges, one that threatens to saddle borrowers with huge debt loads, as banks begin the tricky task of proving the loans they extended actually met the government’s strict and shifting terms, the New York Times reported. With thousands of businesses preparing to ask for their eight-week loans to be forgiven, banks and borrowers are just now beginning to realize how complicated the program may turn out to be. Along with lawmakers, they are pushing the Treasury Department, which is overseeing the loan fund, to make forgiveness requirements easier to meet. It is the latest complication for a program that has come under fire for allowing big companies to borrow funds from a finite pool of money aimed at keeping small businesses afloat. More than $500 billion in loans have been approved since the beginning of April, and Treasury Secretary Steven Mnuchin has repeatedly tightened the terms of the Paycheck Protection Program to try and dissuade large companies from taking money. Mnuchin has said Treasury would review any company that took more than $2 million in loans and would hold firms “criminally liable” if they did not meet the program’s terms. The Consumer Bankers Association warned on Wednesday that loan forgiveness is the “next shoe to drop” for the program, and the Independent Community Bankers of America raised alarm that struggling borrowers have been misled. “Virtually every small business borrower believes that this will be forgiven,” said Paul Merski, a lobbyist for the Independent Community Bankers of America. “They took it out assuming that it would be a grant but it’s not — you have to abide by very complex rules and regulations on how this is spent.” One of the biggest stumbling blocks is a requirement that businesses allocate 75 percent of the loan money to cover payroll costs, with only 25 percent allowed for rent, utilities and other overhead. That has become more difficult as the economic crisis from the virus drags on and as some businesses face a prolonged period of depressed sales, even once they reopen.

The Trump administration is considering a wide range of tax-cut proposals for businesses and investors in the next coronavirus response bill as it tries to shift from government spending programs to support the economy toward measures that aim to reinvigorate growth, the New York Times reported. The list of ideas under discussion includes a reduction in the capital gains tax rate and measures that would allow companies to deduct the full costs of any investments they make now or in the future, according to administration officials and several outside experts who have discussed plans with the White House. Those proposals, which are still being debated and are not final, could accompany President Trump’s top two priorities for the next rescue package: the suspension of payroll taxes for workers and an expanded deduction for corporate spending on meals and entertainment. Trump and his aides are also planning to push lawmakers to approve legal liability limits for businesses that operate during the pandemic, a top priority of business lobbying groups in Washington, D.C., and Senate Majority Leader Mitch McConnell (R-Ky.). Read more. 

The Senate Judiciary Committee will hold a hearing on Tuesday at 2:30 p.m. titled "Examining Liability During the COVID-19 Pandemic." Click here for more information. 

Bipartisan momentum is building in Congress to let small businesses get tax-free loan forgiveness while also deducting their expenses, a move that would provide clarity and unusually generous tax benefits, the Wall Street Journal reported. Top lawmakers in both parties yesterday asked the Internal Revenue Service to reverse a ruling that would deny those deductions. And senior senators backed legislation that would overturn the IRS ruling if the agency doesn’t change its position, though how quickly such a bill could move through Congress is far from certain. The outcome could have hundreds of billions of dollars of consequences for businesses benefiting from the Paycheck Protection Program, which Congress created in March to help small-businesses weather the economic effects of the coronavirus pandemic. Under that program, companies can get low-interest loans and then have those loans turn into grants if the money is used to maintain payrolls and pay other expenses. The program has proven exceptionally popular, and Congress replenished it after the money ran out within weeks. PPP is now authorized for $660 billion. The economic-relief law from March explicitly says that the loan forgiveness doesn’t count as taxable income, as it would under normal tax rules. But that law was silent on whether companies could still deduct the associated wages and other expenses.

Federal prosecutors are mounting a broad search for fraud in emergency lending programs designed to assist businesses battered by the coronavirus crisis, a top Justice Department official said yesterday, the Wall Street Journal reported. The Justice Department “has a lot of leads and there are multiple ongoing investigations of individuals and small businesses,” Assistant Attorney General Brian A. Benczkowski said. Prosecutors also will apply scrutiny to the activities of banks, which are charged with disbursing the funds in some of the programs, he added. The $660 billion Paycheck Protection Program is getting the most attention now because it is rushing loans out quickly to reach small businesses in dire need of liquidity. Prosecutors also plan to look for problems in other areas, such as loan programs managed by the Federal Reserve that provide loans or other forms of credit support and are partially backstopped by Treasury Department funding, Benczkowski said. A federal criminal complaint unsealed Tuesday in Rhode Island has many of the hallmarks of fraud that prosecutors thought they would see, Benczkowski said. In that case, two men are accused of claiming to have dozens of employees to get PPP loans when in fact they had no workers.

Banks with under $10 billion in assets approved about 60 percent of loans in the first round of the Paycheck Protection Program, the lending effort’s official name, according to the Treasury Department and Small Business Administration, the Wall Street Journal reported. The smallest banks performed even better: Those with $1 billion or less in assets account for just 6 percent of all U.S. banking assets, but they and other small specialty lenders approved nearly 20 percent of loan dollars. While big banks such as Bank of America Corp. and JPMorgan Chase & Co. favored certain customers, including big publicly traded ones, many community banks took all comers, hoping to sow loyalty and pick up some business. Citigroup Inc., Wells Fargo & Co. and other large banks put off taking applications for days until they had an online portal up-and-running; community bankers worked out of home offices and lightly trafficked branches to process loans immediately.