Archive for 2020
Forgiven Debts: The Hidden Tax Time Bomb That Could Kick Small Businesses While They’re Down
May 12, 2020
Small businesses that stay out of bankruptcy but have some portion or all of their debts forgiven (excluding PPP debt) are in for a rude awakening come tax time next year. In a variety of circumstances, cancelled debt can be classified as taxable income for the debtor per the IRS. This, according to a new tax study titled Did The IRS Forget Non-PPP Debt? authored by Grassi & Co, a leading accounting and business firm based in New York, that was produced in collaboration with deBanked.
At face value, it would appear that taxpayers who have non-PPP debt canceled, forgiven or discharged during the COVID-19 crisis and do not meet any of the specific exclusions mentioned in the report, would be subject to tax on the cancelled debt as income.
This tax treatment, which pre-existed COVID-19, could be devastating in this era where the prevalence of debt forgiveness is likely to reach unprecedented levels.
In many cases this year, debt cancellation will be the direct result of government mandated shutdowns that were of no fault of the businesses themselves. Should they refrain from filing for bankruptcy and successfully negotiate a cancellation of some debt, it seems quite disastrous that the same government that shut them down might deliver a second blow by taxing the acts that enabled the businesses to survive.
One must also consider that a lender may just cancel some or all of a portion of a debt without any direct action of the debtor, with the end result being the same, a potential tax bill to the business on the cancelled portion.
It’s important to understand the various exclusions to the IRS guidelines that govern cancelled debt. The full report can be ACCESSED HERE.
$100 Million in PPP Fees
May 12, 2020
$100 million. That’s the gross revenue floor that Ready Capital reported yesterday will be earned from its PPP loan origination efforts. PPP lenders earn between 1% to 5% of the loan amount in the form of a fee from the SBA and Ready Capital was the 15th largest PPP lender by dollars in the first round alone.
The SBA pays 5% for loans under $350,000, 3% for loans between $350,000 and $2 million, and only 1% on loans over $2 million. With the majority of Ready Capital’s loans being for less than $350,000, the pure volume of loans originated (40,000+), translates into significantly larger fee income against a lender who may have originated the same dollar amount but with a much larger average loan size. JPMorgan’s average PPP loan size in Round 1, for example, was $515,000 (an average of a 3% fee) versus Ready Capital’s $73,000 (an average of a 5% fee).
Ready Capital clarified that on a net basis of those fees, they will take home substantially less, since the economics of those fees were in many cases split with referral agents and other partners that contributed in the process. Without committing to a firm figure, they estimated that their net revenue on PPP originations is actually going to be in the neighborhood of 35%-50% of the gross ($35 million to $50 million).
That is so far. Ready approved $3 billion in loans and has so far only funded $2.1 billion of them. The company said it expects that a large percentage that remain will still be funded and they will earn additional fee income respectively from those.
The company also addressed funding delays that had been reported across social media. “While there have been some challenges outside our control that have caused some delays in the distribution of funds, we have facilitated the funding of 2.1 billion through last Friday and are actively working through the remaining population to disperse funds as quickly as possible.”
Ready’s exposure on the loans themselves may be limited. The company said “we do not expect to carry much of the production on the balance sheet at all. So a very small portion will remain on the balance sheet. The majority of it will now be sold off balance sheet.”
Cannabis Advocates Hope to Pass SAFE Banking Act in Next Coronavirus Package
May 12, 2020
This week a selection of cannabis associations and lobbying groups wrote to House leaders encouraging them to include the SAFE Banking Act in the next coronavirus relief bill. If passed, SAFE would allow cannabis companies to set up and access bank accounts. Introduced to the House in March 2019, SAFE went through Congress in September and has since been held up in the Senate.
Deemed as an essential service, cannabis dispensaries have stayed open during the pandemic, with many reporting a boost in revenue.
“The cannabis industry lacks access to banking services that could eliminate cash transactions and minimize virus transmission,” the letter states. “In 2019, it is estimated that sales of cannabis in the United States topped $12 billion – the vast majority of which were cash transactions. Previously, this situation created an unnecessary public safety risk and undue safety burden on state and local tax and licensing authorities who must receive and process large cash payments. Now, as recent reports show that viruses can live on cash for up to 17 days, the public safety concerns of this cash-only system compound.”
And as worries about contagion rise, so to do concerns about crime, with some dispensaries reporting an increase in burglaries during the pandemic. The hope is that with access to banking, less cash will need to be kept on premises, reducing the risk of theft.
“It’s only getting worse,” said Morgan Fox, a spokesperson of the National Cannabis Industry Association. “At the beginning there was a real spike of crimes against cannabis dispensaries in a number of states, and I have a lot of fear that that’s going to get even worse now. And then on top of that are all the health and safety concerns with cash forcing people to actually touch money; and because it has to be in person, it makes social distancing more difficult.”
At the beginning of April House Speaker Nancy Pelosi said that she wanted SAFE included in the next coronavirus relief bill, that second package has come and gone but perhaps a third time might be the charm for cannabis companies.
Lendinero: How a broker shop is coping with covid-19
May 10, 2020
“Obviously, funding has really come to a standstill.”
