COVID-19-related laws and regulations continue to remain a moving target.  The President signed into law the Paycheck Protection Program Flexibility Act (the “Act”) on June 5, 2020, and we posted the highlights on June 9, 2020.  A mere ten days after the passage of that Act, things have already changed, largely due to the U.S. Treasury issuing regulations on June 11th.

Here is a summary of some of the Paycheck Protection Program changes as of June 18, 2020, with the caveat that things will likely change again.

Extension to Apply?  Not so Fast

The Act appeared to extend the application deadline for PPP loans from June 30, 2020 to December 31, 2020.  However, in a joint statement issued on June 8, 2020 by the Small Business Administration (the “SBA”) Administrator Jovita Carranza and the U.S. Treasury Secretary Steven T. Mnuchin, June 30, 2020 will remain the last date the SBA will approve a PPP loan application.

The Use Period is Not Optional

The Act also changed the time period for borrowers to use PPP loan funds from eight weeks to twenty-four weeks.  Experts initially interpreted the Act as permitting borrowers to elect either the eight-week period or the twenty-four-week period.  This understanding has since changed.

Borrowers who received their loans prior to June 5, 2020 are permitted to use either the eight-week or twenty-four-week period. However, borrowers who received their loans after June 5, 2020 are required to use the twenty-four week period.  This restriction is perhaps an error that will be later corrected as it seems contrary to Congressional intent to provide more flexibility to borrowers (not to mention entirely arbitrary).

Additionally, the requirement that the borrowers use the funds by December 31, 2020 remains.  Some borrowers will then have a use period of longer than eight weeks but shorter than twenty-four weeks, depending on when their loan funds.

The New 60% Use Rule is Apparently Not a Cliff

of the funds for payroll-related expenses to qualify for full forgiveness of their loan.  The forgiveness was reduced, but not eliminated, if the borrower utilized less than 75% of funds for said payroll costs.  The Act changed that requirement to 60%, but early interpretations of the Act concluded that it was now a cliff (meaning that there was no availability of partial forgiveness).

This is apparently not the case.  Instead, the First Interim Final Rule provides that a borrower will still qualify for partial forgiveness if they use less than 60% of their loan funds for payroll-related expenses.

Spin the Wheel, Get a Maturity Date!

In another turn of events, also hopefully in error, there are now two minimum maturity dates for PPP loans.  The Act extended the minimum maturity from two years to five years,  apparently for all borrowers.  Unfortunately, this appears to not be the case anymore.

The First Interim Final Rule issued guidance to lenders that loans approved

  • before June 5, 2020 will have a two-year maturity
  • on or after June 5, 2020 will have a five-year maturity.
  • Note: The approval is based on the date SBA assigns a loan number to the loan.

For borrowers who do not qualify for the new five-year minimum maturity date, banks and borrowers can agree to extend the maturity date on the loans to a period longer than two years.  However, it is counterintuitive to permit two different maturity dates for the same loan program and, of course, puts all the power in the hands of the banks who already are anxious to get these loans off their books.

Ex-Felons May Now Apply

Prior to June 12, 2020, individuals who had felony convictions within the past five years did not qualify for a PPP loan.  Now individuals with felony convictions can apply so long as the conviction was not within the past year.

However, the five-year restriction remains for those individuals who were charged for certain types of financial crimes, including, but not limited to, robbery, embezzlement, fraud, making a false statement on a loan application, or making a false statement on an application for federal financial assistance.  If the borrower is an entity, the prohibition applies if an ex-felon owns more than 20% of the entity.

Although these may not be the last of the Paycheck Protection Program changes, rest assured that we will continue updating you with what you need to know.

Nichole Baer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. She received her law degree from Stetson University, College of Law and practices in several areas, including BusinessCommercial Real EstateEstate Planning, and Estate Administration.

The popular Paycheck Protection Program (the “PPP”) created by the CARES Act is coming to an end.  Time is running out to take advantage of this program. The upcoming deadline to apply for a PPP loan is June 30, 2020. However, many banks are requiring applicants to submit their application prior to the June 30th deadline.

