It has been a full week since the $349 billion Paycheck Protection Program (“PPP”) was launched on April 3, 2020. Over the past week, millions of small business owners from across the country have applied for PPP loans by contacting national and local banks. In fact, the lending initiative has already drawn so much interest that Congress is considering expanding the program with an additional $250 billion in funding. This additional funding should be encouraging for small business owners who are eagerly awaiting a response from the SBA.
When the program first launched, the vast majority of banks—both big and small—were confused about what role the borrower, lender, and SBA played in the lending process. Once additional guidance was issued, the race to submit applications officially began. As of April 10, 2020, reports from the SBA show that approximately 600,000 loans and nearly $161 billion have been approved. This means that approximately a third (1/3) of the total funds allocated to the lending program have already been accounted for. However, this also means that it is not a lost cause to still apply, especially in light of the possibility for Congress to allocate more funds to the program.
Even though the program has experienced some early success, lending institutions are still asking the U.S. Treasury Department and SBA for more guidance. Because the lending initiative was announced and implemented so quickly, many banks are still trying to catch their breath and make sense of some of the more nuanced details of the program as it unfolds. However, if there is anything this past week has taught us, it is that small businesses are hurting, and the economic viability for many depends on the success of their PPP loan applications.
Even after the waiting period is over and your application is successfully submitted and approved, it will be very important for small business owners to think strategically about how to spend their loan money. We know that, among other things, in order for the loan to be fully forgivable, 75% of the loan must be used on payroll, while 25% can be spent on rent, mortgage interest, or utilities. However, details regarding the forgivable amount of non-payroll expenses are still not entirely clear. Many believe that up to 25% of the forgivable amount can be spent on non-payroll expenses. In other words, if you do not have any forgivable payroll expenses, then nothing is going to be forgiven.
Many small businesses that apply for PPP loans are also simultaneously applying for an Economic Injury Disaster Loan (“EIDL”). While the SBA initially stated that the disaster lending program could provide eligible businesses with up to $2 million in loans, it appears that most disaster loans will be capped at $25,000 to $30,000. If this is true, then small business owners should consider reevaluating their business loan strategy.
While much has happened with the PPP loans over the past week, there are still a significant number of loans waiting to be approved. If you are a small business owner, do not think that since you are “late” to the game, then it is not worth applying. The federal government is doing everything it can to protect and save America’s small businesses. You should still seriously consider taking them up on their offer.
There has been considerable speculation over the past week regarding the timetable to return to a state of normalcy. Several public health and infectious disease experts have opined on the “new normal” for the foreseeable future. While we are certainly living through uncertain times, one fact seems to be undisputed: Until an effective vaccine can be widely and safely distributed, our general way of life—especially life in the workplace—will continue to look different.
Many businesses in Kentucky and other states have been required to temporarily close their doors in light of stay-at-home orders. Even “life sustaining” businesses that are permitted to stay open during the pandemic have drastically altered the way they conduct and operate their business. When and as the economy begins to open back up, we expect employers will have to start—or at least continue—implementing new workplace procedures in order to keep their employees safe.
One such workplace procedure might be an employer-provided temperature test. Generally, an employer cannot require its employees to take a temperature test because it constitutes an overly broad medical examination under the Americans with Disabilities Act (ADA). However, during the H1N1 influenza pandemic in 2009, the Equal Employment Opportunity Commission (EEOC) addressed issues surrounding “pandemic preparedness in the workplace” as it relates to the ADA. Similarly, on March 19, 2020, the EEOC reissued and updated its previous guidance to specifically respond to the COVID-19 pandemic.
Regarding employer-required temperature tests, the EEOC’s new guidance states “[i]f pandemic influenza symptoms become more severe than the seasonal flu or the H1N1 virus in the spring/summer of 2009, or if pandemic influenza becomes widespread in the community as assessed by state or local health authorities or the CDC, then employers may measure employees’ body temperature.” The EEOC points out, however, that because many COVID-19 carriers are asymptomatic, and therefore would not have a fever, the implementation of temperature tests will not be perfectly reliable. In other words, while temperature tests may be an additional safety precaution that some employers may implement, it should not serve as a replacement for adhering to other health and safety guidelines as set forth by the Centers for Disease Control and Prevention (“CDC”).
