We blogged earlier this week about a new need certification safe harbor for borrowers who received PPP loans of less than $2 million. That safe harbor was created in question 46 of the SBA’s FAQ document, and it also gave further guidance to those with loans over $2 million. Click here to read our blog about FAQ 46, the new safe harbor, and what it means for your business.
So that borrowers have time to assess their situations in light of the new guidance in FAQ 46, the SBA has now issued FAQ 47, which extends the May 14, 2020 need certification safe harbor to May 18, 2020:
Question: An SBA interim final rule posted on May 8, 2020 provided that any borrower who applied for a PPP loan and repays the loan in full by May 14, 2020 will be deemed by SBA to have made the required certification concerning the necessity of the loan request in good faith. Is it possible for a borrower to obtain an extension of the May 14, 2020 repayment date?
Answer: Yes, SBA is extending the repayment date for this safe harbor to May 18, 2020, to give borrowers an opportunity to review and consider FAQ #46. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor.
To read more about the now extended May 14 safe harbor, click here. If you have questions, please feel free to contact Rebecca L. Simpson at 513.797.2856
The SBA issued new guidance today which provides that If you and your affiliates combined received less than $2 million in Paycheck Protection Program (PPP) funds, you will be deemed to have made your “need certification” in good faith. Upon application, every PPP borrower was required to make a good faith need certification, which reads:
Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.
New guidance clears up confusion
Over the last several days, the SBA had issued guidance reminding borrowers that this “need certification” had to be made in good faith, and warning borrowers that if it was not made in good faith their PPP loan should be repaid by May 14, 2020. This May 14 deadline had left many questioning what the SBA would consider in determining if a borrower made the need certification in good faith, and if the PPP should be repaid by tomorrow. The SBA promised more guidance on this issue, which came today in new question 46 in the SBA’s FAQ document.
New safe harbor for those who received less than $2 million in PPP funds
The SBA defined a new safe harbor today in question 46 of its FAQ document:
Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?
Answer: … SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith. …
Purpose of less than $2 million safe harbor
The answer to FAQ 46 goes on to explain the reasons for this new safe harbor, including:
Those with PPP loans under $2 million are generally less likely to have had access to adequate sources of liquidity in this economic environment than those with larger loans
As PPP borrowers with more limited resources work to retain and rehire employees, this safe harbor will provide greater economic certainty
This safe harbor enables the SBA to focus its limited resources on larger loans, “where the compliance effort may yield higher returns”
Treatment of borrowers who received more than $2 million
While the answer to FAQ 46 acknowledges that those with PPP loans over $2 million may be able to show that their need certification was made in good faith, it also reiterates that the SBA will review all PPP loans in excess of $2 million. And, it provides that if the SBA determines that that the borrower “lacked an adequate basis” for the certification, then the borrower must repay the loan and will not be eligible for loan forgiveness. It further provides that if the borrower then repays the loan, the SBA will not pursue administrative enforcement.
Conclusion
For assistance with an application for a PPP loan or for PPP loan forgiveness, contact Rebecca L. Simpson (513.797.2856).
Finney Law Firm is pleased to announce that Attorney Eli Krafte-Jacobs has obtained his Ohio title insurance license. Eli is a part of our Commercial Real Estate Title and Closing Practice Group.
Consistent with our mission to Make a Difference for our clients, Eli works directly with the Firm’s affiliated title company Ivy Pointe Title, LLC to provide a comprehensive suite of commercial real estate title, title insurance and closing coordination services, with transparent communication and timely delivery. Our professional team possesses the core competency and capacity to handle even the most challenging commercial real estate transactions.
Yesterday we posted our second blog on the SBA safe harbor for those whose PPP need certification may not have been in good faith. Yesterday evening, the SBA extended that safe harbor from May 7, 2020 to May 14, 2020.
Purpose of safe harbor
Every PPP applicant was required to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
Over the last several days, the SBA has issued guidance reminding PPP applications that this certification must have been made in good faith, and indicating that if it was not made in good faith, the PPP loan should be paid back within the safe harbor time period.
