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June – December 2020 Covid-19 Legal Update Archive

June 1, 2020 – What Would You Do If You Were an Entrepreneur Now?

I was reading through a digital newsletter (Trends.co; I highly recommend) over the weekend and came across a fascinating Q&A with a “Futurist” named Amy Webb.  She was asked about looking at business opportunities and how her team comes up with ideas.  Below are the five questions that they consider when assessing the next big trends:

  1. Where/how are people wasting their time?
  2. Where/how are people having difficulty with technology?
  3. Where/how are people looking for information?
  4. Where/how are people stuck?
  5. How do people want to be perceived?

As you look at your next steps or strategic shifts in your business, perhaps the above questions could spur on some thought for you and your team.  What would you do if you were an entrepreneur right now?  The answer may surprise you.

Also – No word out of the Senate yet on the PPP bill.

Here are some other things that may be important or relevant for you:

June 2, 2020 – Round 2 PPP Funding Continues Slide

PPP round 2 stats through 5/30 were released by the SBA last night.  Loan dollars are continuing to slide (i.e., more money coming back than going out), as the total amount approved for round 2 dropped to $168B from $169B as of the prior report from 5/23 (see my spreadsheet for more details).

Total approved loans per borrower of <$350k are continuing to increase, while those that are >$350k are declining since the last update.  Clearly, the loan mix this round is benefitting the smaller businesses.

However, many initial borrowers are likely unable to use the funds or do not want to risk an audit given that more PPP funds are coming back than going out.  With many states still slowly reopening, I would bet it is more the former than the latter.

Assuming the Senate passes a revised PPP bill, I could see the loan funds moving in the other direction quickly.  If you are still considering the PPP, please make sure you are in contact with an approved lender and have your documentation ready.  Also, pay attention to the new rules which will be in place with a revised PPP bill.

Here are some other things that may be important or relevant for you:

June 3, 2020 – Senate inching closer and closer….

Rumors are swirling that the Senate may vote on the revised PPP bill today.  The major push back comes from Sens. Lee and Johnson, who both want an Aug. 15th expiration date and not a December 31st date as passed in the House bill.  It sounds like Senator McConnell wants the bill to pass unanimously, so perhaps the expiration date will not be the end of the year.  We are inching closer and closer.

As mentioned yesterday, if you haven’t applied and think you could use the funds, I would recommend getting in touch with your lender and pulling together your paperwork.

Here are some other things that may be important or relevant for you:

June 4, 2020 – Senate Passes Paycheck Protection Flexibility Act

Last night, the Senate voted unanimously to pass the Updated PPP relief bill (aka, the Paycheck Protection Flexibility Act).  The key bullet points below compiled by the AICPA provide a good synopsis:

  • Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
  • Under the language in the House bill, the payroll expenditure requirement drops to 60% from 75% but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met.  Rep. Chip Roy (Texas), who co-sponsored the bill in the House, said in a House speech that the bill intended the sliding scale to remain in effect at 60%. Senators Marco Rubio and Susan Collins indicated that technical tweaks could be made to the bill to restore the sliding scale.
  • Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
  • The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
  • New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
  • The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.

It will be interesting to see if the remainder of the PPP Round 2 funds will be exhausted with this update.

Here are some other things that may be important or relevant for you:

June 5, 2020 – Predictions and Estimates are not Guarantees

Predictions and estimates are good for scenario analysis.  However, predictions and estimates are not guarantees and very rarely come true.  I wanted to share a few stories which I think show a move toward normal, versus some of the gloomier outlooks that have been shared on a national level over the last several months:

May sees the biggest jobs increase ever of 2.5 million as economy starts to recover from coronavirus

Lowe’s same-store sales surge 11.2% as coronavirus restrictions spark home improvement spending

US Treasury Yields Rise After Positive Economic Reports (just a headline from 6/3/2020, you need a subscription to see the whole article)

The moral of the story, and I have said this in a number of prior posts:

You choose whether you want to participate in a downturn.

Here are some other things that may be important or relevant for you:

  • June 2020 Economic Review – check out the latest from Robert Teeter at Silvercrest Asset Management Group (thanks to Sean O’Dowd for sharing).  The quote from Roberto Clemente was particularly impactful:  “Why does everyone talk about the past?  All that counts is tomorrow’s game.”

June 6, 2020 – Latest PPP numbers & An Update From Us

PPP stats were released by the SBA through 6/6.  The loan numbers for round 2 continued to decline versus the last update through 5/30.  The vast majority of recipients (98%) are receiving loans of $350k or below, while the average loan is ~$60k thus far in round 2.  The amount still available under the program remains at $130B.

