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Alston & Bird have released their June 18 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.

Main Street Lending Program (“MSLP”):  The MSLP was first introduced back in April and there was a lot of initial press around the program as an alternative to the PPP for larger companies. Actually rolling it out to the public, however, became a slow and arduous project. The program went through several changes and enhancements to make it more accessible to both the middle and upper-middle markets. On June 17th it was announced that the loan portal was open to lenders. This program, much like the PPP, will be administered through banks/lenders rather than through the SBA.  

The MSLP is not yet available for potential borrowers to obtain loans, but now that it is open to lenders, we suspect it will open up to borrowers shortly. Here is a link to FAQs that are helpful as this program continues to evolve. 

Below are some highlights of the MSLP:

• These loan products are NOT forgivable and do require security (assets, personal guarantee, etc.).
• Borrower Eligibility:
  • Must have 15,000 or fewer employees OR less than $5 billion of revenue in 2019.
  • Must not be an ineligible business and must be a US-based business established prior to March 13, 2020.
  • Must not have received support pursuant to section 4003(b)(1)-(3) of the CARES Act.  This is the “Mid-Sized Lending Program,” not the PPP.  Thus, borrowers can obtain both a PPP loan and a MSLP loan.
• There are three different loan facilities:
  • MSNLF:  Loan sizes from $250,000 to $35M and the loan cannot exceed 4X the borrower’s 2019 EBITDA when added together with existing and undrawn debt. The loan cannot be subordinate to existing debt of the borrower.  It is a 4-year facility, with principal and interest payments deferred for 1 year.  Interest is LIBOR+ 300 basis points.  The loan will have a 5 year term.  For more information on the terms, click here.
  • MSPLF: Loan sizes from $250,000 to $50M and the loan cannot exceed 6X the borrower’s 2019 EBITDA when added together with existing and undrawn debt.  The loan must be senior or pari passu with any other existing debt facilities and can be used to pay down existing facilities.  It is a 4-year facility, with principal and interest payments deferred for 1 year.  Interest is LIBOR+ 300 basis points.  For more information on the terms, click here.
  • MSELF: Borrowers can use this facility to refinance or upsize existing debt. This is a 4-year term loan ranging in sizes from $10 million to $300 million. The maximum loan amount cannot exceed (i) 35% of the Eligible Borrower’s existing outstanding and undrawn available debt or (ii) when added to the Eligible Borrower’s existing outstanding and undrawn available debt, 6X the Eligible Borrower’s adjusted 2019 EBITDA. The loan must be senior to or pari passu with existing debt facilities. Principal and interest payments are deferred for 1 year.  Interest is LIBOR+ 300 basis points.  For more information on the terms, click here.

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 qualified sick/family leave legislation (FFCRA, passed prior to the CAREs Act).
• 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.

The SBA released yet another Interim Final Ruling which provides for a variety of administrative updates/corrections, however there are a few notable clarifications as follows:

1. The SBA confirms that the maximum forgivable salary for non-owner employees during a 24 week period is in fact $46,154 per FTE, exclusive of health insurance, retirement benefits and state-level employment taxes. For “Owner Employees”, that amount is inclusive of health insurance, retirement benefits and state-level employment taxes.
2. For self-employed individuals (i.e., Schedule C filers), the maximum forgivable amount is $20,833, a welcome increase over prior guidance which had capped it at $15k. If you are a sole proprietor without employees, 100% forgiveness of your loan is a virtual certainty.  
3. The loan forgiveness amount for sole proprietors will be completely tax free. The same result will obtain for partners in partnerships who account for their allocated portion of the PPP loan as a distribution of profit (rather than guaranteed payment) because no deduction will be disallowed and the loan forgiveness amount is not includible in income.

EIDL Announcement: The EIDL program (described below) is accepting applications again.  Many businesses have struggled to obtain this loan, largely because the SBA was inundated with applications.  Now it appears funds are available and they have caught up. A reminder that you can have both an EIDL and PPP at the same time but both cannot be used for the same purposes.

Notice – Now Accepting New Applications for Economic Injury Disaster Loans and Advance: On June 15, SBA will begin accepting new Economic Injury Disaster Loan (EIDL) and EIDL Advance applications from all eligible small businesses and U.S. agricultural businesses. To learn more about eligibility and apply, click here.

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 qualified sick/family leave legislation (FFCRA, passed prior to the CAREs Act).
• 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 June 15 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.

Accounting for the PPP Loan: A question that Withum has consistently received is: When do we “write off” the PPP loan? This is an important question for borrowers who may have audited financial statements, where the presence of debt can have an impact on the company’s ability to borrow or meet financial covenants. Withum’s view thus far has been that the loan should remain on the balance sheet until such time that the bank has officially forgiven it. The technical accounting guidance would be to view forgiveness as a “gain contingency”, an event that is not fully within the control of the company and not certain to occur, therefore the gain (write off of the loan and related interest) should not be recognized until such time that forgiveness has actually been confirmed.   

