By Corporate Law Practice Group
UPDATED 11/9/2020
The Main Street Lending Program (MSLP) from the Federal Reserve has been expanded. With the expansion, more small and medium-sized businesses can receive support. (Click here for details on the original MSLP program requirements.)
Let’s take a look at what is included in the expansion of the MLSP from modified definitions and program requirements to the new third facility called the Main Street Priority Loan Facility. (The Federal Reserve is currently working to establish a program for nonprofit organizations, but such a program is not yet available.)
Under the newly expanded MSLP, the minimum loan amount is lowered, the maximum loan amount is increased, the principal repayment schedule and loan term are extended, and the Federal Reserve’s participation increased to 95% for all loans. The expanded MSLP is now open for lender registration and the Federal Reserve will be actively buying loans soon.
How the Expansion Program Will Operate:
Continue reading »
06/18/20 4:34 PM
Business Law, COVID-19, Emerging Business, Manufacturing and Distribution | Comments Off on What Business Owners Need to Know About the Main Street Lending Program Expansion |
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What Business Owners Need to Know About the Main Street Lending Program Expansion
By Marcia Swihart Orgill
The Paycheck Protection Program Flexibility Act (Flexibility Act) makes key changes to the Paycheck Protection Program (PPP) that provide borrowers with more flexibility to obtain loan forgiveness, including extending the time period to spend PPP loan proceeds, reducing the payroll expenditure requirement for PPP loans, and extending the time period to restore employment and wage levels. The following is a summary of the modifications the Flexibility Act makes to the PPP.
1. Extension of Time to Spend Loan Proceeds. The Flexibility Act extends the covered period that a borrower must spend its loan funds from eight weeks after the loan origination date to 24 weeks or until December 31, 2020, whichever is earlier. The Flexibility Act allows borrowers that already received a PPP loan prior to enactment of the Flexibility Act to elect an eight week covered period, which may be beneficial for borrowers who have already spent most of their PPP loan proceeds and are near the end of their original eight week covered period.
2. Payroll Expenditure Requirement. The Flexibility Act reduces the payroll expenditure requirement from 75% to 60%. The remaining 40% of loan funds may still only be used for payments of interest on any covered mortgage obligation, rent and utilities.
In an Interim Final Rule issued on April 3, the SBA established the requirement that at least 75% of the PPP loan proceeds be used for payroll costs. If less than 75% of the of loan funds are spent on payroll costs, the SBA Loan Forgiveness Application requires a borrower to reduce the amount eligible for loan forgiveness. In changing the payroll expenditure requirement to 60%, the Flexibility Act added the following language to the CARES Act: “To receive loan forgiveness”, a borrower “shall use at least 60% of the covered loan amount for payroll costs.” Based on this language it is not clear whether a borrower will still be able to obtain partial loan forgiveness if the 60% threshold is not obtained. Continue reading »
06/9/20 4:37 PM
Business Law, COVID-19, Emerging Business, Employment Law, Manufacturing and Distribution, Other, Tax | Comments Off on President Trump Signs Paycheck Protection Program Flexibility Act |
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President Trump Signs Paycheck Protection Program Flexibility Act
By Marcia Swihart Orgill
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 »
05/14/20 2:33 PM
Business Law, COVID-19, Emerging Business, Employment Law, Manufacturing and Distribution, Other, Tax | Comments Off on Safe Harbor Deadline for Repayment of PPP Loans Extended from May 14 to May 18 |
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Safe Harbor Deadline for Repayment of PPP Loans Extended from May 14 to May 18
By Marcia Swihart Orgill
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 »
05/14/20 7:49 AM
Business Law, COVID-19, Emerging Business, Manufacturing and Distribution, Other, Tax | Comments Off on Additional SBA Guidance Regarding PPP Loan Business Necessity Certification and New Safe Harbor for PPP Loans of Less than $2 Million |
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Additional SBA Guidance Regarding PPP Loan Business Necessity Certification and New Safe Harbor for PPP Loans of Less than $2 Million
By Marcia Swihart Orgill
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 »
05/5/20 11:48 AM
Business Law, COVID-19, Emerging Business, Manufacturing and Distribution, Other, Tax | Comments Off on Safe Harbor Deadline for Ineligible Borrowers to Return Paycheck Protection Program Loans is Extended to May 14 |
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Safe Harbor Deadline for Ineligible Borrowers to Return Paycheck Protection Program Loans is Extended to May 14
By A. Thomas DeWoskin
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 »
04/29/20 12:26 PM
Bankruptcy, Business Law, COVID-19, Emerging Business, Litigation | Comments Off on Bankruptcy and Workouts After the CARES Act |
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Bankruptcy and Workouts After the CARES Act
By Corporate Law Practice Group
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 »
04/28/20 11:30 AM
Business Law, COVID-19, Emerging Business, Manufacturing and Distribution, Other | Comments Off on What You Need to Know About Your PPP Loan |
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What You Need to Know About Your PPP Loan