Yesterday, the House of Representatives passed H. Res. 266, the Paycheck Protection Program and Health Care Enhancement Act, which was signed by President Trump this afternoon. As many have probably followed within the news media, this resolution has appropriated additional funding to the highly sought Paycheck Protection Program (“PPP”) loans and other economic stimulus measures created under the SBA umbrella.
For those of you who did not receive a PPP loan with an eligible application due to a lapse in appropriations funding, the passage of this resolution has provided another opportunity for you to acquire much needed assistance to continue your business operations. House Resolution 266 provides for the following:
- additional $321 billion in funding for the Paycheck Protection Program
- $60 billion reserved for smaller depository institutions, credit unions, and community financial institutions
- additional $10 billion in funding for Economic Injury Disaster Loans (EIDL)
- Cassady Schiller is anticipating that maximum loans of $15,000 will remain in effect
- Cassady Schiller is anticipating that emergency grants of $1,000 per employee (max of $10,000) will remain in effect
- additional $75 billion in funding to health care providers reimbursements
- additional $25 billion in funding for COVID-19 testing
- additional $62 billion in funding for administrator salaries and wages and other SBA loans
- $10 billion allocated to EIDL (separate from above)
As many of you have likely seen in the news media, the debate of “need” has come into question for many notable publicly traded restaurant and hospitality brands across the nation. As such, the U.S. Department of the Treasury also added another FAQ yesterday targeting this concern:
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 “current 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.
In addition to this FAQ, the House of Representatives also passed H. Res. 935 yesterday to establish a Select Subcommittee on the Coronavirus Crisis as a select investigative subcommittee of the Committee on Oversight and Reform. This subcommittee is tasked with investigating and reporting on:
- the efficiency, effectiveness, equity, and transparency of the use of taxpayer funds and relief programs to address the coronavirus (i.e., the virus that causes COVID-19) crisis;
- reports of abusive practices related to the coronavirus crisis;
- the implementation or effectiveness of any federal law applied, enacted, or under consideration to address the coronavirus crisis and prepare for future pandemics;
- preparedness for and response to the coronavirus crisis;
- the economic impact of the coronavirus crisis on individuals, communities, small businesses, health care providers, states, and local government entities;
- any disparate impacts of the coronavirus crisis on different communities and populations and the measures taken to address the disparate impacts;
- executive branch policies, deliberations, decisions, activities, and internal and external communications related to the coronavirus crisis;
- the protection of whistleblowers who provide information about improper activities related to the coronavirus crisis; and
- cooperation by the executive branch and others with Congress, the Inspectors General, the Government Accountability Office, and others in connection with oversight of the preparedness for and response to the coronavirus crisis.
As we have previously communicated, we strongly recommend documenting the current economic uncertainties the business is currently facing that warrants a PPP loan should their purpose ever come into question. Such documentation could include, but is not limited to:
- Updated financial projection comparing forecasted revenues and expenses for 2020 before and after the COVID-19 crisis. This should include the anticipated loss in business and any reduction in payroll that would be required to mitigate the impact;
- Cash flow analysis, reflecting the impact of slower collection of customer receivables resulting from the COVID-19 crisis;
- Non-financial information pertaining to employee retention due to COVID-19 related causes (i.e. school closings, enforced social distancing, limited business travel, etc.).
While we are uncertain whether such information will be required as part of the PPP forgiveness processes, we recommend that borrowers take these measures to ensure that legitimate business concerns have been documented.
If you have any questions, please contact us.