On January 7th, the Treasury Department announced that the Paycheck Protection Program, a unique program that kept many businesses afloat during the initial months of the pandemic, will re-open the week of January 11 for a second round of loans for new borrowers and certain existing PPP borrowers. To promote access to capital, initially only community financial institutions will be able to make First Draw PPP Loans beginning on Monday, January 11, and Second Draw PPP Loans on Wednesday, January 13. The PPP will open to all participating lenders shortly thereafter.The PPP fund provides forgivable loans to businesses, providing they maintain their payroll.
These challenging times present particular challenges to small business. Notwithstanding efforts to stimulate the economy, the fact remains that many businesses simply can’t function at a sustainable level without open doors and customers who require inventory, raw materials or products to sell. Empirical data supports a substantial downturn in gross domestic production such that the federal government has declined to publish economic forecast data for the summer of 2020. Millions have been separated from employment – either temporarily or permanently. Every business and every businessperson has felt the economic effect of the pandemic.
While small business may never be the same, it is not dead. We all know the United States economy is driven by small to medium employers no matter the media focus on big industry. There will no doubt be consolidation in nearly every sector of the economy from construction to retail. History has proven that, for the savvy businessperson, trying times like these bring opportunity. Taking advantage of opportunity requires strong, focused and forward thinking business relationships.
On June 3rd, the U.S. Senate passed the “Paycheck Protection Program Flexibility Act” (the “Flexibility Act”) which had been previously passed by the House of Representatives on May 28, 2020. It is expected that President Trump will sign the legislation today, June 4th. The Flexibility Act provides a number of modifications to the Paycheck Protection Program (“PPP”) provisions of the CARES Act, which will significantly increase the forgivable loan amounts of PPP borrowers. Arguably, the Flexibility Act turns the PPP into more of a small business subsidy/assistance program, rather than a true paycheck protection program.
The Flexibility Act includes the following changes to the PPP:
Much has been made and reported about the federal government’s effort to sustain the economy and assist working families through programs such as enhanced unemployment benefits and the Payroll Protection Plan. AMM has assisted many small business owners in negotiating the application process and anticipating both documentary requirements and potential financial consequences of the available programs. State and local governments have also offered programs to the business community. Bucks County has now announced the creation of a new grant funding opportunity: the “Bucks Back to Work Small Business Grant” program. Availability is limited, however, and the application window is small so qualifying business owners must act quickly to obtain a share of the grant fund.
May 14, 2020
Yesterday the Small Business Administration (SBA) issued updates to its Frequently Asked Questions (FAQs) guidance on the Paycheck Protection Plan (PPP) Loans, and added Questions/Answers (Q&A) 45 and 46, with the latter Q&A being directly related to the certification issues, and to the corresponding May 14th deadline for the return of funds as a “safe harbor” from civil and criminal penalties relating to the certification of need.
As previously reported, the PPP applications required borrowers to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Until its issuance of this Q&A, the SBA’s guidance suggested that it would seek to impose civil and criminal penalties relating to the certification as a first resort, if it determined that the loan was unnecessary. In doing so, the SBA induced a sense of fear; and then further induced a sense of urgency by offering the safe harbor from such penalties, allowing borrowers to return the funds on or before May 7th to avoid such penalties. Such deadline was further extended to May 14th.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law on March 27, 2020, provides $349 Billion in SBA 7(a) forgivable loans to businesses and nonprofits with fewer than 500 employees [see endnote 1), including sole proprietors, the self-employed and independent contractors. Known as the Paycheck Protection Program (PPP), the maximum available loan amount is 2.5 times your average total monthly payroll costs, capped at $100,000 per employee on an annualized basis [see endnote 2]. The loan proceeds can be used for any authorized business purpose, but to the extent used to pay payroll costs, healthcare benefits, eligible rent or mortgage interest payments and utility costs over an eight (8) week period from the date the loan is made, the loan can be forgiven (the lender is paid by the SBA). There is no collateral and no personal guarantees required. There is no requirement regarding exhausting other available credit. The SBA pays the lender all loan origination fees and has waived many of its otherwise onerous requirements. To the extent any loan balance is not forgiven, the interest rate will be fixed at the time of the loan somewhere between 0.50% and 4.0% [see endnote 3], amortized over up to 10 years, payable over two (2) years, with all payments deferred for six (6) months. There is no prepayment penalty. The program is only available through June 30, 2020, but funds are limited, so don’t wait. For more detailed information, see below and PPP Information Sheet.
With individuals residing in Allegheny County, Bucks County, Chester County, Delaware County, Monroe County, Montgomery County, and Philadelphia County ordered to stay at home with only certain limited exceptions, and non-life sustaining businesses ordered to close, business owners struggle with what to do next. The full text of the Governor’s order and other related information can be found here. While there are many unanswered questions and additional guidance is continually being issued, business owners do have resources available to them.
Business interruption insurance covers a business’ losses resulting from a direct physical loss or damage to property. Accordingly, coverage under such a policy generally will not trigger unless there is a direct physical loss to the business’s property. In some circumstances, loss of income due to a disaster-related closing of a business’ physical location is covered.
The coronavirus pandemic has already caused massive financial impacts across nearly every industry in the Commonwealth of Pennsylvania. Unemployment claims have skyrocketed, essentially all physical business locations are closed, and industry is struggling to convert to remote operations. Unfortunately, it appears the financial crisis is just beginning.
Pennsylvania Business owners have probably heard that Governor Tom Wolf ordered that all "non-life-sustaining" businesses in Pennsylvania must close their physical locations to slow the spread of COVID-19. This order went into effect last evening. You may be wondering whether your business is “life-sustaining” and may stay open. There is little guidance from the Governor’s office, other than the chart published by the Governor.