MPL General Counsel Corner – Its All About The Benjamins

Do you want to know the best time to get a loan?  When you don’t need it.  Many businesses are recovering and some are in quite good financial shape.  With the low interest rate environment, I would suggest you start a discussion with your bank or other third-party lender and try to get a line of credit.  When the economy turns, and it will at some point, a line of credit can provide a much needed safety net when a cash crunch hits.  Also, as many witnessed during the downturn of 2008-09, the access to capital can dry up quickly.

On the flip side, many companies are in hyper-growth mode, but are limited because of capital constraints.   A lot of cash is sitting on the sidelines looking for a home with the right opportunity.  If your business is in need of capital or you are thinking of changing your capital structure, what should you be preparing in advance?  Below are the top things that a business owner should be preparing:

  1. Company records –  When is the last time you looked at your operating agreement or by-laws?  Are the owners in your company records updated and correct?  Have you had a company meeting of the Board lately?
  2. Company financials – Do you have financial statements prepared?  How about your tax and payroll records?  Can you give an indication of what business will look like in 6-12 months?
  3. Amount and Use – How much do you need and what are you planning to do with the funds? Is it for a rainy day, a capital project or something else?
  4. Risks – What could go wrong with your use of the funds?  Do you fully understand the risks and what will you do if any of them occur?
  5. Providers – Who will you approach?  Commercial lenders, Private lenders, Investors, Friends, Family?

This list may seem simple, but it is easily overlooked.  If you are considering capital in any form, I would suggest you work with your professional service providers and get your books and company documents in order before you approach potential funding sources.   At the end of the day, a poor capital structure can be the downfall of your business.

As Puff Daddy famously quipped “Its all about the Benjamins”.

Here are a few other things that may be of interest:

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

As always, please don’t hesitate to email myself (jsanders@mpl-law.com), Andy Miller (amiller@mpl-law.com), Christian Miller (cmiller@mpl-law.com), Erik Spurlin (espurlin@mpl-law.com) or anyone in our office with questions or comments.  

MPL General Counsel Corner – Time to Sell – What about PPP?

What about the PPP and its impact on a transaction?  This topic has come up on several occasions recently as M&A in the privately held business world remains strong and looks to pick up more.  The Department of Treasury put out a procedural notice on October 2, 2020 on changes of control and the PPP.  However, I keep hearing of deals where the closing gets delayed because they forgot to take into account the PPP loan of the seller.  Below are the key guidelines to keep in mind:

  • What is a change of ownership?
    • At least 20% of the common stock or ownership of the PPP borrower is sold or transferred;
    • The PPP borrower sells or transfers at least 50% of its assets (FMV); or
    • The PPP borrower is merged with or into another entity
  • What should be done with the PPP loan prior to closing?
    • PPP Note is Satisfied in Full – This is the Captain Obvious solution, so I won’t spend any time on this one
    • PPP Note is Not Fully Satisfied – SBA Prior Approval Not Required Conditions
      • Sale or transfer is for less than 50% of the common stock or ownership interest of the PPP borrower
      • Sale or transfer is an asset sale for more than 50% of the PPP borrower’s assets
      • PPP borrower has submitted its forgiveness application and an escrow account is set up to hold the PPP borrower funds for the amount due on the PPP loan
    • PPP Note is Not Fully Satisfied – SBA Approval Required
      • PPP Borrower does not meet the conditions described under the “SBA Approval Not Required” above (Captain Obvious at it again)
      • PPP Borrower must (1) tell the SBA why it cannot fully satisfy the loan; (2) submit the details of the transaction; (3) submit a copy of the executed PPP note; (4) submit any LOI and Purchase/Sale Agreement; (5) disclose if the Buyer has an existing PPP loan and SBA number; and (6) provide a list of all owners of 20% or more of the purchasing entity
      • If the SBA approves the transaction, the purchaser must assume the PPP obligations and the applicable Purchase/Sale Agreement must have language detailing the assumption;
  • What are the obligations of the PPP borrower and PPP lender post-closing?
    • The PPP borrower (or new owner in the case of the merger) is still subject to all the post-PPP loan obligations;
    • The PPP lender must provide the SBA with the following information within 5 business days of completion of the transaction
      • Identity of the new owners of the common stock or other ownership interest
      • New owner’s ownership percentages;
      • Tax ID # for any owners holding 20% or more of the equity in the business; and
      • Location of and amount held in escrow if applicable

As you can see, there are a number of things that must be considered when you are selling or buying a business with a PPP loan.  Please make sure this critical component is considered as early as possible in the due diligence of a transaction.  Your professional service providers are the best source of assistance with this potential issue.

Here are a few other things that may be of interest:

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

As always, please don’t hesitate to email myself (jsanders@mpl-law.com), Andy Miller (amiller@mpl-law.com), Christian Miller (cmiller@mpl-law.com), Erik Spurlin (espurlin@mpl-law.com) or anyone in our office with questions or comments.  

MPL General Counsel Corner – To Vax or Not To Vax – More Info

I continue to get questions about what employers can or cannot do in terms of requiring vaccinations.  Thankfully, our network of professional service providers stays on top of this subject.  Tedd Kochman from Littler just sent out an update from the EEOC which was released on Friday.  Below are the key points from the updated technical release:

  • Federal EEO laws do not prevent an employer from requiring all employees physically entering the workplace to be vaccinated for COVID-19, so long as employers comply with the reasonable accommodation provisions of the ADA and Title VII of the Civil Rights Act of 1964 and other EEO considerations.  Other laws, not in EEOC’s jurisdiction, may place additional restrictions on employers.  From an EEO perspective, employers should keep in mind that because some individuals or demographic groups may face greater barriers to receiving a COVID-19 vaccination than others, some employees may be more likely to be negatively impacted by a vaccination requirement.
  • Federal EEO laws do not prevent or limit employers from offering incentives to employees to voluntarily provide documentation or other confirmation of vaccination obtained from a third party (not the employer) in the community, such as a pharmacy, personal health care provider, or public clinic. If employers choose to obtain vaccination information from their employees, employers must keep vaccination information confidential pursuant to the ADA.
  • Employers that are administering vaccines to their employees may offer incentives for employees to be vaccinated, as long as the incentives are not coercive. Because vaccinations require employees to answer pre-vaccination disability-related screening questions, a very large incentive could make employees feel pressured to disclose protected medical information.
  • Employers may provide employees and their family members with information to educate them about COVID-19 vaccines and raise awareness about the benefits of vaccination. The technical assistance highlights federal government resources available to those seeking more information about how to get vaccinated.

Also, if you or your employees are fully vaccinated, the CDC just issued updated their “Choosing Safer Activities” infographic.

Have a great Memorial Day weekend and thanks to all who serve, have served or made the ultimate sacrifice.

Here are a few other things that may be of interest:

 

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

As always, please don’t hesitate to email myself (jsanders@mpl-law.com), Andy Miller (amiller@mpl-law.com), Christian Miller (cmiller@mpl-law.com), Erik Spurlin (espurlin@mpl-law.com) or anyone in our office with questions or comments.