Governments in North and South America have introduced far-reaching economic responses to help sustain the vitality of private businesses and stabilize their respective economies.
Below are the highlights from several of the governments.
US supports liquidity and tax efficiency1
The historic US$2 trillion stimulus bill was signed by the president on 27 March 2020. It introduced emergency economic injury grants of up to US$10,000, which will be available for businesses through the federal Small Business Administration (SBA). The loans do not need to be repaid and can be used to maintain payroll, cover paid sick leave, and service other debt obligations.
Loans for distressed companies are being provided through a US$425 billion fund controlled by the Federal Reserve. An additional US$75 billion is available for industry-specific loans, including those for airlines and hotels.
The stimulus bill includes a “Paycheck Protection Program” designed to provide a direct incentive for businesses to retain their employees by providing a loan of up to US$10 million for payroll and related expenses. Loan payments will be deferred for 6 months. If employees are retained on payroll for 8 weeks, the SBA may forgive the portion of the loan that was used for payroll, rent, mortgage interest, or utilities. Loan recipients may apply for loan forgiveness, and the amount forgiven will not be treated as taxable income to the business owner.
Business owners are also eligible to apply for the “Economic Injury Disaster Loan” program, which provides working capital loans of up to US$2 million to companies that are experiencing temporary revenue losses. Business owners may also apply for a loan advance of up to US$10,000.
Loan payment hiatus for small business
Companies that have existing SBA loans will not be required to pay interest or principal on their loans for 6 months. Instead, the stimulus bill has allotted US$17 billion to the SBA to cover those payments.
Payroll tax credits to help retain employees
Businesses that experience a 50 percent reduction in gross receipts compared to the same quarter in 2019 may qualify for a payroll tax credit of up to US$10,000 per employee on condition that they continue to pay their employees’ wages and health benefits. This includes businesses that have furloughed employees due to forced closures under state and local mandates, as long as they continue to pay wages or health benefits during the furlough. Small businesses that choose to claim this credit will not be eligible for the new SBA forgivable loans program.
Tax-related relief for all
Several tax-related initiatives have also been introduced, including:
- a delay of corporate and individual tax filings (and payments) otherwise due on 15 April 2020 to 15 July 2020
- payment delays for certain employer and self-employment payroll taxes
- changes to the rules governing net operating losses, including a 5-year carryback of certain 2018, 2019, and 2020 losses, and the ability to temporarily offset 100 percent of taxable income
- acceleration of corporate alternative minimum tax credit refunds.
Targeted relief for some
In addition to broad business-relief programs, targeted plans have also been introduced, such as federally guaranteed loans to small businesses that pledge not to lay off their workers.
Certain industry sectors are also receiving special attention, such as the suspension of aviation excise taxes via an excise-tax holiday. The loans are available during an emergency period ending 30 June 2020, and will be forgiven if the employer continues to pay workers who were unable to work due to COVID-19.
Canada provides cash flow relief and new capital3
Canada’s measures support private companies by providing additional funds to ensure they have access to loans and credit, tax filing flexibility, wage subsidies to help retain workers, along with measures to provide cash-flow relief and ensure liquidity in the financial markets.
To help companies have more immediate access to cash, one bank in Canada is supporting businesses by offering their bank a guarantee on loans up to CAD5 million.
Some other companies are also cooperating with private sector lenders to coordinate credit solutions for individual businesses, including those in the oil and gas, air transportation, and tourism sectors.
Targeted support for small- and medium-sized business
In its most recent stimulus package, the government introduced the Canada Emergency Business Account, a new loan program that will be implemented rapidly by eligible financial institutions in cooperation with certain banks. This CAD25 billion initiative will provide interest-free loans of up to CAD40,000 to small businesses and not-for-profits, to help cover their operating costs during temporary revenue declines. To qualify, companies will be required to demonstrate that they paid between CAD50,000 and CAD1 million in total payroll in 2019. If the loan is repaid on or before 31 December 2022, 25 percent of the loan will be forgiven (to a maximum of CAD10,000).
As well, the Business Credit Availability Program (BCAP) has been established to provide more than CAD10 billion in additional support, largely targeted to small and medium-sized businesses, through local Canadian banks.
A co-lending program will bring together financial institutions to co-lend term loans to small- and medium-sized businesses to help meet their operational cash flow requirements. Through this program, eligible businesses may obtain incremental credit amounts of up to CAD6.25 million.
One Canadian company is also working with financial institutions so that they can issue new operating credit and cash flow term loans of up to CAD6.25 million to small and medium enterprises.
In its most recent announcement, the Canadian government also reported that it will cover up to 75 percent of the wages for businesses, of all types and sizes, whose revenues decrease by more than 30 percent due to COVID-19.
Brazil supports employers5
The federal government recently announced the creation of a credit line for payment of employees’ salaries for up to 2 months, with the company’s commitment not to lay off workers due to COVID-19. In addition, R$4.93 billion in credit is being made available to small and “micro” firms to cover a portion of their salary expenses.
In addition, a state-owned bank will extend R$73.4 billion in credit lines to small and medium-sized companies for working capital and the purchase of payroll loan portfolios from medium-sized banks and agribusiness.
Columbia focuses on tourism and aviation6
The Colombian president announced a package of economic measures to mitigate the effects of COVID-19 on the tourism and aviation sectors. This includes postponing the payment of VAT and income taxes for tourism and aviation businesses, as well as a temporary reduction in the import tariffs for selected inputs to the health and aviation sectors. The government also opened a new credit line for tourism and aviation companies.
The information presented in this document for North and South America was current at the time of writing. However, we recognize that new stimulus packages and economic relief measures are being introduced regularly – throughout the world – in an effort to support commercial enterprises and shore up the nations’ economies. This should bring welcome news to entrepreneurs and other private company owners. Please get in touch to understand the most recent relief programs being introduced in your jurisdiction.
We at KPMG Private Enterprise understand the potential consequences of the current global health situation for private companies. I encourage you to follow our regular series of blog posts to stay informed about how COVID-19 may affect your business strategy and operations, and to reach out to KPMG Private Enterprise advisers in your country or territory for their guidance.
Check out our business overview and action checklist titled “Understanding the implications of COVID-19 for private companies”, and our guide to robust business continuity planning titled “Leading successfully in turbulent times”.