If employers decide to start administering temperature tests, it will be very important that they implement a safe and effective procedure while doing so. For example, employers should think about who will be administering the temperature test, and what sort of protective gear he or she should be wearing. Additionally, it will be important for employers to create a safe and healthy space for employees to wait before having their temperature taken. Social distancing measures should not be compromised throughout the process of administering such tests. Moreover, even if an employee has a fever, employers should understand that it does not necessarily mean that they are COVID-19 positive. Given the shortages of COVID-19 tests, it is extremely unlikely that someone with mild symptoms such as a fever will be subsequently tested for COVID-19 by their medical professional.
It is also worth mentioning that temperature checks open the door to a host of other potential issues that include, but are not limited to, health privacy concerns and federal and state wage and hour laws. While the implementation of temperature tests, at least right now, are ultimately at the discretion of the employer, it is critical that an employer understands the potential implications—and possible consequences—of administering such tests and taking action based on test results.
The “new normal” is a disconcerting reality for many Americans. This is the case because even the top disease experts in the world do not fully understand what it will entail. However, until we develop a safe and effective vaccine, we know that—at the very least—employers should continue to monitor the health and safety guidelines issued by the CDC and consult with counsel if and when necessary. We may not know the full extent of the virus, but we do know what steps should be taken to ensure the health and safety of both employers and employees during these unprecedented times.
Even after the worst of the virus is behind us, continuing to adhere to the health and safety guidelines that are issued by the CDC will be very important in order to prevent a second wave of coronavirus. Dr. Anthony Fauci, one of America’s top experts on infectious diseases, has warned the public that it is very possible for another coronavirus outbreak to take place in the fall of 2020. A recently published article that articulates the possibility of a second wave of coronavirus can be found here: https://thehill.com/changing-america/well-being/prevention-cures/491988-fauci-recovered-coronavirus-patients-will-likely
*This post is for informational purposes only and should not be a substitute for legal advice.
A New Opportunity for Small to Mid-Size Businesses
On April 8, 2020, the Federal Reserve took additional steps to help stabilize the economy and provide economic relief to businesses across the country. The role of the Federal Reserve can be explained by its mandate from Congress: “to promote maximum employment and stable prices, along with its responsibilities to promote the stability of the financial system.” In response to this mandate, the Federal Reserve—in addition to the many steps it has already taken—has announced its new $600 billion Main Street Lending Program.
The Main Street Lending Program is aimed at helping small to mid-size businesses that were in good financial standing before the COVID-19 crisis. As part of the program, the Federal Reserve will offer 4-year loans to companies that employ up to 10,000 workers or with revenues of less than 2.5 billion.
In its press release, the Federal Reserve has articulated the following additional details about the Main Street Lending Program:
• Principal and interest payments will be deferred for one year.
• Eligible banks may originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses.
• Banks will retain a five (5) percent share and sell the remainder to the Federal Reserve which will purchase up to $600 billion of loans.
• Companies that seek to take advantage of the Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers.
• Borrowers must follow compensation, stock repurchase, and dividend restrictions that are set forth under the CARES Act.
• Companies that have taken advantage of the Paycheck Protection Program may also take out Main Street loans.
The Main Street Lending Program offers small to mid-size businesses another opportunity to take advantage of an economic relief package that the Federal Government has created during these unprecedented times. Understanding how to take advantage of these different lending opportunities is important for both the short-term and long-term success of your business.
The CARES Act has carved out a special “coronavirus-related distribution” option for individuals and their qualified retirement plans. Pursuant to the Act, individuals are now exempt from the 10% early withdrawal penalty for distributions made on or after January 1, 2020, and before December 31, 2020. Qualified early withdrawals can be repaid over a three-year period beginning on the day after the date such distribution was received.