As I have previously mentioned, the recent PPP modification passed and signed into law by the President may result in more activity moving forward.  However, given the recent economic numbers and the continued reopening of the economy, there may not be as great a demand for the recovery funds.  If you are considering applying, please make sure you are talking with your financial institution and professional advisors.

On another note, we want to say how much we value your time and feedback related to our updates.  Our goal from the very beginning was to provide as much assistance as possible to the small business community.  You are key to both the recovery and continued greatness of our Country.  As such, we also want to be mindful of your time and continue providing you with factual and actionable content.  Going forward, barring any major news, we will plan to send out our MPL General Counsel Corner every Friday starting this week.  For those that would like to include information on our emails, please continue to send them over.

Keep moving forward, things will get back to normal. 

Here are some other things that may be important or relevant for you:

June 12, 2020 – Going Green – Boogity, Boogity, Boogity, Let’s Go Racing!

Its been a week to digest the PPP Flex Act that was signed into law by the President.  The Dept. of Treasury recently issued an updated Interim Final Rule to reflect the changes.  As a reminder, here are the major items that are different than the original PPP rules:

  1. Covered Period for PPP Loans now runs until December 31, 2020, versus the prior June 30, 2020.   You still must apply by June 30th.
  2. Maturity Date for PPP loans is now 5 years for loans made after June 5, 2020.  If you have a PPP loan that was issued prior to this date, you and your lender have to mutually agree to extend the term from two years to five years.
  3. Loan forgiveness coverage period can be 24 weeks, versus the prior eight weeks.
  4. Deferral period for the PPP principal and interest payment is now 10 months after the end of your loan forgiveness period, versus 6 months prior.  Interest continues to accrue during the deferral period.
  5. To be eligible for full forgiveness, 60% of the loan must be used for eligible payroll costs.  If you do not reach this threshold, there are proportionate amounts that will still be forgiven in keeping with the prior rules.
  6. EIDL loans that have been used for payroll must be refinanced under the PPP loan.  Also, if you received any portion of the $10k advance, the amount received is deducted from your approved PPP forgiveness amount (this is the only amount that impacts your PPP forgiveness amount; the remainder of an EIDL is a separate loan).

Stay tuned for more information to come out as the updated PPP rules are applied.

Other than that, here in PA more counties went to the green phase today, including York County.  I don’t know why, but when heard we were going green, I kept hearing Darrell Waltrip’s famous saying for the start of a NASCAR race:

Boogity, Boogity, Boogity, Lets Go Racing.

Have a great weekend everyone and we will talk to you next week.

Here are some other things that may be important or relevant for you:

June 16, 2020 – States aren’t the only thing reopening – Welcome back EIDL

Yesterday, the EIDL application portal opened up for all small businesses again.  Below are the key points about an EIDL.  The highlighted section is the most common question I have received regarding the EIDL versus the PPP.

  • Who is eligible:  Businesses, Coops, ESOPs and tribal small businesses with < 500 employees; sole proprietor, independent contractors, most private non-profits
  • The max loan is $2m at a 3.75% for businesses and 2.75% for non-profits with up to a 30 year term
  • Up to $200k can be approved with a personal guarantee
  • Approval can be based on a credit score and no first-year tax returns are required
  • No collateral required for loans of <$25k
  • Borrowers must allow the SBA to review their tax records
  • You are eligible to apply for up to a $10k advance under the EIDL, which is a grant and does not have to be repaid.  The amount of the advance will directly reduce your forgiveness amount under the PPP dollar for dollar.  The balance of the EIDL does not impact the forgivable amount under the PPP.
  • EIDL funds cannot be used for the same purpose as a PPP loan.

June 18, 2020 – PPP forgiveness tent has definitely expanded

There have been numerous updates related to the PPP forgiveness application.  Importantly, a new EZ version and revised full version were posted with instructions.  In my reading of the details, the PPP forgiveness tent has definitely expanded.

Rather than reinvent the wheel, I thought that Trout CPA put out an excellent overview and video highlighting the key points (see below).  Also, if interested, an interim final rule (creatively named the Interim Final Rule on Revisions to the Third and Sixth Interim Final Rules) was also published on 6/17 explaining the new forgiveness details.

The EZ version of the forgiveness application applies to borrowers that:

  • Are self-employed and have no employees; or
  • Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; or
  • Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.

The new and revised full version of the forgiveness application has the following updates:

  • The employee forgivable pay cap is expanded to $46,154 if 24 weeks is selected and remains at $15,385 if 8 weeks is selected.
  • Owner compensation is expanded up to $20,833 (or 2.5 months’ worth of 2019 pay if less) if 24 weeks is selected and remains at $15,385 if 8 weeks is selected.
  • New FTE reduction exceptions and safe harbors from the PPP Flexibility Act have been added.
  • New clarification that health insurance paid during the covered period does not qualify for S-corporation owners.

