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PPP Refresh – $310 Billion More

Based on news reporting, we understand that Congress and President have collectively agreed on $300 billion in additional funding for the Paycheck Protection Program. The circulated draft of the “Paycheck Protection Program and Health Care Enhance Act” makes no changes to the eligibility or terms of the PPP, but does authorize an additional $310 billion in funds, raising the total funding level for PPP loans to $659 billion.

The Paycheck Protection Program and Health Care Enhance Act would also increase the amount authorized for the SBA to ultimately forgive to $670 billion, presumably recognizing an intent to also be in position to forgive interest in additional to principal.

While the Paycheck Protection Program and Health Care Enhance Act does not alter the eligibility or terms for either borrowers or lenders, it does provide some protected classes of lenders who are ensured a set aside of a portion of the expanded PPP authorization. Specifically, depository institutions and credit unions with between $50 billion and $10 billion in consolidated assets will be ensured the ability to issue, in the aggregate, at least $30 billion in loans guaranteed by the SBA under the PPP. Depository institutions and credit unions with less than $10 billion in consolidated assets, as well as community development financial institutions (CDFIs), minority depository institutions (MDIs), and certain state development companies certified under Title V of the Small business Investment Act will be ensured the ability to issue, in the aggregate, at least $30 billion in loans guaranteed by the SBA under the PPP.

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The Bank Account’s Introduction to the Paycheck Protection Program

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Joining all the (far more) popular podcasts, The Bank Account is now recording from the host’s home. This episode features Partners Karen Fries and Mike Royle joining me in a presentation about the basic terms of the SBA’s small business forgivable loan program, the Paycheck Protection Program.

As the Paycheck Protection Program is changing rapidly, it’s important to note that guts of this presentation were recorded on April 9, 2020. While the funds have currently been exhausted for new PPP loans (pending Congress deciding when and how to allocate additional funds), the key terms of the loans and the forgiveness functions discussed in this podcast episode remain accurate, at the least as of the time of posting.

While our initial approach was going to be to engage in a debate on the merits of this practice, none of us ultimately wanted to take the side of justifying the practice; for different reasons, many of which are expressed on the podcast, we all believe that it is a bad idea for bank directors to personally approve loans.

For those interested in hearing more information about the Paycheck Protection Program in audio form, I highly recommend the Big Small Business Rescue from Planet Money. And if you’re craving more content, and prefer the last financial crisis, I’d also suggest the FDIC “podcast” on the 2008 financial crisis.

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SBA PPP Loan Approval Statistics

From launch of the Paycheck Protection Program on April 3, 2020 through the exhaustion of the originally committed funds on April 16, 2020, 4,975 lenders approved loans to over 1.6 million small businesses for over $342 billion. On April 17, the SBA published a Paycheck Protection Program Report with additional statistics on the approved PPP loans.

Excluding weekends (which probably isn’t fair, as I know a lot of bankers that worked non-stop the last two weekends), this amounts to over 160,000 applications approved each day, or more than $34 billion in loan proceeds each day.

The Report indicates the overall average loan size approved was $206,000. Assuming each applicant applied for the maximum PPP loan it was entitled to, this indicates that the average applicant’s monthly payroll costs were approximately $82,400.

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SBA PPP Eligibility Requirements

The SBA has made clear that businesses with 500 or fewer employees can apply for PPP funds, with certain exceptions. The number of employees for a business is generally determined by the average number of people employed for each pay period over the business’s latest 12 calendar months. For this determination, any person on the payroll must be included as one employee regardless of hours worked or temporary status.

However, for businesses with greater than 500 employees, there are still three possible ways qualify for PPP funds. This post analyzes the three additional methods for a business to qualify for PPP funds, based on the latest guidance from the SBA as of April 15, 2020.

Method 1: SBA Employee-Based Size Standards

Under the CARES Act, the SBA requires borrowers to have 500 or fewer employees or the number of employees specified per the SBA’s Size Standards table. Thus, a business with greater than 500 employees may still be eligible if it meets applicable SBA employee-based size standards for its primary industry. A business’s primary industry is denoted by its North American Industry Classification System (NAICS) Code. A list of all NAICS codes is available here.