Safe harbor extended
The original deadline for the safe harbor was May 7, 2020. Late yesterday the SBA added question 43 to its PPP FAQ document extending that that deadline to May 14, 2020. Question 43, in part, reads:
SBA guidance and regulations provide that any borrower who applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. Is it possible for a borrower to obtain an extension of the May 7, 2020 repayment date?
The answer to question 43 not only extends the deadline, but also indicates that the SBA will issue further guidance before May 14 on how they will determine if a borrower made the need certification in good faith:
SBA is extending the repayment date for this safe harbor to May 14, 2020. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor. SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.
To learn more about the safe harbor
Two learn more about the need certification safe harbor, please see our two previous blogs on it by clicking here and here. If you have questions, please contact Rebecca L. Simpson or 513.797.2856.
Several days ago we posted a blog on the SBA’s announcement that it plans to closely scrutinize whether borrowers’ certifications of need were made in good faith, and if the certification was not made in good faith, the borrower is advised pay their PPP funds back by May 7, 2020.
The need certification had to be made by every borrower upon application for the PPP loan, and it reads: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
SBA direction on the need certification applies to large and small companies
Though this direction from the SBA on the need certification came on the heels of attacks on the PPP for giving millions to large, publicly traded companies, the SBA has since made it clear that this direction applies to all borrowers, large and small. According to the SBA, they will audit all PPP loans over $2 million, and all loans, no matter the size, are subject to being audited.
Anyone who is found to have not made the certification of need in good faith could be subject to criminal and civil penalties.
How can you show your need certification was made in good faith?
Unfortunately, it is not clear what evidence the SBA will require to prove your need certification was made in good faith. The only direction that has been given is in the SBA’s FAQ document in the answer to question 31, which in relevant part reads:
Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.
Borrowers should carefully consider based on their particular business, industry and circumstances whether their certification of need was made in good faith. And, for those who have made a good faith certification, they should document the factors they considered in making that certification.
What is the safe harbor?
For any company that may not have made their certification of need in good faith, the safe harbor is included in the SBA’s Interim Final Rule posted on April 24, 2020, and reads:
Any borrower that applied for a PPP loan prior to the issuance of this regulation and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.
That safe harbor expires this Thursday, May 7,2020.
Conclusion
The SBA continues to issue guidance on the PPP, and that guidance often comes after it is needed and sometimes changes the rules of the PPP in the middle of the game. Finney Law Firm is keeping a close eye on new guidance and will continue to update you through our blog. For questions, please contact Rebecca L. Simpson at 513.797.2856.
As small businesses are beginning to receive and spend their Paycheck Protection Program (“PPP”) funds, many have questions on how they can spend those funds to maximize forgiveness of their loan. The CARES Act and the Small Business Administration (SBA) have given general guidance around what is required for PPP loan forgiveness, but the devil is in the details and many important questions regarding forgiveness have been left unanswered thus far.
Guidance on impact of employee declining offer of rehire
Some positive news on this topic, however, is that in its FAQ document (see question 40), the SBA has now issued guidance on this common question:
Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?
According to the FAQ document, the answer is in general “no.” The guidance goes on, however, to note that the SBA and Treasury intend to issue an Interim Final Rule outlining the parameters for forgiveness under these circumstances, including:
The offer to rehire must be for the same salary/wages and same number of hours;
The offer to rehire must be in writing and in good faith; and
The employee’s rejection of the offer must be documented by the borrower.
More guidance needed on important questions
This new guidance, hopefully, signals that more will be forthcoming from the SBA and Treasury on how borrowers can maximize loan forgiveness. Some unanswered questions that remain include:
For self-employed and independent contractors whose PPP loan amount is based on Schedule C, Line 31 of their IRS Form 1040, the regulations allow these individuals to pay themselves only 8 weeks of “payroll” (average net profit) out of their PPP funds. Mathematically, that 8 weeks only works out to about 74% of the loan amount, but the regulations require the borrower to spend 75% on payroll. Will that impact forgiveness?