  • Citizens Bank is requiring applications for the PPP to be submitted by 4 p.m. on June 17th.
  • Bank of America, N.A. told customers to submit PPP applications by 5 p.m. on June 15th.
  • Ephrata National Bank has not set a deadline but is suggesting that customers submit applications by June 23rd to allow sufficient time for processing.
  • According to PNC Bank’s website, they are no longer taking any additional applications.

Around $130 billion remains available for PPP loans.  Congress has had some limited discussion on what will occur if there are funds still available when the program ends.  Congress may even extend the program until the funds are depleted.  As of the date of this blog post, though, nothing has been determined.

If you have not already applied for a PPP loan and still wish to do so, contact your local bank as soon as possible. Search the Lancaster Law Blog for more information about the Paycheck Protection Program to see if it can help your business.

Nichole Baer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. She received her law degree from Stetson University, College of Law and practices in several areas, including BusinessCommercial Real EstateEstate Planning, and Estate Administration.

On June 3, 2020, the U.S. Senate passed H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020 (the “Act”).  President Trump then signed it into law 2 days later.  The Act makes significant changes and updates to the Paycheck Protection Program (the “PPP”).

Such changes include, but are not limited to:

  • Increased Time to Use Funds: The Act has modified the time allowed by borrowers to use PPP loan funds from eight weeks to twenty-four weeks. Borrowers can still elect to use the eight-week period.  [June 16, 2020 Updated – based on new guidance from the U.S. Treasury only borrowers who received funds prior to June 5, 2020 may elect between the two use periods. Borrowers who receive funds on or after June 5, 2020 must use the twenty-four week period].
  • Lowered Payroll Funds Amount – Prior to the Act, PPP borrowers had to use at least seventy-five percent (75%) of the funds for payroll-related expenses as discussed prior (to qualify for forgiveness). The Act changed that to sixty percent (60%).
    • There is a catch here. The prior law permitted partial forgiveness if a borrower used than 75% of funds for payroll costs. Now under the Act, forgiveness is eliminated entirely if less than 60% of funds are used for payroll-related expenses. [June 16, 2020 Updated – based on new guidance from the U.S. Treasury, partial forgiveness will be permitted for those who use less than 60% of loan funds for payroll-related expenses].
  • Two New Ways to Get Forgiveness – The Act provides two new exceptions for borrowers looking to obtain full forgiveness of their PPP loan aimed specifically at borrowers who have not been able to restore their workforce numbers.  The amount of loan forgiveness under these exceptions will be determined without a reduction in the number of full-time equivalent employees (the “FTE”) if the borrower, in good faith, can document:
    • An inability to rehire individuals who were employees of the borrower on February 14, 2020 and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
    • An inability to return to the same level of business operations at or before February 15, 2020 due to compliance with guidance issued by HHS, CDC, or OSHA between March 1, 2020 and December 31, 2020. This guidance must relate to maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirements because of COVID-19. Please note, this exception does not appear to take into account state restrictions and guidance that reduced business operations.
    • Note: Prior guidance also allowed borrowers to exclude from their forgiveness calculations those FTE who turned down “good faith” offers to be rehired at the same hours and wages as prior to the COVID-19 pandemic.
  • An Extended Repayment Period – The maturity of the PPP loans were extended from two years to five years. The interest rate remains at 1%. [Updated June 16, 2020 – Based on new guidance from the U.S. Treasury, only Borrowers who received funds on or after June 5, 2020 will receive the new maturity term of five years].
  • An Extension to the 6-Month Deferral Period – The six-month deferral in payment has been extended as well. Now the deferral period is either (1) until the date on which the amount of forgiveness determined under the CARES Act is remitted to the lender or (2) for borrowers who are not asking for forgiveness, ten months.
  • Changed Deadline to Restore Pre-COVID Levels of Labor and Wages – Borrowers can restore their workforce levels and wages to pre-COVID levels over a twenty-four-week period, another component for full forgiveness of the PPP loan. Prior law required borrowers to restore workforce levels and wages by June 30, 2020; it is now December 31, 2020.
  • Permitted Delay in Paying Payroll Taxes – Borrowers can use a PPP loan and delay paying their payroll taxes.

