Safe Harbor Deadline for Repayment of PPP Loans Extended from May 14 to May 18

On May 13, 2020, the Small Business Administration (SBA), in consultation with the Department of the Treasury, extended the safe harbor deadline to repay Paycheck Protection Program (PPP) loans to May 18, 2020. Previously in its PPP Loans Frequently Asked Questions (FAQs), the SBA reminded borrowers to carefully review the required certification on the PPP loan application that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

In further guidance, the SBA provided that any borrower of a PPP loan that repays the loan in full by the specified safe harbor deadline will be deemed by the SBA to have made the required certification concerning the necessity of the loan request in good faith.  According to the newly issued FAQ #47, Continue reading »

Warning to Employers and Medical Providers Alike Regarding Releasing COVID-19 Test Results!

So, your furloughed employee[i] is returning to work – Hooray!? Not so fast. Employers and the medical providers who are treating and perhaps testing these employees/patients for COVID-19 need to be wary about who is able to disclose and use testing information and to whom.  Both sides must tread carefully and follow strict guidelines in such situations.

For over two decades, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) has governed disclosure of an individual’s protected health information and has prevented a medical provider from unilaterally disclosing sensitive health information to employers.  Even faced with a previously unimaginable global pandemic, from its implementation in 2003, the HIPAA Privacy Rule has had procedures in place that address this thorny legal issue.

Take the following hypothetical example: An employer furloughs an employee as a reduction in work force for financial reasons. While on furlough, the rumor mill is active and the employer “hears” that this employee may have been experiencing COVID-19 symptoms while on furlough.  May the employer reach out to the employee’s medical provider to obtain medical information specifically related to COVID-19 testing? May the provider release such information if the employer contacts the provider to inquire? Work-arounds exist under the HIPAA Privacy Rule or may exist when the employer pays for COVID-19 testing.

Option 1:  Consent Upfront. Continue reading »

Additional SBA Guidance Regarding PPP Loan Business Necessity Certification and New Safe Harbor for PPP Loans of Less than $2 Million

The Small Business Administration (SBA), in consultation with the Department of Treasury,  announced additional guidance regarding the required good faith certification borrowers must make concerning the necessity of the Paycheck Protection Program (PPP) loan request. In PPP loan applications, borrowers must certify in good faith that current economic uncertainty makes the loan request necessary to support their ongoing operations.

In an update to its PPP Loan Frequently Asked Questions (FAQs) on May 13, the SBA provides a new safe harbor for any borrower that, together with its affiliates, received a PPP loan of an original principal amount of less than $2 million. These borrowers will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

As previously announced by the SBA, borrowers with PPP loans in the amount of $2 million or more, and other designated PPP loans, are subject to review by the SBA for compliance with the requirements of the PPP Interim Final Rules and the Borrower Application. According to Question 46 of the updated FAQs, Continue reading »

Safe Harbor Deadline for Ineligible Borrowers to Return Paycheck Protection Program Loans is Extended to May 14

UPDATED 5/6/2020

The Small Business Administration (SBA), in consultation with the U.S. Treasury,  published retroactive guidance regarding the loan necessity certification a borrower must make on its application for a Paycheck Protection Program (“PPP”) loan.

In its update to the list of Frequently Asked Questions (FAQs) about PPP loans issued on April 23, the SBA explained that prior to making an application for a PPP loan “all borrowers should carefully review the required certification that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’” In making this good faith certification, the Treasury stated that all borrowers must take “into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operation in a manner that is not significantly detrimental to the business.”

Although the SBA guidance specifically questions loans made to public companies with substantial market value and access to capital markets, the guidance applies to both public and private companies.

The generality of the SBA guidance left many borrowers confused. There were news articles published about small businesses that were concerned about expending PPP loan funds despite perceived operational needs.  In a likely response to this confusion, the SBA updated its FAQs about PPP loans on May 5, indicating that it was going to provide additional guidance regarding how it would review the business certainty certification.  Additionally, the FAQ update provides that a borrower will be deemed to have made the business necessity certification in good faith if the borrower applied for the PPP loan prior to the issuance of the FAQ and repays the loan in full by May 14, 2020. The original safe harbor repayment deadline way May 7. Continue reading »

Non-deductibility of Expenses Paid with Forgiven Paycheck Protection Program Loans

According to new guidance issued by the IRS in Notice 2020-32, no deduction is allowed for otherwise deductible expenses if they are paid with PPP loan funds that are forgiven and the income associated with the forgiveness is excluded from the taxpayer’s income. The basis for the IRS’ disallowance of the tax deduction for such expenses is Internal Revenue Code (IRC) Section 265(a).