Links for applications, instructions, and worksheets:

Video Overview of New Applications by Trout CPA Tax Manager Dan Chodan, CPA
EZ Loan Forgiveness Application
EZ Loan Forgiveness Instructions
EZ Loan Forgiveness Application Worksheet
Loan Forgiveness Application
Loan Forgiveness Instructions
Loan Forgiveness Application Worksheet

Here are some other things that may be important or relevant for you:

Finally, I know I was going to send these out on Fridays.  However, I felt the two updates this week were important for everyone to know given it was updates to the forgiveness portion of the PPP.  Barring another major announcement, I will get back on the Friday schedule next week.

June 26, 2020 – PPP Forgiveness moves to be more business friendly

I hope the week has gone as best as can be expected.  More PPP updates have come out from the Treasury Dept.  If anything, the optional expansion of up to 24 weeks from 8 weeks, along with the 60% threshold provides more flexibility and makes the program more friendly to businesses.

Below are the links to the various updates if you would like to add to your weekend reading list.  FYI, as of this morning, it looks like the Treasury PPP site is being updated (i.e., the links may not be live when you click on them)

The NFIB webinar from earlier this week also provided a nice overview of maximizing PPP loan forgiveness.

Here are some other things that may be important or relevant for you:

July 7, 2020 – Perhaps we are in a recovery and we don’t know it…Beware of Consensus!

Apologies we did not get an update out last week.  We took some time off and I made a conscious effort to try and stay away from the computer.  It was actually quite refreshing, but I still snuck in a few peaks here and there.    Now back to business!

Here are some items that I think are important or interesting for you to know.

  • PPP Program Update Through 6/30/2020 – There is still about $130B of funds available.  The number has stabilized at this level for the last few weeks.  This week’s update provides some interesting additional data about jobs and loan approval rates by State.  PPP keeps hanging on.
  • PPP Keeps Hanging On.  If you have not applied yet, the deadline was extended last week to August 8th.  Check out the article by Alan Gassman at Forbes.com.  It provides an excellent overview of the current state of the PPP program.
  • Perhaps we are in a recovery and we don’t know it…Beware of Consensus!  If you look at the latest employment numbers and other economic indicators, things are pointing positive.  However, the naysayers (i.e. analysts) tell us its only temporary.  I believe you can succeed in any economic environment.  You do not have to participate in a downturn, if it actually happens as analysts predict (As an aside, I was an equity analyst for the first part of my career and I was wrong a heck of a lot more than I was right.  By the way, my numbers tended to be in-line with consensus numbers).
  • Who took out PPP loans? – if you are interested, there is a list of each business that took out loans of >$150k.  It should not take long to peruse, there are only 661,219 rows of information.  For those that took out less than $150k, you only get the high-level data without the names.  I am not sure what is magical about $150k for name recognition.  Maybe you can turn the <$150k data into a business name guessing game?

July 15, 2020 – Tax Man Cometh – Don’t ignore your professional advisors

Tax Day (Covid-style) is today.  While the 2019 returns are likely straightforward, next year could be another story.  As a reminder, please make sure you are in contact with your professional advisors and taking advantage of the various relief programs.  A little guidance now could save you a lot of headaches in the long run.

A few helpful coronavirus resource pages that I check on regularly are listed below:

Here are some items that I think are important or interesting for you to know.

July 25, 2020 – A Little Forgiveness Advice From Mark Twain

One of the most popular topics I hear from clients these days revolves around PPP forgiveness.  There has been a lot of talk about what it looks like and how quickly it will occur.

Carey Gertler, from EisnerAmper, forwarded an interesting blog from the AICPA which I think highlights some excellent points as to why you should not rush to apply for forgiveness.  On top of that, Secretary Mnuchin is on record pushing for automatic forgiveness for PPP loans under $150k.

With the constantly changing landscape, I think it is a wise to do your research and talk to your professional advisors and mentors.  A few helpful coronavirus resource pages, which contain helpful forgiveness tools, are listed below:

I will leave you with this thought from Mark Twain, which I think is very appropriate for the small business community as they navigate the PPP forgiveness landscape and the uncertainty presented in the Covid impacted world:

“Forgiveness is the fragrance that the violet sheds on the heel that has crushed it.”

Please see all of our prior updates at the this link or if you would like to be added to our email list, please click here. 

August 5, 2020 – PPP Forgiveness FAQ released; Another Stimulus Bill On the Horizon?