The AICPA recently released a  Technical Question and Answer (TQA) on the matter,  while the TQA does indicate that gain contingency guidance is acceptable, it also opens the door to an alternate conclusion (see the link above and excerpt below). This is meaningful because the AICPA and the SEC indicates here that a borrower “may” be permitted to view the loan as a government grant, and therefore you would write it off (into other income on the income statement) as you use the proceeds from the loan based on your best estimate of what will be forgiven. This creates a very different result than the gain contingency guidance above. There is not yet authoritative guidance on this issue,  however this TQA is a clear indication that borrowers may have multiple options available to account for this loan. 

TQA 3200.18: “How should a nongovernmental entity account for a forgivable loan received under the Small Business Administration Paycheck Protection Program (PPP)?” 

Answer: “Given the unique nature of the PPP, questions have arisen relating to how a borrower under the program should account for the arrangement. Although the legal form of the PPP loan is debt, some believe that the loan is, in substance, a government grant.” In addition, the Staff of the SEC’s Office of the Chief Accountant has indicated that they “would not object to an SEC registrant accounting for a PPP loan under FASB Accounting Standards Codification (ASC) 470, Debt, or as a government grant by analogy to International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance.”

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 qualified sick/family leave legislation (FFCRA, passed prior to the CAREs Act).
• 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 June 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.

60/40 “Cliff” Rule Addressed: As we previously noted, the PPP Flexibility Act. changed the 75%/25% rule to a 60%/40% rule, allowing companies to realize a greater benefit from the non-payroll costs they incurred during their covered period. However, the law seemed to introduce a “cliff” effect whereby a borrower would not obtain ANY loan forgiveness if they did not spend at least 60% of their forgivable expenses on payroll. A joint statement made by Mnuchin and the Treasury today has clarified that this is not the intent. As noted below, it appears the intent is for the mechanics of this ratio to work in a similar way to the previous rule, meaning that non-payroll costs cannot exceed 40% of the total amount of forgiven costs, thus there is not a scenario where there will be no forgiveness on amounts spent if you do not reach a certain spend on payroll.  Borrowers just need to understand that increasing spend on payroll increases the non-payroll costs that will be eligible for forgiveness. This is obviously a welcomed clarification for borrowers. 

Lower the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.

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).
• 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 June 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.

The PPP Flexibility Act was signed into law on Friday, June 5. Over the last few weeks we have covered many important components of the Bill, our latest article covers more of the salient points as well as the nuances that all borrower need to be aware of. The topics in the article include:

• The 60/40 Rule (replacing the 75%/25% rule) appears to include a “cliff” effect, providing no forgiveness if you do not spend 60% of your proceeds on payroll.
• New ways to be exempt from the FTE reduction calculation, including  if a borrower can document an inability to return to the same level of business activity as it was operating at before February 15, 2020, due to compliance with requirements or guidance issued by the CDC, OSHA or HHS during the period from March 1, 2020 to December 31, 2020.
• Extension of the Covered Period – Important considerations borrowers should contemplate which may lead them to elect to keep an 8 week period as it is now otherwise automatically extended to 24 weeks.
• Extension of Loan Maturity Date – New terms for borrowers who received a loan after June 5^th, however a potential window to extend maturity for borrowers who received loans prior to as well.

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).
• 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.

The PPP Flexibility Act is on its way to the White House for signature. A few observations that we wanted to make today that borrowers need to consider:

1. Cap on Forgivable Salaries: The cap on salaries has been a simple formula ($100,000/52 X 8), resulting in $15,385 of maximum forgivable cash compensation during the covered period. The bill would extend the covered period to 24 weeks, and that should mean that the maximum forgivable salary amount would be $46,153 ($100,000/52 X 24). Once the bill is passed, Withum believes the SBA will issue guidance to this effect to ensure clarity to Borrowers. Borrowers would need to incorporate the new cap into their calculations, but this change would be favorable and enable most borrowers to obtain full loan forgiveness.
2. 8 Weeks vs. 24 Weeks: The bill would extend the covered period to 24 weeks; however, a borrower could elect to retain an 8-week covered period if they wish. The bill does NOT provide flexibility to have a covered period between 8 and 24 weeks, it appears to be one or the other.
3. Timing of Forgiveness: With a 24-week covered period, borrowers would need to plan for the fact that it is highly likely that their loan will not be forgiven during 2020 based on the length of the covered period and the amount of time banks have to render a decision on forgiveness. Borrowers may need to consider if that is meaningful to them from a financial statement perspective or a loan covenant perspective.
4. Tax Deductions for Forgivable Expenses: If forgiveness has not been granted to a borrower before it files its 2020 federal income tax return, then the borrower will have to decide whether to claim deductions on such return for the expenses that ultimately will give rise to loan forgiveness. The IRS has stated that the expenses relating to forgiven PPP loan amounts are not deductible, but until a borrower receives a loan forgiveness decision from its lender, it would seem appropriate to claim the deduction. This is something we will monitor closely as borrowers will need additional guidance on how to deal with this – it appears to be an unintended snafu. 