IRC Section 265(a) provides that a deduction is not allowed for any amount otherwise deductible that is allocated to one more classes of income which are wholly exempt from income taxes. The IRS ruled that the CARES Act’s exclusion from income of forgiven PPP loan amounts results in a “class of exempt income” under Section 1.265-1(b)(1) of the Treasury Regulation. Therefore, the payment of such expenses is non-deductible from income because such payment is allocable to tax exempt income. Continue reading »

Bankruptcy and Workouts After the CARES Act

As the COVID-19 crisis deepens, it is getting even more difficult for small business owners to plan for the future. It now appears likely that the crisis will not simply end – it will ebb and flow in waves for quite a while, yet another variable for small business owners to consider for an extremely uncertain future.

Despite the payroll protection program and all of the other government support programs being enacted in an effort to support the economy[1], it is a virtual certainty that hundreds of thousands of small businesses will need to file Chapter 11 bankruptcy reorganizations or enter into out of court workout agreements with their creditors during the next few years.

Several changes to a debtor’s ability to survive this chaos have occurred in recent months:

• The enactment of Subchapter V of Chapter 11 of the Bankruptcy Code;
• The enactment of the CARES Act; and
• The practical results of so many businesses teetering on the brink of failure.

Before getting into the details, I am repeating my basic plea to all small business owners facing potential troubles. PLEASE: Continue reading »

What You Need to Know About Your PPP Loan

As you are aware, the Paycheck Protection Program (“PPP”) was developed as a relief measure under the CARES Act. Unsurprisingly, the initial round of PPP funding was  fully claimed by businesses across the country. Congress passed a bill providing additional funding for PPP loans. If you previously applied for either loan, you may not need to re-apply. For more information, click here.

If you are one of the fortunate businesses to secure funding, you may be wondering – now what? Whether it be how you may use those funds or ensuring you receive maximum loan forgiveness, here’s what you need to know for your business.

Fortunately, the SBA anticipated these questions and provided some clarifying guidance for business owners. One of the most important clarifications is that no more than 25% of a PPP loan can be used for non-payroll costs if the business wants to be eligible for complete loan forgiveness. They also clarified that any interest which accrues before the loan is officially forgiven or paid in full must be repaid at the borrower’s expense. Additionally, full forgiveness will not be available if you reduce the number of full-time equivalent employees (“FTE”s) during the 8-week loan period or reduce the pay of an employee making less than $100,000 by more than 25%.

The SBA also clarified that your lender will be the one to actually determine the amount of the loan that is deemed forgivable and will have 60 days to approve or deny the forgiveness once they receive your business’ request and relevant documentation. What exactly will be required by your particular lender to demonstrate proper usage of loan proceeds and ensure maximum loan forgiveness is still unclear.

What to Track and Monitor for PPP Loan Forgiveness

We recommend creating a method to track, record, and document anything at all PPP or expense-related for the next several months.

Additionally, the following are several things to specifically monitor and keep inside this ‘file’ that will make your request for forgiveness much easier and streamlined.

1. Implications from other CARES Act Provisions. Depending on your business’ situation, you may have qualified for, and received, alternative relief under another provision of the CARES Act. You will want to evaluate the timing implications these alternatives may have on your PPP loan forgiveness before using any of the funds. Continue reading »

Federal Reserve Offers Lending Program for Small and Medium-Size Businesses

UPDATED 11/9/2020

The Federal Reserve announced on April 9, 2020 that it has established a $600 billion lending program focused on aiding small and medium-size businesses who were in good financial standing prior to the onset of the COVID-19 crisis. This program will enable the purchase of qualifying loans from lenders lending to U.S. businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. Additionally, it looks like firms who have taken advantage of the SBA Paycheck Protection Program will be eligible to participate in this program as well.

The Federal Reserve’s Main Street Lending Program will operate through two facilities: the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF). Eligible lenders may originate new loans (under MSNLF) or increase the size of (“upsize”) existing loan/tranches (under MSELF) made to eligible businesses. The program is not operational at this time, but the comment period just closed on April 16, 2020. Accordingly, we can expect the program to start and have an application available soon.