The Act defines a “coronavirus-related distribution” as a distribution made to an individual:
1. Who is Diagnosed with COVID-19.
2. Whose spouse or dependent is diagnosed with COVID-19.
3. Who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to COVID-19, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of business owned or operated by the individual due to COVID-19, or other factors as determined by the Secretary of the Treasury.
In determining whether any distribution is “coronavirus-related,” the administrator of an eligible retirement plan may rely on an employee’s certification that explains why he or she is entitled to a “coronavirus-related” distribution.
The CARES Act also permits loan relief for qualified individuals whose retirement plans allow for loans. Additional benefits may include:
1. An increase in limit on loans not treated as distributions; and
2. A delay of repayment.
The CARES Act also provides a temporary waiver of required minimum distribution rules for certain retirement plans and accounts made in calendar year 2020.
The benefits mentioned above are additional examples of how the Stimulus Bill is trying to stabilize the economy and provide individuals and small business owners opportunities to stay financially afloat during the COVID-19 pandemic. It will be important to stay educated on these new opportunities in order to see whether taking advantage of the CARES Act would be beneficial to you or your small business.
Miller Edwards Rambicure PLLC will be tracking any additional guidance the IRS may issue regarding the special use of retirement funds during COVID-19.
Now that the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) has been passed by the US House of Representatives, the bill has been sent to President Trump’s desk for his final signature and approval. Since it appears that all procedural hurdles have been cleared, small businesses and nonprofits should look into the Paycheck Protection Loan Program and the Emergency Economic Injury Disaster Loans (EIDL) that are available through the Small Business Administration.
In an attempt to combat the significant impact COVID-19 has had on the Commonwealth’s public health and economy, Kentucky lawmakers unanimously passed Senate Bill 150(BR-908) on March 26, 2020. The Bill was then sent to Governor Beshear’s desk, and it is now awaiting his final approval.
According to the text of SB 150, there are several ways in which the Bill is aimed at assuaging the economic impact that small businesses, and their employees, are currently facing. The following is a list of several of the relevant sections found in SB 150:
1. The Governor may direct any administrative body, during the current COVID-19 State of Emergency, to waive the collection of fees. These fees include, but are not limited to, licensing fees, renewal fees, and application fees.
2. The Governor may waive the seven-day waiting period that is typically required prior to becoming eligible for unemployment. Unemployment eligibility has also been expanded to include the self-insured and self-employed.
3. Kentucky’s tax deadline has been extended to July 15, 2020.
4. A health care provider who establishes a valid provider-patient relationship can conduct telehealth services under an even broader framework.
5. The General Assembly directed budgetary funds to support the KY COVID-19 Hotline.
6. The Governor has extended the deadline for responding to Open Records requests.
If this Bill is signed and approved by the Governor, the unanimous passing of the Bill through the House and the Senate will be a testament to Kentucky’s bipartisan attempt to defeat COVID-19. Recognizing that small businesses and their employees are experiencing financial difficulties, the Kentucky Legislature has passed SB 150 with the goal of lessening the economic blow that many small businesses are experiencing. If you are a small business owner, it is important to understand the possible implications SB 150 might have on your business.
As promised by an earlier post, Emergency Economic Injury Disaster Loans (EIDL), the Emergency Assistance Bill that passed the Senate today will, if passed by the House, contain a Paycheck Protection Loan Program that could provide short-term and long-term relief to many small businesses.
1. Increased Eligibility
Eligibility requirements have expanded for small businesses. Sole Proprietors, Independent Contractors, and Self-Employed Individuals may also be eligible if certain documentation is submitted (e.g. payroll tax filings, 1099-MISC forms, etc.).
2. Maximum Loan Amount
The maximum loan amount will be the lesser of:
(i) The average total monthly payments incurred during the 1-year prior to filing multiplied by 2.5, plus the outstanding amount of any economic injury disaster loan that will be refinanced with the new loan; or
(ii) $10,000,000.
3. What can the loan be used for?
An eligible recipient may use the loan for:
(i) Payroll costs;
(ii) Costs related to the continuation of group health care benefits during the periods of paid sick, medical or family leave, and insurance premiums;
(iii) Employee salaries, commissions, or similar compensations;
(iv) Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation);
(v) Rent (including rent under lease agreement);
(vi) Utilities;
(vii) Interest on any other debt obligations that were incurred before the covered period.