Last night, the Department of Treasury issued the first (likely of many) FAQ on PPP forgiveness.  A good overview was provided by Alan Gassman at Forbes.com.  Check out the chart at the bottom of the article for a quick reference guide.

For those that are starting the forgiveness process, below are links to the applications and instructions:

With the constantly changing landscape, I think it is wise to do your research and talk to your professional advisors and mentors.  A few helpful coronavirus resource pages, which contain helpful forgiveness tools, are listed below:

  • What’s the Next Stimulus Package Look Like – There are about $2.4 trillions reasons why a deal has not been reached thus far.  A deal is rumored to be coming by Friday (which coincidentally is when the Senate goes out for recess).

August 22, 2020 – It Was The Most Wonderful Time of The Year – August Recap

If you are a parent, this was the most wonderful time of the year because kids went back to school.  However not a day goes by where one of the following terms pops up in conversation:  hybrid, virtual, cyber, home and for the few, full-time in person.

With guidance being constantly updated and many school districts changing in reaction, it is no wonder there is a whole bunch of confusion and frustration.  I won’t even go into a betting pool to be all virtual (my bet is one month from school opening if that’s worth anything).

Keeping this in mind, I thought it may be helpful to put some Covid-related FMLA and FFCRA refreshers in this update for those businesses who have employees with kids that are not back to school full time:

COVID 19 & FMLA – This is a good FAQ from the Department of Labor
Back to School and FFCRA – A good Families First Coronavirus Response Act overview from the National Law Review.

There are also helpful tools for employers at the resource pages below:

Good luck with the start of the school year.  I hope I don’t have to write the same subject this time next year.

A few other items we thought were of interest:

“September 2, 2020 – If you stare at it long enough, you will see a sailboat or maybe get an interest free loan

Like most relief programs to date, there is always more questions than answers once an update is released.  Last week, the Department of Treasury provided an update on PPP Forgiveness as it relates to Owners Compensation and Certain Non-Payroll Costs.    While helpful, especially if you own 5% or less of the company, most businesses that I have talked to are taking a wait and see approach for the next round of stimulus.  It is expected that PPP loans that are less than $150k will be automatically forgiven.  I presume November 3rd (hopefully) will have something to do with that decision and many others.

This week, the Department of Treasury and the IRS issued guidance on the payroll tax deferral.   While I am no expert in these areas, I know enough to be dangerous.  However, I think the experts are better equipped to provide insight.  Check out what I thought were some of the better insights on this recent update:  However, I thought the following updates provided some great insights.

Clearly, there is more confusion on these programs than clarity.  It reminds me of an oft-quoted scene in Mallrats – If you stare at it long enough, you will see a sailboat….or maybe get an interest free loan.

A few other items we thought were of interest:   

·       NFIB Webinar (9/2/2020 @ 12pm) – Ready for PPP Loan Forgiveness?  

·       Bankruptcy Updates from Rob Bovarnick (rbovarnick@rbovarnick.com)– It’s an unfortunate reality, but the following “Behind the Curtain – Chapter 11 From Inside” updates published at Forbes.com are very helpful (note that Chapter 5 and 6 are additions from my last update).

September 29, 2020 – Hurry Up And Wait (September Recap)

I am sure that you are ready for 2020 to be done.  PPP forgiveness continues to be the topic of the day whenever I chat with clients.  Lenders are beginning the forgiveness application submission process, but it is slow-moving.  Congress also floats additional relief bills which address the major PPP issues such as deductibility of related expenses and blanket forgiveness for loans under a certain dollar threshold (likely $150k).  However, the likelihood of anything getting done before November 3rd, except maybe a judicial nomination, are slim to none, with none leading the way. 

I am not sure who came up with the following phrase, but I think it is applicable:  

HURRY UP AND WAIT 

In the interim, enjoy the debate tonight!  

 A few other items we thought were of interest:  

October 5, 2020 – Business M&A Gets A Little Light At The End of the PPP Tunnel

On Friday, the SBA issued a Procedural Notice on PPP loans and Changes of Ownership.  While there are still a number of questions, businesses involved in M&A can at least see the light at the end of the PPP tunnel.  Below are some of the key points that were provided:

  • Change of Ownership Definition – 20% or more of stock is sold or transferred, 50% or more of the assets are sold or transferred, or a merger occurs;
    • PPP borrower remains responsible regardless of the sale or transfer;
  • Transactions requiring only Lender Approval – sale of < 50% of the equity, sale of >50% of the assets;
    • In each case, the PPP borrower must apply for forgiveness
    • The funds owed must be put into escrow with the PPP lender and will be released once the forgiveness decision is received from the SBA
  • Transactions requiring Lender and SBA approval – pretty much anything that does not fit into the prior point (see the attached document for more details)
  • “Captain Obvious” provision:  Any PPP loans that have already been forgiven or repaid prior to the M&A transaction do not have any change of ownership restrictions.

