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With anticipation of additional guidance being released by the SBA, Withum invites you to join the SBA and Federal Tax Policy experts for a discussion regarding the PPP loan forgiveness process. This webinar will address the new up to the minute guidance in detail, focusing on the knowns, the unknowns, and the strategies for borrowers to make sure they are maximizing their forgiveness through their 8-week covered period. 

When: Thursday, May 21, 11:00 AM  – 12:15 PM EST

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Demand for the PPP may be fading:  There were a few articles that came out on May 11 (example CBS and Business Insider) indicating that the demand for PPP loans seem to be slowing, one article indicated that as much as 40% of the second tranche of funds remain available. This is likely the result of the recent surge of comments from various sources (Mnuchin, Treasury, etc.) which have led companies to question eligibility, but also an indicator that general demand is finally being met. For those who are still attempting to attain a loan, it appears there is still time.

Comments from the SBA Inspector General:  The Office of Inspector General’s mission is to “provide independent, objective oversight to improve the integrity, accountability, and performance of the SBA.” This group authored an analysis of the PPP implementation process and also outlined some concerns regarding the forgiveness process and the term of the loans. There is a lot to unpack with respect to the document but here are some thoughts that were drawn from and important expert (below).  We don’t yet know if this document will somehow influence changes in the program, given the nature of the covered period, there is very limited time to do so.  It is possible that it will only be informational, we will see:

• Term of the loan: The CARES act allows for PPP loans to have a maturity of up to 10 years, however in practice a two year repayment term was established for all PPP loans. The Inspector General questions if a two year repayment term creates undue financial distress for borrowers. It will be interesting to see if term are extended.

• The “75% rule”: The Inspector indicates that a borrow “who do not use at least 75 percent of the loan for payroll may not be able to have all of their loan forgiven.” This is important because the language is a clear indication that the 75% threshold is not a “binary” calculation, meaning if you less than 75% of the proceeds on payroll NONE of your loan is forgiven. There has been a great deal of diversity/debate on how this language should be interpreted, this analysis aligns with our current thinking, which is that a borrower does not need to spend 75% of their loan proceeds on payroll, however, forgiveness on non-payroll costs will limited up to a maximum of 25% of forgivable expenses incurred/paid.  

• Suggestion to change the 75% rule? – The last sentence urges that it “may be important to consider” that many companies will have significant non-payroll costs in excess of the 25% threshold. This has certainly been a problem for industries such as retail and restaurants.   

“In addition to the 75-percent payroll criteria, the maturity term established by the Administrator and the Secretary would require the borrowers to repay any amount not eligible for forgiveness within the remainder of the initial 2-year term. The Act, however, allowed for a maximum maturity of up to 10 years. SBA’s requirements could result in an unintended burden to the borrowers. For example, PPP borrowers who do not use at least 75 percent of the loan for payroll (therefore use more than 25 percent of their loan proceeds for nonpayroll expenses) may not be able to have all of their loan forgiven. It may be important to consider that many small businesses have more operational expenses than employee expenses. Our review of data from round one found that tens of thousands of borrowers would not meet the 75-percent payroll cost threshold and would therefore have to repay the amount of nonpayroll costs in excess of 25 percent in less than 2 years.”

Reminder Section:  (what should I be doing):

• Call your payroll company about claiming the payroll tax deferrals and employee retention credits that were made available in the CARES Act.
• Talk to your payroll company about the Sick Pay Bill (passed prior to the CARE Bill).
• Be in constant communication with your bank (about status of your PPP application).
• Consider speaking with your bank to discuss changes to terms of existing debt facilities. The banking system remains strong.
• If you have already applied for the PPP, start forecasting how you intend to spend the funds and how to qualify for the highest amount of forgiveness possible.

Alston & Bird have released their May 11 COVID-19 update, including the latest news on emergency funding, administrative and regulatory actions, workplace and home issues, and many other topics, as well as to links to all their past updates.

Webinar on Forgiveness – On May 21^st at 11am Withum will be hosting a webinar on how to calculate forgiveness.  Feel free to RSVP if you are interested in joining.  Based on recent FAQs Withum “suspects” new guidance will be out by Mid-May and thus we will have time to digest and discuss on the 21^st.  Given response rates from previous webinars, we recommend RSVPing as soon as you know you will be joining.

Use of EIDL Proceeds – We are starting to hear of some receiving the Economic Injury Disaster Loan (EIDL).  The question we are receiving is: Can we have both?  How do they interplay? Yes, you can have both the PPP and EIDL loan at the same time.  Keep in mind that you cannot use both loans for the same purpose, meaning you cannot use the EIDL for payroll costs, then ask for forgiveness of payroll costs relating to your PPP loan. The EIDL allows for a much more broad set of expenses that are “allowable” than the PPP and has a repayment term that can be as long as 30 years at a competitive, fixed interest rate, it can serve as a nice source of liquidity if you are able to receive it. 