So said Lendinero’s CEO and Founder, Gil Zapata, over a call with deBanked last week. Speaking about how his company, a broker firm based in Doral, Florida, and the industry have been affected by the novel coronavirus, Zapata explained the steps that he and his team have taken to try keep their heads above water.
Following a period of expansion that saw new hires in both their Florida offices as well as their premises in Nicaragua, covid-19’s shutdown of the American economy served as a full stop to what Zapata referred to as “growth mode.” Lendinero has kept the wheels turning by helping business owners secure EIDL and PPP funding and in the process planted seeds he hopes will prove profitable in the future.
Accompanying these PPP loans is the revenue coming from Lendinero’s recent partnership with Benworth Capital. With Benworth being an SBA-authorized PPP lender, Lendinero has acted as an agent for the lending company, assisting them with their focus on businesses in Miami.
To speed up these processes, Zapata and his team created a one-stop portal for potential borrowers.
As well as this, in order to cut expenses, Lendinero had to make significant reductions in its staff, affecting workers in both his North and Central American offices.
“We kept the best of the best and that’s helped out. And we restructured a lot of payments.”
Having brought on new workers during their period of growth, it was many of these who were let go, as Zapata and his colleagues decided that it would be best to keep on the more experienced staff who would not need training and as much oversight.
“We came to the conclusion that whoever is going to stay with us, they know that obviously they need to do something and they need to generate results for us or contribute to us … I think that to be micromanaging people at this time is nonsense.”
With these steps taken, Zapata is confident that Lendinero can continue operating for about a year, but is hopeful that the MCA industry will bounce back over the next six months.
“Something has to happen. Maybe a vaccine comes or maybe it doesn’t come but state governments are probably going to take some sort of action and measures to reopen, and we’ve seen that already. I think in six months from now, it’s not going to be the same growth that we had, but those who are able to come back and open up their businesses will help revitalize the MCA market.”
Deloitte Sued Over Audits of Failed DLI Fund
May 7, 2020Those affected by the failure of Direct Lending Investments (DLI) have added a new target to blame, Deloitte & Touche LLP and related entities.
A lawsuit filed last week in the Superior Court of California says that Deloitte was engaged by DLI to audit the Funds’ financial statements and accompanying footnotes in accordance with GAAP for the years ending 2016 – 2018 and issued clean unqualified audit reports that “negligently ratified and confirmed the false valuations contained in the financial statements and footnotes disseminated to the Plaintiffs.”
Interview With Polling Expert Scott Rasmussen
May 7, 2020On Tuesday, I interviewed nationally recognized public opinion pollster Scott Rasmussen, who is the publisher of ScottRasmussen.com and is the editor-at-large for Ballotpedia, about the trajectory of the presidential race and how the current environment is affecting how people think.
Mr. Rasmussen will be a guest speaker at Broker Fair 2020 Virtual on June 11, 2020. You can watch the video interview below.
Shopify Shows Strength in Q1 Results, Issues $162.4M in MCAs and Loans
May 6, 2020eCommerce platform Shopify, 2nd only to Amazon in retail eCommerce sales, issued $162.4M in merchant cash advances and business loans in Q1, up from $115.9M in the previous quarter. The statistic pushed them past the $1 billion threshold of funds cumulatively issued since inception.
The company’s provision and allowance for loan losses ticked up from significantly from the same period the prior year but Shopify at that time was originating 50% less volume.
The company reported a GAAP net loss of $31.4M on $470M in revenue. Shopify also has approximately $2.36B in cash and cash equivalents on its balance sheet.
The company reported an increase of monthly recurring revenue, thanks to an increase in the number of merchants joining the platform, strong app growth, and Shopify Plus fee revenue growth.
Shares of Shopify (NYSE: Shop) jumped by more than 5% after the announcement.
Study Finds Vulnerable Canadians Ill-Equipped Against Coronavirus
May 4, 2020
Last week Loans Canada, a loans comparison platform, released a survey of over 900 financially vulnerable Canadians. These being defined as those Canadians who rely on low income, who have limited access to credit, and who have little to no savings available, the study found that many of the respondents were at risk of financial troubles from covid-19 due to their restricted means and ineligibility for government welfare programs.
30% of those surveyed reported that they are unable to access the Canadian Emergency Relief Benefit, a program that offers CAD$500 a week to those whose finances have been negatively affected by covid-19, due to the terms of the package. In order to qualify, one must earn less than CAD$1,000 over the four week period that the claim is for, leaving many who work part-time or who have had their hours cut unable to access the money.
As well as this, the survey recorded that many of these individuals are having difficulty accessing credit, as nearly 50% said that their bank has denied them funding. This coupled with the fact that 80% have experienced a loss of income due to the novel coronavirus, as well as only 12% of respondents having the government-recommended three months of living expenses saved up, paints a grim picture for the future finances of those vulnerable Canadians.
Beyond immediate finances, 73% of those surveyed believed that the pandemic would negatively affect their credit scores, 63% expect to miss paying at least one bill over the next six months, and 78% claim that they will struggle to finance their necessary expenses if the covid-19 situation continues through the summer.
Altogether, the study indicates a need for more financing amongst those likely to be hit hardest by the economic knock-on from covid-19. What remains to be determined however, is whether it will come in the form of governmental relief, credit from their banks, or funding from the non-bank lenders.