The bottom line is that most transactions will probably fall into the second bullet point above.  While it is not an ideal solutions, it is at least a pathway to close on a transaction.

The two big questions I have (and there are definitely more, please share if you think of them):

  • How will the lenders treat these guidelines?  It sounds like more administrative work for lenders especially if small PPP loans will ultimately be forgiven in another stimulus package.
  • What are the decision metrics needed for transactions that require SBA approval?

 A few other items we thought were of interest:  

October 12, 2020 – Taking the Complex and Making It Simple (Sort of)

The SBA released updated guidance and a new forgiveness application and instructions late last week for PPP loans of less than $50k.  Essentially, if your PPP loan falls into this amount, you can now certify that you have met the FTE and Salary requirements, versus the prior requirement to show your calculations.  You still provide the back-up documentation to your lender and the SBA can still perform an audit.  So, make sure you keep good records.  Perhaps this is a test run to see if it lessens the forgiveness review burden.  Time will tell.

Albert Einstein said it best: “The definition of genius is taking the complex and making it simple.”

 A few other items we thought were of interest:  

November 19, 2020 – IRS Issues PPP Deductibility Guidance – Thanks Captain Obvious

The IRS released guidance on the deductibility of PPP loan forgivable expenses.  Here are the links to the Revenue Ruling and Revenue Procedure.  Essentially, if you are eligible and the loan is not yet forgiven or you have not applied for forgiveness, then you have to wait until the decision on the forgiveness is received to apply the deduction (i.e., no forgiveness in 2020, no expense deduction in 2020).  That would be nice if it was the middle of the year and you still had time.  However, we are a little more than a month from year end and many banks and borrowers are still slow with submitting and processing forgiveness applications, for good reason.

Moreover, there is little to no chance that Congress will enact another round of disaster relief legislation any time soon, which was supposed to have some type of fix for this very scenario.  Good luck with your 2020 tax filings if you have not received PPP forgiveness yet.  Please make sure you talk with your trusted advisor (accountant, attorney or whomever you use to do your books and taxes).  However, in the interim, I can’t help but think that Captain Obvious was part of the decision making process on this latest IRS guidance.

A few other items we thought were of interest:  

December 21, 2020 – Whoops, there is a new Covid Relief Package

It looks like the D.C. folks finally came to the table and settled on a Covid relief package.  It kind of feels like this is the “whoops baby” of all the Covid related bills.  Mom and Dad are now scrambling to figure out how they are going to pay for it over the long term.  In all seriousness, I don’t think the decision makers in Washington wanted to head back home and hear it from their constituents.  Some of the key provisions are as follows:

  • Small Business Relief funding of ~$325B of which the majority is for another round of PPP loans.
  • There is clarification about the allowance of the deduction of PPP related expenses.  Essentially, if your PPP loan is forgiven, then it is not counted as income, nor is it disallowed as an expense.
  • Unemployment benefits are renewed for 10 weeks at $300/week
  • Tax rebates of up to $600, with an extra $600 per child; payments start to phase out at $75k for individuals and $150k for couples
  • Federal eviction moratorium extended through January 31, 2021.

Of course, a few key items that will still be debated include liability protections from Covid lawsuits for businesses, schools, hospitals and other organizations and funding for State and Local governments.

I guess in some circles, Christmas is coming early this week as these Covid relief measures will be combined with a broader $1.4T spending package to keep the Government funded for the remainder of the fiscal year.

Lets hope the vaccine does the trick and we can all get back to some normalcy.

I want to wish everyone a Merry Christmas, Happy New Year, belated Happy Hannukah, or happy whatever other holiday you are celebrating.  We appreciate your business and look forward to working with you more in 2021.

A few other items we thought were of interest:  

December 30th, 2020 – Covid Relief Package – The Details

President Trump signed the latest Coronavirus Relief Bill on December 27th.  However, there is still disagreement over the relief checks payments going to $2000 from $600 and a resolution is not likely to happen anytime soon.  On a positive note, it has forced our elected officials to work through the Holiday season.  Lets hope this bill allows

Below are excellent overviews of the key provisions in the Bill from people who are much smarter and better at analyzing this short little read (5000+ pages) than I am.

RKL CPA

EisnerAmper

Trout CPA

NFIB

Other than a little light reading, I do hope that you all have a Happy New Year!  Talk to you in 2021!
A few other items we thought were of interest: