Federal Relief Programs Ran Out of Money! COVID-19 Transportation Update – Thursday, April 16, 2020
Matt Daus Predicts Future COVID-19 Ground Transport Industry Regulations in Presentation to European Government Transportation Officials
Matt Daus participated in an international webinar sponsored by PIARC – the Permanent International Association of Road Congresses (formerly the World Road Association) on Wednesday, April 15, providing an overview of the latest impacts of the COVID-19 pandemic on transportation in United States and Canadian cities, states and provinces, including responses by transportation officials and other governmental institutions. Preliminary results of a survey conducted by the International Association of Transportation Regulators (IATR) www.iatr.global were shared covering actions taken by regulators, including licensing fee and renewal deferrals/extensions, cessation of vehicle inspections and enforcement, bans on ride sharing, and innovative programs to help the industry recover. Matt joined a discussion among government officials from Italy, France, Norway and the United Kingdom concerning the impact of COVID-19 on roads and traffic, as well as a return to business that is taking place already in some parts of the world. To view the webinar, click here.
Major Changes to the Economic Injury Disaster Loan Program – And The Program Has No More Funds!
In the first stimulus package related to the COVID-19 pandemic, transportation companies and independent contractors were promised that loans of up to $2 million would be available through the U.S. Small Business Administration (the “SBA”). These loan were set at a 3.75% interest rate, and were negotiable for up to 30-year terms through the SBA-approved lenders. Another feature was an initial $10,000 grant to provide immediate relief to the loan applicant. However, the SBA has now pulled back and changed the terms of the Economic Injury Disaster Loan (“EIDL”) program. The SBA has confirmed that it has changed the immediate grant to be limited to $1,000 for each small-business employee, not to exceed 10 employees. In other words, an independent contractor-driver would now only be eligible for $1,000 as a grant. Also, businesses that have been approved for the EIDLs are stating that the final approved loan funds are only a portion of the requested loan amounts. Even with these changes, due to the overwhelming demand, the SBA made the following announcement: “The SBA is unable to accept new applications at this time for the Economic Injury Disaster Loan (EIDL)-COVID-19 related assistance program (including EIDL Advances) based on available appropriations funding. Applicants who have already submitted their applications will continue to be processed on a first-come, first-served basis.” So, much like the exhaustion of the Paycheck Protection Program funds discussed below, Congress will need to address additional funding for the EIDL program.
The 12-Day Old Paycheck Protection Program Is Out of Cash
This morning, the federal government’s $349 billion Paycheck Protection Program (“PPP”) ran out of money. The U.S. Small Business Administration (SBA) posted a notice on the Paycheck Protection Program webpage that it “is currently unable to accept new [PPP loan] applications based on available appropriations funding.” The SBA reported this morning that more than 1,637,000 loan applications valued at “over $339 billion” had already been approved. Congress has yet to reach agreement on a package that will immediately increase funding for the program.
New SBA Guidance for Independent Contractors for PPP Loans!
Of interest to independent contractor-drivers who have filed Paycheck Protection Program (“PPP”) loan applications or who will do so when the PPP loan program funds are replenished, the SBA just issued a new interim final rule guidance for the PPP loans that supplements the guidance issued on April 2, 2020 and the FAQs issued from the SBA. The new guidance primarily addresses questions about individuals with self-employment income who file a Form 1040, Schedule C, including eligibility, loan calculations, allowed use of the PPP loans, requirement for PPP loan forgiveness, and the required documentation to provide lenders for PPP loans and for PPP loan forgiveness.
- Updated the FAQs for PPP Loans based on the new SBA guidance for independent contractor-drivers can be found here.
- Updated Checklist and Worksheet/Calculator for PPP Loan applicants can be found here.
Paperwork Required (Schedule C): The SBA has determined that self-employed individuals – like may independent contractor-drivers – will need to rely on their 2019 Form 1040 Schedule C, which provides verifiable documentation on expenses between January 1, 2019, and December 31, 2019. Regardless of whether a driver has filed a 2019 tax return with the IRS, the driver MUST provide the 2019 Form 1040 Schedule C with the PPP loan application to substantiate the PPP loan amount request and a 2019 IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice. A driver will be asked to provide a bank statement, or book of record that establishes the driver is self-employed.
Net Profit, Not Gross Compensation: The SBA clarified that the PPP loans should primarily be used to replace compensation based on 2019 net profit. In addition, independent contractors may use PPP loans for certain overhead businesses expenses if they claimed OR are entitled to claim a deduction for such expense on their 2019 Form 1040 Schedule C. For example, PPP funds can be used for mortgage interest payments (but not mortgage pre-payments or principal payments) on any business mortgage obligation on real or personal property incurred before February 15, 2020, including the interest on an auto loan for a vehicle the driver uses to perform their business. Funds may also be used to pay rent on leases in force before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C, and business utility payments under service agreements dated before February 15, 2020. For drivers, this would include gas used to drive the business vehicle. But, if drivers did not claim OR are not entitled to claim utilities expenses on your 2019 Form 1040 Schedule C, drivers cannot use the PPP loan to cover those expenses now.
Loan Forgiveness Limitations: To qualify for loan forgiveness, at least 75% of the PPP loan funds must be used for compensation and the other 25% for qualifying overhead costs. The SBA made it clear in the updated guidance that self-employed individuals may not treat the entire amount of the PPP loan as income if they do not have any of the other overhead expenses that qualify for forgiveness. The SBA is also limiting loan forgiveness to a proportionate eight-week share of 2019 net profit, as reflected in the individual’s 2019 Form 1040 Schedule C. While the loans may be used for interest payments on any other debt obligations that were incurred before February 15, 2020, such amounts are not eligible for PPP loan forgiveness.
Matthew W. Daus