Beyond PPP: Federal Loans and Tax Credits for Contractors

Marty McCarthy, CPA, CCIFP
Focused on You. Dedicated to Your Success.
June 24, 2020

While we have focused a lot of attention on the Payroll Protection Program (PPP), there are other federal loans and tax credits for contractors to consider. I want to share an article published in Construction Dive on June 15 by Kim Slowey entitled Beyond PPP: Federal loans, tax credits for contractors. This article summarizes some of the other options.

Other Federal Loans
The Main Street Lending Program was established by the Federal Reserve in response to the COVID-19 outbreak and makes loans to small- and medium-sized businesses — through authorized lenders — that were in “sound financial condition” before the pandemic.

There are three types of facilities available through the program:

  • Main Street New Loan Facility (MSNLF) — these loans are available to companies with 15,000 or fewer employees and $5 billion or less in revenue. The company must pay the loan, generally capped at the lesser of $35 million or four times the borrower’s adjusted 2019 EBITDA (earnings before interest, taxes, depreciation and amortization) within five years. The minimum loan size is $250,000.
  • Main Street Priority Loan Facility (MSPLF) — these loans have similar requirements as the MSNLF except the maximum loan is limited to the lesser of $50 million or six times the borrower’s EBITDA. The minimum loan size is $250,000.
  • Main Street Expanded Loan Facility (MSELF) — these loans have many of the same requirements as the other two facilities, but the loan size is limited to the lesser of $300 million or six times the borrower’s EBITDA. The minimum loan size is $10 million.

In an effort to make them more accessible, the terms reflect changes that the Fed made in the last week. The agency also changed the repayment terms from four years to five and allows recipients to defer principal payments for two years and interest payments for one.

Borrowers are not eligible to participate if they borrowed money through the PPP.

Debt Relief
For those construction firms that already have certain loans backed by the SBA — 7(a) general lending program, 504 loans for major fixed assets and microloans — the administration has decided to pay six months of all borrowers’ payments. This includes principal, interest and other loan-related fees.

The SBA has directed all of its lenders to stop collection attempts on these loans for that time period.

Tax Relief
The CARES Act also provides construction firms and other employers with extra relief through tax credit and deferrals.

The Employee Retention Credit entitles eligible employers to take a 50% credit against their employment taxes on up to $10,000 of wages per employee for a maximum credit of $5,000 per employee. Rules regarding the tax credit are:

  • Wages must be paid after March 12, 2021, and before Jan. 1, 2021.
  • Employers must have experienced either the full or partial suspension of business due to government-mandated COVID-19 limitations on business activity or a significant decrease in revenue.
  • The employer must not have taken a PPP loan or received a credit for paid sick or family leave under section 45S of the Internal Revenue Code or Families First Coronavirus Response Act for the wages.
  • Wages subject to a Work Opportunity Tax Credit under section 51 of the Internal Revenue Code are not eligible for the ERC.
  • Employers are also able to defer their share of social security payroll taxes for wages paid from March 27 until Dec. 31. Employers must pay 50% of total deferred taxes by Dec. 31, 2021 and the balance by Dec. 31, 2022.

But while the deferral program might look good now, said Matt Turkstra, the Associated General Contractors of America’s director of Congressional Relations for Tax, Fiscal Affairs and Accounting, it could cause contractors problems down the road.

“I would be a little concerned as a business owner in deferring federal taxes by so much that I would then struggle to pay all that additional tax liability back over the next two years,” he said. “I definitely think it's helpful and something that folks would want to take advantage of if they can, but, at the same time, it's a loan that does have to be paid back.”

Employers that receive loan forgiveness under the PPP cannot defer taxes due after the forgiveness date.

Turkstra said that one of the most helpful provisions intended to get businesses back on their feet in the wake of the COVID-19 pandemic is an extension of net operating loss carrybacks. This allows a business that is experiencing losses this year to carry back those losses against previous tax years’ liabilities. In essence, he said, it allows businesses to file for a tax refund for those years.

“It’s a very useful counter-cyclical tax policy that can provide struggling businesses with an immediate cash infusion based on their previous years’ tax returns,” Turkstra said.

Congress passed the CARES Act, he said, in the early days of the COVID-19 pandemic and under the assumption that the crisis would last about eight weeks, so there could be more changes coming, as well as more provisions that would be helpful to contractors.

“We just need to be aware of those,” Turkstra said, “and make sure that Congress is listening to the concerns of business owners as they are getting through this and making sure that [the provisions] are as useful as [lawmakers] intended them to be.”

We will continue to update you on new developments. Please visit our  COVID-19 Resource Page  for more alerts.

Feel free to contact any member of our team at (610) 828-1900 (PA) or (732) 341-3893 (NJ) with questions. Rich Higgins, CPA, managing principal – New Jersey office can be contacted at Richard.Higgins@MCC-CPAs.com . I can be reached at Marty.McCarthy@MCC-CPAs.com . As always, we are happy to help.
 
Stay safe,
 
Marty McCarthy, CPA, CCIFP
Managing Partner
McCarthy & Company

Source: Beyond PPP: Federal loans, tax credits for contractors. Kim Slowey. Construction Dive. June 15, 2020
 
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).