For example, a business in the in the primary industry of natural gas extraction (NAICS Code 211130) with 1,000 employees would still be eligible for PPP funds because the applicable SBA employee-based size standard is 1,250.

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SBA PPP April 14 Interim Final Rule Guidance

On April 14, 2020, the SBA published an interim final rule that provides additional guidance regarding topics of confusion among both Payroll Protection Program (“PPP”) lenders and borrowers. This new rule supplements the first interim final rule, which was issued by the SBA on April 2, 2020, and specifically addresses the eligibility of self-employed individuals, partnerships, director-owned businesses, and legal gambling businesses. This post covers the updates detailed in the new interim final rule, based on the latest guidance from the SBA as of April 16, 2020.

Self-Employed Individuals

Eligibility

The new interim final rule makes clear that an individual may be eligible for a PPP loan if the individual:

  1. was in operation as a business on February 15, 2020;
  2. is an individual with self-employment income (such as an independent contractor or a sole proprietor);
  3. has a principal place of residence in the United States; and
  4. filed or will file a Form 1040 Schedule C for 2019.

The SBA has communicated that it will issue additional guidance for those individuals with self-employment income who: (i) were not in operation in 2019 but who were in operation on February 15, 2020, and (ii) will file a Form 1040 Schedule C for 2020.

We note that individuals should be aware that participation in the PPP may affect eligibility for state-administered unemployment compensation or unemployment assistance programs.

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COVID-19 Borrower Protection Program Launched by FHFA & CFPB

Today, the Federal Housing Finance Agency (FHFA) and the Consumer Financial Protection Bureau (CFPB) announced a joint program to assist borrowers experiencing financial hardship in connection with the COVID-19 pandemic. The Borrower Protection Program (BPP) augments a number of prior actions taken by the regulators in connection with and relating to the CARES Act. 

According to the announcement, the BPP “enables CFPB and FHFA to share servicing information to protect borrowers during the coronavirus national emergency.” FHFA Director Mark Calabria added “Borrowers are entitled to accurate information about their forbearance options. This partnership with CFPB ensures FHFA can address misconceptions stemming from consumer complaints by working with Fannie and Freddie servicers.” This may be an early attempt to avoid confusion, consternation and often delay which impacted consumers as well as servicers seeking to understand what specific relief was available to which borrowers. Consumers and servicers alike will recall these challenges plagued the roll out of the TARP HAMP processes following the 2008 Financial Crisis, often exacerbated by media soundbites that did not communicate detail regarding program relief requirements. Even today’s press release reflects additional detail from FHFA: “The missed payments will have to be paid back by the borrower. The missed payments can be added to the normal monthly payments, paid back all at once, tacked on to the end of the loan, or the borrower can have the term of the loan extended.”

Analytical Tools and Complaint Information: The program itself will involve sharing of data between the two agencies: “CFPB will make complaint information and analytical tools available to FHFA via a secure electronic interface; and FHFA will make available to the Bureau information about forbearances, modifications and other loss mitigation initiatives undertaken by Fannie Mae and Freddie Mac (the Enterprises).” CFPB Director Kraninger has noted previously that she sees data analysis as a key focus of the Bureau.

In her testimony before the House Financial Services Committee in February 2020, Kraninger stated: “Complaints, along with other inputs, give us insight into people’s experiences in the marketplace that we analyze and use to improve our mission execution. The analysis helps us regulate consumer financial products and services under existing Federal consumer financial laws, enforce those laws judiciously, and educate and empower consumers to make informed financial decisions. The Bureau also publishes complaint data and reports on complaint trends annually in Consumer Response’s Annual Report to Congress.”

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Introduction to the Main Street Lending Program

On April 9, 2020, the Federal Reserve announced that it is taking additional action to provide up to $2.3 trillion in loans to support the economy through various programs, including the Main Street Lending Program (“MSLP”).  The Fed intends that the MSLP will ensure credit flow to small and mid-sized businesses by providing support to businesses that were in good financial standing prior to the COVID-19 crisis, on terms and conditions to be set by the Federal Reserve. 