Many small businesses received loans that are larger than 8 weeks of their average monthly payroll plus their mortgage interest, rent, and utilities. Can these businesses use these extra funds to pay their employees bonuses or hire more employees?
Can self-rental payments be forgiven?
Are there parameters around rehiring to maintain the same level of full-time employees? Do you have to hire for the same positions or can you create new positions?
If the IRS requires you to show evidence that your certification of need was in good faith, what type of evidence will be sufficient?
These are just some of the unanswered questions surrounding forgiveness of PPP loans. Finney Law Firm will continue to monitor guidance on PPP forgiveness as it is issued and will post updates on our blog. If you have questions, please contact Rebecca L. Simpson at 513.797.2856.
If you have received Paycheck Protection Program (PPP) funds, you should be aware that the IRS has issued a notice that will increase the cost of using those funds. According to IRS Notice 2020-32:
Specifically, this notice clarifies that no deduction is allowed under the Internal Revenue Code (Code) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
What does this IRS ruling mean?
Normally businesses can deduct business expenses such as costs for payroll, mortgage interest, rent and utilities. But, if you received a PPP loan and use the funds properly on those four types of expenses so that your PPP loan is forgiven, the amount you spent on those expenses from PPP funds will no longer be deductible.
Why would the IRS make this rule?
According to the IRS, they are trying to prevent small businesses who receive PPP funds from getting what the IRS sees as a double tax benefit on the same dollars. Normally when a loan is forgiven, the amount forgiven is counted as taxable income to the taxpayer. In the CARES Act, Congress specifically provided that the amount of PPP loan forgiven will NOT count as taxable income. So, the IRS sees that special tax exemption as one tax benefit. According to the IRS, if a small business were also able to deduct the amount of PPP funds they spent to make the loan forgivable, then the deduction would be a second tax benefit on the same dollars.
The rule seems inconsistent with the intent of Congress.
While the IRS’s ruling in Notice 2020-32 is consistent with how exemptions and deductions are normally handed, it seems to run contrary to the intent of Congress in the CARES Act. Given that Congress specifically provided that PPP loan forgiveness would not be counted as taxable income, it seems the intent of Congress was to provide small businesses with rescue funds without adverse tax consequences. So, it will be interesting to see if Congress takes action to stop the adverse tax consequences the IRS just announced.
What does this mean for your business?
This ruling means that the cost of using your PPP funds will be higher than you likely anticipated. If all or part of your PPP loan is forgiven, you will lose tax deductions on the business expenses you paid as directed by Congress and the SBA to make your PPP loan forgivable.
Conclusion
The Finney Law Firm will continue to stay on top of the latest PPP guidance and provide updates on our blog. If you have questions, feel free to contact Rebecca L. Simpson (513.797.2856).
The Finney Law Firm’s attorneys along with Maurice Thompson of the 1851 Center for Constitutional Law have been leading the legal fight against the lack of due process hearings in the Ohio “Stay at Home” order issued by the Ohio Department of Health and its Director, Dr. Amy Acton.
We have filed suit against the present Order and lost our Motion for Temporary Restraining Order at a hearing before Chief U.S. District Court Judge Algenon Marbley on April 20, 2020. He has set a further hearing on a Motion for Preliminary Injunction for Monday, May 11 at 9:00 AM.
Tonight, the Ohio Department of Health finally issued its new regulations here.
Small businesses are faced with unprecedented times with the advent of the COVID-19 pandemic. For those that were not shuttered by state government orders, there are many struggling to determine how to adjust to the new normal. If you were fortunate enough to have been able to take advantage of the Paycheck Protection Program to get through eight weeks of operation, that provides you with some time, albeit short, to begin to think of new and creative ways of doing business now and in the future. Those who are agile, innovative, collaborative and amenable to change have the best chance to not only survive but thrive.
