Now that the President has signed the Combined COVID-19 Relief and Omnibus Spending Bill, below are some of the highlights affecting local businesses:
The Act allocates $325 billion of relief to businesses and nonprofits, including $284 billion for another round of Paycheck Protection Program (PPP) loans.
Eligibility requirements for the “Second Draw” PPP for both first-time and repeat PPP borrowers include:
This time the following entities are excluded from eligibility: public companies (except news organizations), lobbying entities, entities with China-based ownership, and entertainment venue businesses who receive aid under a separate part of the Act.
Eligibility is expanded for non-profits and local newspapers, TV stations and radio stations, as well as trade and professional associations that operate as 501(c)(6) non-profits, with the following 501(c)(6) entities still excluded:
There is also $20 billion included in the Act for targeted EIDL grants.
The maximum loan amount an eligible company can receive is the lesser of $2 million or 2.5 times the monthly payroll costs incurred during the one-year period before the loan is made, or during calendar year 2019. There is a small exception for (3.5 times the monthly payroll for the hotel and restaurant industries). The Bill still has the 60% payroll/40% non-payroll expense split that was in last year’s PPP law.
The new Act includes additional provisions to assist small and medium size businesses, which can also be applied retroactively to all PPP loans, including those taken under the March statute:
In addition to the PPP updates, the Act also modifies or extends employee retention tax credit, business meal deductions, and retirement plan distribution relief.
The Act also modifies the paid sick and family leave sections of the Families First Coronavirus Relief Act (“FFCRA”). The FFCRA required that employers with fewer than 500 employees provide mandatory paid sick and family leave to employees, and it also granted tax credits for employers who provided the paid leave, subject to certain income limits and caps. The paid leave provisions of the FFCRA were originally scheduled to expire on December 31, 2020. The Act states that eligible employers may, but are no longer required to, continue to provide paid sick and family leave, and continue to receive the associated tax credits, through March 31, 2021. In addition, the FFCRA’s paid leave provisions have been expanded to cover self-employed workers.
The Act also reinstates a $300 per week unemployment for anyone out of work because of the COVID as well as direct payments up to $600 per adult and child and extends the eligibility period through March 14, 2021. Claimants receiving benefits as of March 14, 2021 would continue to receive them through April 5, 2021 if they have not reached the weekly benefits maximum. In addition, the period of unemployment insurance benefits during for eligible claimants would increase from 39 weeks to 50 weeks.
Other provisions of the Act:
Another week, another Federal Government Stimulus Package
Last week, the Treasury Department and the Federal Reserve Board released the details of the latest economic stimulus package – the Main Street Lending Program (MSLP).
The Treasury will use $75 billion of the $2 trillion CARES Act funds and the Federal Reserve will use $600 Billion in its emergency lending powers to purchase loans issued to small and medium sized businesses. The MSLP’s purpose is to promote liquidity for lenders who are issuing loans to small and medium sized businesses.
Although more guidance is anticipated from the Treasury and Federal Reserve Board, as well as participating banks, below is what we know so far:
There are two types of loans under MSLP. The Main Street New Loan Facility (“MSNLF”) covers eligible loans originated on or after April 8, 2020. The Main Street Expanded Loan Facility (“MSELF”) covers eligible additional tranches of funding for loans that were originated before April 8, 2020.
These loans are separate from the Payroll Protection Program that was established under the federal CARES Act and the EIDL, 7(a) and other disaster loans that are available through the U.S. Small Business Administration. However, like PPP, businesses can apply for these loans through their banks or other lending institutions, not the Small Business Administration.
These loans are unsecured just like the PPP loans. However, there is no forgiveness provision as there is under PPP. Like all other loan programs, it is available only to businesses which show that refinancing is required as a result of the COVID-19 pandemic.
The loan payment term is four years, with a one year deferral before the first payment is made. The interest rate is SOFR plus between 250-400 basis points. The minimum loan amount is $1 million. The maximum loan amount will be $25 million for MSNLF loans and $150 million for the MSELF loans. The loan caps have other criteria that each business will need to work out with its lender. Prepayment is permitted.
Eligible borrowers under the program are businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. Each eligible borrower must be created or organized in or under the laws of the United States. It must have significant operations and a majority of its employees based in the United States. In addition, the business must have been in good financial standing before the crisis. Lenders will be expected to use customary underwriting standard in evaluating loan applications. These loans are not available to insolvent entities or a debtor in a bankruptcy proceeding.
The MSLP is available to businesses in addition to loans received under the PPP. The program may be an option for private equity or venture capital-backed businesses that had difficulty qualifying for the PPP program because of the SBA’s “affiliation” rules relating to employee head count.
A business must choose between the MSNLF and the MSELF. It cannot apply for both.
Lenders must not issue the loans in order for businesses to repay, reduce, or refinance existing loans or lines of credit with that lender.
Similarly, businesses may not use the loans to repay, reduce, or refinance any outstanding loans or lines of credit.
Borrowers must also meet certain loan worthiness criteria and must follow certain executive compensation limitations, stock repurchase restrictions, and capital distribution restrictions issued by the SBA.
The start date for these loans was April 8, 2020, although it is not clear when banks will be ready to take applications, especially considering the slow roll out of PPP.
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Whenever we have complex business or litigation issues, we rely on SilvermanAcampora. The business and accounting acumen of its attorneys puts it in a class by itself. Its attorneys are staunch advocates that always have their eyes on the end zone with their client’s needs in mind.
Whenever we have complex business or litigation issues, we rely on SilvermanAcampora. The business and accounting acumen of its attorneys puts it in a class by itself. Its attorneys are staunch advocates that always have their eyes on the end zone with their client’s needs in mind.
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