The MSLP consists of two facilities:

  • The Main Street New Loan Facility (“MSNLF”) for unsecured term loans originated on or after April 8, 2020; and
  • The Main Street Expanded Loan Facility (“MSELF”) for upsize tranches of secured or unsecured term loans originated before April 8, 2020 (provided the upsize is on or after April 8, 2020). 
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COVID-19 and Executing Contracts at Home, Force Majeure Considerations, and MAE Clauses in M&A Transactions

The devastating impact of the Coronavirus (COVID-19) needs no introduction.  BCLP has consolidated all of its client alerts regarding Coronavirus (COVID-19) as one page of resources. On that page, you can also limit by topic area, jurisdiction and areas of practice.

In this post, we have highlighted some of the client alerts that we believe may be of specific importance to our community bank clients.

Executing U.S. Contracts While Working from Home

Now that many of us are working from home and social distancing, can we still close deals in the US with signed agreements? Are electronically signed contracts really enforceable? Fortunately, most contracts can be entered into electronically without the need to print the agreement and sign it with a pen. This alert discusses the Uniform Electronic Transactions Act, the Federal Electronic Signatures in Global and National Commerce Act, and advises parties how to use readily available services to create legally enforceable contracts with electronic signatures. 

Force Majeure and COVID-19: Considerations for Businesses in the U.S.

In light of the COVID-19 pandemic, many parties are questioning whether their performance of a contract may be excused under a force majeure clause. Force majeure refers to a contractual defense under which a party may be relieved from liability for non-performance if unforeseeable circumstances beyond the party’s control prevent or delay the party from fulfilling its obligations under a contract. This alert outlines the key questions for a force majeure analysis, analyzes the implications of invoking force majeure, and discusses its interaction with insurance coverage.

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COVID-19 and Emergency Leave Plans, Retirement Saving, and Insider Trading

The devastating impact of the Coronavirus (COVID-19) needs no introduction.  BCLP has consolidated all of its client alerts regarding Coronavirus (COVID-19) as one page of resources. On that page, you can also limit by topic area, jurisdiction and areas of practice.

In this post, we have highlighted some of the client alerts that we believe may be of specific importance to our community bank clients.

Emergency Leave-Sharing Plans for U.S. Employers

In addition to the paid sick leave and family leave U.S. employers must provide under the Families First Coronavirus Response Act, some employers are seeking additional ways to support employees affected by COVID-19. This alert reviews IRS guidance and details how employers can implement an emergency leave-sharing plan in response to the crisis.

Unraveling U.S. Retirement Savings – How a Global Pandemic Threatens to Undo Decades of Planning

With the economy in a free-fall and the U.S. government scrambling to create a financial safety net for citizens, giving access to tax-qualified retirement savings was a natural piece of Congress’ plan to loosen the grip on needed funds. Implementing a thoughtful, needs-based, COVID-19 withdrawal/loan policy could protect employees’ financial security for decades to come. This alert covers the options available to plan sponsors to combat the economic impact of COVID-19.

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PPP: Affiliation Guidelines

PPP: Affiliation Guidelines

April 9, 2020

Authored by: Jim Havel and Robert Klingler

In determining eligibility under the Paycheck Protection Program, the SBA will aggregate “affiliates” of the borrower. This post further explores what the SBA considers “affiliate” of the borrower, based on the latest guidance from the SBA as of April 9, 2010.

How does the SBA Define “Control” for Aggregation Purposes?

The SBA’s standard definition of “control” for affiliation and aggregation purposes is a facts-heavy analysis similar to a totality of the circumstances standard. The SBA generally goes as high up and across the ultimate ownership group and its controlled companies when it comes to the entity deemed to control for aggregation/ affiliation purposes.

Control is both affirmative and negative best understood through use of examples:

  • For examples of affirmative control, see all of the tests below.
  • For examples of negative control, see Example 3 of Test 1 below.

Four tests will generally apply for affiliation based on control for PPP Loans.

Test 1 – Affiliation based on ownership:

Example 1 – Equity control: The classic and easiest example to understand is equity control. If an entity controls a majority of the equity (50%+1) of another business (or multiple businesses), the SBA will aggregate all of the employees of those companies together under PPP.

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