Respond with courage
Courage is not the absence of fear — it’s inspiring others to move beyond it
~Nelson Mandela
Being a courageous leader is more important now than ever before. Being willing and able to lead your employees through the fear that plagues almost everyone in our current environment is one of the keys to creating the platform from which to re-launch. Just as a child takes his cue from his parents as to how he or she is supposed to feel and behave when they are frightened, so must small business leaders understand that their behavior at this time either creates an atmosphere of fear or one of hope.
A high emotional quotient, coupled with self-awareness each day as to how your words, body language and deeds affect your team is imperative. Fearful people become immobilized and unable to think straight, problem solve and generate high-quality work. But those who follow a confident, positive and encouraging leader will quickly get on board, adopt the same positivity and row the boat along with their team in the same direction to maximize successful results. Some days it is hard to maintain an air of positivity, especially when the 24/7 news continues to paint bleak pictures both from a health and an economic standpoint. Still, it is critical in order to explore a path forward.
Making changes
The secret of change is to focus all your energy, not on fighting the old, but on building the new
~Socrates
Here are a few things to consider on how to stand on solid footing going forward:
Review all expenses, large or small, to find areas of reduction or elimination. You would be surprised how many decisions you made years ago when times were good that no longer serve you well. A few to consider are: Payroll processing fees/platforms; shopping all lines of insurance through different carriers; subscriptions, associations and membership dues; office supply and equipment vendors; and evaluation of current marketing expenses and their return on investment.
Implement technology that allows for all work to be done and saved in the cloud. Those relying on an on-site server and hard drives and backups for document production and storage are not only prone to cyber-attacks, but also are limited in the amount of work they can do remotely.
If your lease is coming up for renewal, you can save money by adopting the new way of “officing.” We have found through this crisis that employees can be very productive working remotely if 1) they are given the right technology tools; 2) they are given the opportunity to prove accountability and productivity; and 3) they utilize tools such as Microsoft Teams, Zoom and Skype to connect with their co-workers and managers on a regular basis so they do not lose sight of the teamwork approach that makes all small businesses successful.
Look at your products and services and evaluate them with a futuristic lens. Will they be wanted and needed in the short term, the long term or at all? Can they be revamped and repackaged? Are there additional products and/or services will that prove more useful? Can you create new lines of business that could naturally stream from what you currently offer?
Consider opportunities with complementary businesses to explore consolidation to become stronger, more diversified and present an improved presence in your market space.
They say necessity is the mother of invention and we have seen that be true throughout the history of America. If you continue to run your business the way it was run in the past, you may get run over by competition that was nimble and changed their processes, procedures and service offerings to what people need now, versus what they needed in the past.
Conquer fear
Keep your fears to yourself but share your courage with others
~Robert Louis Stevenson
Fear is a very powerful driver. It is a very scary time for all of us. But these are also defining moments. A time for us to collaborate and retool. Be a change agent to inspire and lead your team to newfound success!
Conclusion
If your small business needs assistance for its non-legal operations relating to cost savings, increased efficiencies and leadership strategies, contact Jane Schulte (513.727.2855).
As the New York Times reports here, the 10-day pause in SBA funding for Paycheck Protection Program (“PPP”) applications enabled lenders to get in order and carefully complete their paperwork for tens if not hundreds of thousands of new applicants, but when the portal finally opened up today at 10:30 AM, it was overwhelmed, causing the server to crash. This allowed only a trickle of applications to be successfully processed on the first day of Round II of PPP funding.
As the article says, “bankers were expecting the money to once again run out quickly,” meaning knowledgeable market participants predict that there will be winners and losers among the contestants for a still-limited supply of federal monies. Those who get processed quickly will get full funding; those that do not may get nothing. Clearly, Congress will need to approve a third and perhaps fourth round of funding for the program to fund all eligible small businesses.
Contact Rebecca L. Simpson (513.797.2856) for help accessing PPP funds or assuring your path to their forgiveness.