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).
• 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 June 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.

PPP Flexibility Act Passes the Senate! This evening the Senate passed the Paycheck Protection Program Flexibility Act.  The PPP Flexibility Act was passed by the House last week with bipartisan support.  The Senate had a competing bill called the Paycheck Protection Program Extension Act. that ultimately never made it to the floor.  The PPP Flexibility act was passed by the senate in its entirety without change, the details of the changes to the PPP are included in this article.  The article showed a comparison between the two pieces of legislation that is now no longer relevant, borrowers can just focus on the Flexibility Act.  The Act now heads to the President for signature, he has indicated that he is supportive, so we can expect this to pass into law within the next few days. 

The changes will be significant and will open the door for many borrowers to have their entire loan forgiven.  Withum recommends you review the article which breaks down the changes so you can begin planning out the impact on your loan.

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).
• 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.

Status of the PPP Flexibility Act: So far there is no news on the status of the changes to the PPP program other than the fact that Mitch McConnell confirmed that the Senate would “take up the bill.”  This is significant and we expect to see movement in the next few days. It also seems there may be an effort to merge the two pieces of legislation. The PPP Flexibility Act was passed by the House and the PPP Extension Act originated in the Senate but has not come to a vote. There are subtle differences, but all of them are borrower friendly. Stay tuned.

Status of the Program: The SBA released new statistics on the status of the program via a PowerPoint as of May 30^th. The document shows various statistics with respect to the type of borrowers, the average loan size, etc. Notably, it also shows that the program itself still has over $80B of funds available, and apparently negligible remaining demand.

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).
• 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 June 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.

We wanted to share news regarding the Paycheck Protection Program Flexibility Act. of 2020:

PPP Flexibility Act of 2020:  On Thursday, May 28, the House passed the PPP Flexibility Act. with a vote of 417-1. This is clearly a bipartisan piece of legislation that now goes to the Senate for the next phase in the process. The President has indicated his support for the bill. Based on what we are seeing it appears likely this bill will pass in some form. The changes proposed in this bill were largely included in the HEROS Act, which stalled in the Senate. This bill attempts to “carve out” changes to the PPP into a standalone bill to allow it to be pushed through without delay.

Our overall first reaction to this bill is that it is extremely borrower friendly. Congress appears to be attempting to open several doors to borrowers to allow for full forgiveness of the loan. The bill is without question a game changer. 

Here is what we know:

• Covered Period Extension:  The covered period would be extended from 8 weeks to 24 weeks.  There is some discussion that the Senate may want to shorten this to 16 weeks but that is not yet clear.  This change is significant because it provides borrowers enough time to use all of the funds to obtain max forgiveness.  Perhaps more importantly, if you have an FTE or wage reduction, that could be mitigated by a substantial increase in forgivable expenses incurred during the longer covered period.  For example, if you had a $100k loan, spent all $100k and suffered a 50% FTE reduction, you would only have $50k of the loan forgiven.  If the covered period is extended and you now have spent $200k on forgivable expenses, even with the 50% FTE reduction, you could have all $100k of the loan forgiven.
• 75% Rule Relaxed:  The bill would change the ratio of forgivable nonpayroll costs to payroll costs from 75%/25% to 60%/40%.  This will allow borrowers to get a much higher benefit for non-payroll costs like rent, utilities, interest, etc.  This is a nice win for borrowers who operate with low overhead or with limited staff.
• FTE Rule Relaxed:  Borrowers will have a new, fifth potential safe harbor from the FTE rule.  If the borrower can demonstrate (1) they were unable to rehire individuals who were employed on 2/15 (i.e., the original safe harbor rule), (2) they could not re-hire employees of similar skill sets or (3) they are able to document that they were unable to return to a similar level of activity when compared to 2/15 as a result of social distancing guidelines or other restrictions put in place by federal or local governments (e.g., capacity restraints put on restaurants), they will be allowed to ignore FTE reductions during their covered period. 
• Payroll Deferral Program Extended:  The IRS ruled that borrowers could take advantage of the employer payroll tax deferral provision until the date they received loan forgiveness.  This bill would extend that through December 31^st regardless of the status of the loan.
• Term of Loan Extended:  The repayment term of the portion of the loan proceeds that are not forgiven would be extended from 2 years to 5 years.  In addition, repayment does not need to begin until 1 year after the origination of the loan (rather than the current terms which require loan payments to begin 6 months after origination).

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).
• 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 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.