The MSNLF will purchase participations in eligible loans originated by lenders on or after April 8, 2020. The MSELF will purchase upsized tranches or loans originated by lenders before April 8, 2020 that meet specific eligibility criteria. In either case, the purchases will be on a risk-shared basis with the lender retaining 5% of the loans and the relevant facility purchasing 95% participation in the loans originated by eligible lenders. This 95% purchased participation will be through a single special purpose vehicle on a recourse basis as set up by a Reserve Bank branch.

We will first discuss the borrower, lender, asset, and entity eligibility requirements that are the same across both facilities before delving into the facility-specific issues.

Common Requirements

Eligible lenders include U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies (“lenders”). While eligible borrowers are businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. Borrowers must be a business created or organized in the United States or under the laws of the United States with significant operations in, and most of its employees based in, the United States. Borrowers who participate in program may not also participate the Primary Market Corporate Credit Facility as established by the Federal Reserve.

Eligible loans are unsecured term loans made by a lender(s) to a borrower that has: Continue reading »

Can You Appeal Your Real Estate Taxes in 2020?

The COVID-19 pandemic has caused an extreme financial hardship on most, if not all, Missouri families. As such, many owners of real estate are investigating how best to reduce outstanding financial obligations and save resources wherever possible.

Given this crisis, one obvious area to investigate would be outstanding tax liability. The Internal Revenue Service has extended the filing deadline for federal income taxes from April 15, 2020 to July 15, 2020. However, what about real estate taxes, which are generally due on December 31 of each year? This is another area to investigate and quite possibly take timely and appropriate action.

Missouri reassesses all real estate every odd-numbered year (e.g. 2019, 2021, etc.).  In even- numbered years, such as 2020, local Missouri assessors normally allow their values to remain unchanged from the prior odd-numbered year (2019).

If you failed to file an appeal in 2019 on a timely basis, can you now appeal in 2020? The general answer is yes, you can appeal your real estate taxes in an even-numbered year (e.g., 2020). However, the assessor takes the position that the valuation for your property in 2020 will be based upon the fair market value of the property as of January 1, 2019.

The local assessor determines both the fair market value and the subclassification of all real property. Real property is assessed under a two-year cycle. The value placed on a property for an odd-numbered year is placed on the property for the next even-numbered year. However, the assessor has the right to increase the value in an even-numbered year due to recent construction. Continue reading »

Business Interruption Insurance Coverage and COVID-19

In this time of massive economic downturn, stay-at-home orders and required closures of non-essential businesses, business owners are looking to their commercial insurance policies to provide coverage for their losses. Specifically, insureds are looking to apply the business interruption coverage of their policies. Of course, each specific policy must be read and applied to the insured’s specific situation, but the pandemic certainly raises issues that will need to be addressed by many insurers and their policy holders.

Business interruption coverage provides insureds with protection for a reduction in income resulting from a necessary suspension in operations. Often, this coverage applies when a business sustains loss of income due to physical damage to the property, such as from a fire or flood. Business owners filing claims arising out of the COVID-19 crisis are finding that their insurers do not interpret “physical damage” to include damage caused by the pandemic. Insureds have already begun filing lawsuits across the country, challenging this interpretation. They argue that possible COVID-19 contamination constitutes physical damage triggering coverage.

Some policies specifically address loss and damage from a virus, either in their exclusions to coverage or in their endorsements expanding coverage. Although many commercial policies contain coverage exclusions for damage caused by a virus or bacteria, insureds are examining these exclusions for ambiguities that may be construed in their favor. Disputes are also occurring over the interpretation of endorsements referencing losses caused by a virus. In one such case, SCGM v. Certain Underwriters at Lloyd’s, a theater chain filed a declaratory judgment action in The U.S. District Court for the Southern District of Texas against its insurer Lloyd’s of London, for its anticipated refusal to provide coverage under a “Pandemic Event Endorsement.” Lloyd’s has asserted that COVID-19 is not specifically listed as a covered disease on the endorsement while SCGM argues it is a variation of SARS-CoV, which is listed.

Another coverage contained in many policies is “civil authority” coverage. This coverage typically applies when a civil authority (i.e., a state or local government) issues an order prohibiting access to a business due to direct physical damage or loss to a property other than the insured premises. Continue reading »