In an effort to provide relief to individuals affected by the COVID-19 emergency, the Secretary of the Treasury extended the due date for filing Federal income tax returns and making Federal income tax payments from April 15, 2020 to July 15, 2020 in IRS Notices 2020-17 and -18. However, the Notices did not provide an extension for the filing of any Federal information returns.
Therefore, all Federal information returns, including Form 5498, Form 1099-INT, Form 1099-OID, Form 1099-R, and Form 1099-B, should be filed by their normal due dates.
The CARES Act has significant relief for small businesses, including $349 billion in Small Business Administration (SBA) loan guaranties and subsidies and additional funding for SBA programs. Highlights include:
Expansion of SBA’s 7(a) Loan Program to Support New “Paycheck Protection Program” Loans. The SBA’s existing 7(a) program will see:
Increase in maximum loan amount to $10 million.
Allowable uses expanded to include:
Payroll support (including paid sick or medical leave);
Mortgage, rent and utility payments;
Insurance premiums; and
Other debt obligations.
Loan Forgiveness. Certain borrowers would be eligible for loan forgiveness equal to the amount spent during an eight-week period after the origination date of the loan on:
Interest payment on any mortgage incurred before Feb. 15, 2020;
Rent on any lease in force before Feb. 15, 2020; and
Utilities for which service began before Feb. 15, 2020.
The amount forgiven would be reduced in proportion to any reduction in employees retained compared to the prior year and to the reduction in pay of any employee beyond 25% of prior year compensation.
Subsidies for Certain Existing SBA 7(a) Loans.
Special Terms for SBA Loans.
No personal or collateral guarantee will be required.
The eligible recipient does not have to certify that it is unable to obtain credit elsewhere.
Eligible borrowers must make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; that funds will be used for a permitted purpose; and that they are not receiving fund from another SBA program for the same uses.
Maximum term of loan is 10 years.
Interest rate cannot exceed 4% but interest payments are completely deferred for 1 year.
No prepayment penalty.
The CARES Act program covers business with 500 or fewer employees, unless the covered industry’s SBA size standard allows more than 500 employees, which were operational on Feb. 15, 2020. The size standards are tested on an affiliate basis—combined with all businesses under common control (50% ownership or contractual control)—counting on an aggregate basis towards the size test, except for hospitality and restaurant businesses, franchises, and recipients of Small Business Investment Company (SBIC) investment.
On March 25, 2020, senators released an updated draft of the Coronavirus Aid, Relief, and Economic Security Act (a.k.a the “CARES Act”) (the acronym is so much better than EGRRCPA!) to provide emergency assistance and health care response for individuals, families, and businesses. Bryan Cave Leighton Paisner’s initial review of the overall Act is available here.
The current draft contains a number of bank regulatory provisions of potential interest to financial institutions of all sizes.
Section 4008 – Debt Guaranty Authority. Authorizes FDIC to re-implement transaction account guarantee program, subject to cap on amounts insured. In the 2008 financial crisis, the FDIC provided unlimited insurance for amounts held in noninterest-bearing transaction accounts (i.e. checking accounts that don’t pay interest). Dodd-Frank prohibited the FDIC from every doing that again. The CARES Act authorizes the FDIC to provide the program again through December 31, 2020. Current draft of legislation limits coverage to “a maximum amount” without specifying the amount. Effectiveness will require FDIC action. Current draft of legislation also allows the NCUA to provide comparable insurance for credit unions, and permits the NCUA to provide insurance on an unlimited amount in such accounts. Since its formation, no depositor has ever lost a penny of FDIC-insured funds.
Section 4014 – Optional Temporary Relief from Current Expected Credit Losses. No financial institution or holding company shall be required to comply with FASB’s current expected credit loss methodology (i.e. CECL) (which otherwise is scheduled to become effective for the largest public bank holding companies for Q1 2020). Effective from adoption of the Act and ending on the earlier of December 31, 2020 or the termination date of the national emergency.
On March 18, 2020, the FDIC issued guidance in its Frequently Asked Questions for Financial Institutions Affected by the Coronavirus Disease 2019 indicating the potential for relief from the Troubled Debt Restructuring (TDR) reporting requirements.
Financial institutions should determine whether loans with payment accommodations made to borrowers affected by COVID-19 should separately be reported as TDRs in separate memoranda items for such loans in regulatory reports. A TDR is a loan restructuring in which an institution, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. However, a loan deferred, extended, or renewed at a stated interest rate equal to the current interest rate for new debt with similar risk is not reported as a TDR.
In just a few short weeks, COVID-19 has had far reaching impacts on public health and the global economy. Regulators overseeing banks and non-bank financial services companies are trying to maintain operations, adapt oversight models and promulgate COVID-19 crisis-specific directives and guidance.
As with the crisis itself, these developments are fast-moving. We anticipate facts and details to change from day-to-day. To be clear, this is the first post on COVID-19 on BankBCLP.com, but it will most certainly not be the last. On our firm website, we are tracking regulatory developments that could have a broad impact across the industry.
If you have any questions regarding anything discussed on this blog, the attorneys and other professionals of the Financial Institutions Group of Bryan Cave LLP are available to answer your questions. Please click here for a list of our Professionals or fill out the contact request form below.
Thank you for reaching out to us.
First, though, we have to tell you a couple of things:
Your email will not create an attorney-client relationship between you and us. Attorney-client relationships can only be created in writing, signed by both you and us.
Until you become a client:
You will not tell us anything you would not want made public.
We cannot respond to any question about the law or legal options.
We may represent a party adverse to you, now or in the future.
The attorneys of Bryan Cave Leighton Paisner make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.