Possible changes to the PPP – An article written by the NY Times talks about possible changes to the PPP program.  There has been an undercurrent of discussion around the length of the covered period and if it should be extended.  Withum has not heard anything that leads them to believe that the notion of extending the covered period is getting serious traction, but the article clearly indicates that certain members of Congress are focusing in on some of the PPPs inherent shortcomings.  If this develops, we will certainly let you know.

Inconsistencies on FAQs – As FAQs continue to come out, we are starting to see inconsistencies between old and new FAQs.  As an example, FAQ 3 and FAQ 44 address eligibility.  Importantly it addresses an interplay between the size standard and affiliation with foreign entities (parents, subs and sibling affiliations). FAQ 44 appears to close the loop on how to deal with a foreign entity when it comes to the size standard (i.e. the 500 employee test), but FAQ 3 appears to open the door to the notion that you only look at US employees when considering the size standard.  Issues like this are creating confusion as Borrowers try to understand what the “final” set of rules actually are.  A possible place to look for guidance when this comes up is FAQ 17, which appears to indicate that Borrowers and lenders may rely on the laws, rules, and guidance available at the time of their relevant application if it was made prior to April 2^nd.  If it was made after that period and new guidance has come out that is contrary to a position you took, you should consider discussing with counsel.

FAQ 45 – A new FAQ came out confirming if a Borrower returns their PPP loan, they will be eligible for the Employee Retention Credit.  Nothing earth shattering here, but a welcomed clarification.  As a reminder you ARE allowed to take advantage of the Payroll Tax Deferral if you received the PPP. 
45. Question: Is an employer that repays its PPP loan by the safe harbor deadline (May 14, 2020) eligible for the Employee Retention Credit? 
Answer: Yes. An employer that applied for a PPP loan, received payment, and repays the loan by the safe harbor deadline (May 14, 2020) will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit. 

Reminder of where to find updates on forgiveness calculation – On April 13^th Withum authored an article which covered a host of questions that we need to have answered when it comes to flaws/ambiguities in the forgiveness calculation.  Since that date, there have been over 20 new FAQs, Withum has updated this article to address the FAQs and their impact, it is a single source of information for what remains unknown for those who are struggling with issues.

Reminder Section:  (what should I be doing):

• Call your payroll company about claiming the payroll tax deferrals and employee retention credits that were made available in the CARES Act.
• Talk to your payroll company about the Sick Pay Bill (passed prior to the CARE Bill).
• Be in constant communication with your bank (about status of your PPP application).
• Consider speaking with your bank to discuss changes to terms of existing debt facilities. The banking system remains strong.
• If you have already applied for the PPP, start forecasting how you intend to spend the funds and how to qualify for the highest amount of forgiveness possible.

Alston & Bird have released their May 8 COVID-19 update, including the latest news on emergency funding, administrative and regulatory actions, workplace and home issues, and many other topics, as well as to links to all their past updates.

“Grace period” extended and SBA commits to new guidance on eligibility – FAQ 43 was released May 5^th, indicating that the May 7^th deadline for companies to return PPP funds without penalty if they have determined they are not eligible has been extended to May 14^th. The big news is that the SBA committed to providing “additional guidance” on how it will review the certifications made in the application prior to May 14, 2020.  This could mean that the SBA will further clarify (and possibly narrow) the scope of what they meant by the concept of “economic uncertainty.”  This is something that borrowers will need to closely consider. 

Clarification on Foreign Affiliates – FAQ 44 was released May 5^th and clarified that, for the 500 employee limit, the employees of foreign affiliates need to be included.  This is important because many companies were under the impression that only US employees were considered when it came to affiliation guidance.  Thus, if a company had a foreign subsidiary, those employees will now need to be included for the purpose of the 500 FTE headcount limitation.  Keep in mind, the 500 employee limit considers ALL employees as a full employee.  So a part time employee is considered 1 person for the purpose of this calculation.  This may require some companies to re-evaluate their eligibility. 

Reminder Section:  (what should I be doing):

• Call your payroll company about claiming the payroll tax deferrals and employee retention credits that were made available in the CARES Act.
• Talk to your payroll company about the Sick Pay Bill (passed prior to the CARE Bill).
• Be in constant communication with your bank (about status of your PPP application).
• Consider speaking with your bank to discuss changes to terms of existing debt facilities.  The banking system remains strong.
• If you have already applied for the PPP, start forecasting how you intend to spend the funds and how to qualify for the highest amount of forgiveness possible.