4. Borrower Requirements
Eligible recipients are required to make a good faith certification to the following:
(i) That the uncertainty of current economic conditions makes necessary the loan request to support ongoing operations;
(ii) Funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments;
(iii) That recipient does not already have an application pending for a loan under this subsection for the same purpose and duplicative amounts applied for; and
(iv) Between February 15, 2020 and December 31, 2020, recipient has not received amounts under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan.
5. Waiver of Personal Guarantee Requirement
With respect to a covered loan, no personal guarantee or collateral will be required.
As an update to the March 25, 2020 post Stay Informed: How Small Businesses Can Apply for Loans, the Emergency Assistance Bill that passed the Senate today will, if passed by the House, contain provisions that are likely to provide substantial short-term and long-term relief to many small businesses.
Significant Updates for Small Businesses
1. Regarding loans made pursuant to the Small Business Act in response to the COVID-19 pandemic, the Administrator shall (1) waive personal guarantee requirements for loans under $200,000; (2) waive the requirement that an applicant needs to be in business for the 1-year period before the disaster; and (3) waive the requirement that an applicant is unable to obtain credit elsewhere.
2. Before any funds are disbursed, a potential recipient may receive an advance of up to $10,000 upon completion of a certification under penalty of perjury. Even if the loan application is subsequently denied under section 7(b)(2) of the Small Business Act, any applicant that receives an advance will not be required to repay the amount received. Instead, that initial advance can be used for purposes that include, but are not limited to, maintaining payroll, providing sick leave to employees, and making rent or mortgage payments.
3. If an applicant uses its $10,000 advance to fund payroll, then the amount of the advance will be reduced from the total forgiveness amount for an approved loan.
4. The Senate has appropriated $10 billion dollars to fund these loans.
The senate is set to vote on what is considered to be the single largest economic stimulus package in American history. After days of negotiations, Senate Majority Leader Mitch McConnell took to Twitter at 1:51 a.m., on March 25, 2020, and stated, “At last, we have a deal.” This bipartisan agreement hopes to provide the economic relief that many individuals and small businesses desperately need.
While we are still waiting on the $2 trillion dollar relief bill to be voted on, approved, and signed into law, the draft language, as well as several reports, outline the sort of economic relief that small businesses can expect. Specifically, it is believed that $350 billion will be allocated to small businesses to help mitigate layoffs and support payroll. Further, the stimulus bill is believed to include over tens of billions of dollars in emergency grant funds that will target small businesses across the country.
Small businesses are making significant sacrifices in order to keep their Commonwealth community safe during the COVID-19 pandemic. Over the coming days, weeks, and even months, small business owners may want to consider taking advantage of certain SBA funds that will be made available under the federal stimulus bill. As Miller Edwards Rambicure PLLC continues to follow the text of the bill closely, we are preparing to help facilitate applications and closings in order to help small businesses remain financially viable during the COVID-19 economic climate.
According to a recent article published by CNBC, some researchers believe that COVID-19 can survive on surfaces for up to 17 days. This new data, which was published by the Centers for Disease Control and Prevention (CDC), was discovered after public health officials, cloaked in protective gear, examined the Diamond Princess and Grand Princess cruise ships which accounted for a combined 800+ confirmed COVID-19 cases.
Before this new published data, it was originally reported that COVID-19 could only survive on certain surfaces like plastic and stainless steel for 3 days. In addition, it was believed that the virus could only survive on cardboard for 24 hours. The findings aboard the cruise ships cast serious doubt on researchers’ initial data. At this point in time, and without further research, it is uncertain as to whether transmission occurred from contaminated surfaces, but the CDC believes that further fomite transmission research is important to understand the full extent of this virus.
This new research may change the equation for small business owners in several important ways. Whether it is insurance considerations or workplace safety concerns, it will be important for small business owners to stay informed. Medical experts and researchers are only beginning to understand the true nature of COVID-19.