Alston & Bird have released their May 6 COVID-19 update, including the latest news on emergency funding, administrative and regulatory actions, workplace and home issues, and many other topics, as well as to links to all their past updates.

Cash is the lifeblood of any business. In good times, cash management may slip to the back burner, but with the current pandemic and companies delaying payments, now is not the time to be casual about your money. Join NEI and UA training instructor, Kathy Crosby, to learn how to keep delayed payments from getting out of control, protecting your rights, and how to measure your company’s cash flow in order to better manage it. Attendees will learn about leveraging relationships with vendors, subcontractors, banks and sureties, as well as how to reduce the risk of delayed cash when it comes to retention, change orders, T&M work and billing issues.

When: Tuesday, May 12 at 1:00 p.m. – 2:00 p.m. EDT

Below are two recently issued Frequently Asked Questions published by the Small Business Administration and Treasury Department on eligibility for Paycheck Protection Program loans for public and privately owned companies and eligibility for firms that have access to other adequate sources of liquidity.  The after-the-fact guidance issued on April 24 and April 28 is causing some degree of confusion among firms that have already applied for and been granted PPP loans before publication of this criteria.

Following the FAQs below is some discussion of the issue by the national accounting firm Withum.  MCAA is not providing legal or accounting counsel on this issue and is advising member firms of this issue so they can discuss with their legal and accounting consultants.

31. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. (11)
11 Question 31 published April 23, 2020.

37. Question: Do businesses owned by private companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: See response to FAQ #31. (14)
14 Question 37 published April 28, 2020.

Analysis From Withum:
FAQ 31 was a reference to the recent (and somewhat controversial) FAQ asking if companies owned by “large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?”  This FAQ is interesting, because FAQ 31 didn’t specifically include or exclude private companies from its question, so it is unclear why the SBA decided that it needed to take this step and offer even further clarification.  Also this FAQ does not seem to answer its own question, it just refers to another question’s answer…which doesn’t really address the question either….very strange.  One could surmise that the SBA may be trying to narrow in on a point of view regarding PE/VC investors, but even that doesn’t make a lot of sense given the fact that in the 3rd Interim Final Ruling (IFR) an FAQ specifically states that portfolio companies of PE funds are in fact eligible as long as they meet the affiliation guidance.  Your guess on all of this is as good as ours.

In the end, FAQs like this don’t really do much to create clarity, and certainly raise concerns from the middle market who are seeking to act in good faith.  Our recommendation ultimately remains the same – document your position and the circumstances that existed at the time you applied for the loan, if you are unsure, certainly consider consulting counsel.  We also recommend documenting the uncertainties that existed within your board minutes (if you keep them) so it is clear as to what the facts were, and what was known or knowable at the time you applied.

Analysis of FAQ #31 regarding eligibility:  Last week we provided a high level breakdown of a somewhat controversial FAQ that seemed to target PPP eligibly for public companies and businesses “owned by large companies”.  This FAQ created some anxiety amongst PE and VC backed entities because it seemed to imply that the goalposts may have been moved for them in terms of considering if they can apply.  We found a great article that breaks down this FAQ even further in case you wanted to dig in.  In the end our recommendations from last week have not changed, documenting your view on why you are eligible and why you believe you have business uncertainty remains important, we don’t know that this FAQ created any major changes for the typical applicant, but certainly may have been a message to Wall Street.

We continue to explore this issue and will provide more guidance as it becomes available.

Alston & Bird have released their May 4 COVID-19 update, including the latest news on emergency funding, administrative and regulatory actions, workplace and home issues, and many other topics, as well as to links to all their past updates.

Alston & Bird have released their May 1 COVID-19 update, including the latest news on emergency funding, administrative and regulatory actions, workplace and home issues, and many other topics, as well as to links to all their past updates.

Alston & Bird has published their April 29 edition of their A&B 50-State Openings Tracker, along with details and links for quick reference.

Alston & Bird have released their April 29 COVID-19 update, including the latest news on emergency funding, administrative and regulatory actions, workplace and home issues, and many other topics, as well as to links to all their past updates.

Alston & Bird have released their April 27 COVID-19 update, including the latest news on emergency funding, administrative and regulatory actions, workplace and home issues, and many other topics, as well as to links to all their past updates.

Alston & Bird have released their April 24 COVID-19 update, including the latest news on emergency funding, administrative and regulatory actions, workplace and home issues, and many other topics, as well as to links to all their past updates.

Lindabury, McCormick, Estabrook & Cooper, P.C. has prepared a Rider for MCAA members to include in a response to a proposal or an actual subcontracting agreement to take into account the risk to the parties during the COVID-19 pandemic.