Laws and regulations remain a moving target for COVID-19-related relief.  As such, the laws and regulations discussed today may change soon.  Please consult with a legal professional regarding the updates to the Paycheck Protection Program if you have any legal concerns.

Nichole Baer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. She received her law degree from Stetson University, College of Law and practices in several areas, including BusinessCommercial Real EstateEstate Planning, and Estate Administration.

On April 24, 2020, the House of Representatives signed the Paycheck Protection Program and Health Care Enhancement Act (the “PPP and HCE Act” or “Act”) into law. Here are some highlights regarding this new $484 billion Act.

Paycheck Protection Program Gets More Funding

The PPP and HCE Act includes $310 billion in additional funding for the SBA Paycheck Protection Program (the “PPP”). The House also included provisions to help smaller businesses who may be more likely to seek aid from smaller lenders. Therefore, of this $310 billion, the SBA will direct $60 billion to smaller lenders, credit unions, and community banks:

  • $30 billion to lenders with assets valued at less than $10 billion, and 
  • $30 billion for lenders with assets between $10 and $50 billion. 

Besides the additional funding to the PPP, there are no changes to the program itself. The eligible loan amounts remain the same as do program requirements. The PPP will stop taking applications on June 30, 2020, although analysts do not anticipate the additional $310 billion to last two weeks. Some commentators believe the funds will dry up in just two days.  

There were a plethora of applications that were still pending when the funding ran out. These older applications in the pipeline will likely be received and funded before any new applications. Demand for this program is high: the SBA already guaranteed 1 million PPP loans, and the overall average loan size was $206,000.  

If you wish to apply for a PPP loan, you must do so now.

A lot of borrowers have asked for guidance on the forgiveness aspect of the PPP, and more direction is coming shortly. Analysts anticipate that the SBA will issue guidance for PPP forgiveness this week.  

SBA Economic Injury Disaster Loan Program Gets More Funding

In addition to re-funding the PPP, the PPP and HCE Act adds $60 billion in funds to the depleted SBA Economic Injury Disaster Loan and grant program (the “EIDL”). Of these EIDL funds, the SBA will direct $10 billion towards emergency grants of up to $10,000 per borrower and the remaining $50 billion to fund loans through the EIDL.  

If a borrower receives a grant through this program, the SBA will not require them to repay it.  

This Act also permits agricultural enterprises to apply for EIDL funds. Under prior law, they were generally not permitted to apply.  

Hospitals Receive Money for Funding and Testing

While it would be easy to focus on the small business loans that were provided the lion’s share of this Act’s funding, the House also allotted significant financing for healthcare purposes. 

The PPP and HCE Act allocates the sum of $75 billion to the U.S. Department of Health and Human Services (the “HHS”) to reimburse providers for the cost of treating COVID-19 patients, including the diagnosis, testing, and treatment of those inflicted.  

The Act also authorizes an additional $25 billion to develop and implement a national plan regarding testing protocols for COVD-19.  

These testing funds will be provided to states and localities in addition to the CDC and the National Institutes of Health. The $25 billion is not only for the testing and contact tracing for COVID-19 but also for the screening for possible immunity.   

Nichole Baer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. She received her law degree from Stetson University, College of Law and practices in several areas, including BusinessCommercial Real EstateEstate Planning, and Estate Administration.

The U.S. Congress, as part of the CARES Act, has created the Paycheck Protection Program (“PPP”) to provide loan funds to small businesses to increase employee payroll retention during the COVID-19 pandemic. The program even offers forgiveness for the loan under certain conditions. 

Small businesses under 500 employees (including sole proprietorships, independent contractors, and self-employed persons), private non-profit organizations, or 501(c)(19) veterans’ organizations, and tribal businesses are eligible under this program if they meet certain program requirements.  

The SBA is also waiving affiliation standards for small businesses in the hotel and food industries or franchises in the SBA’s franchise directory. What this means is small businesses in the hospitality and food industry, along with franchises approved by the SBA that have more than one location, will be eligible at the store/location level if that location employs less than 500 workers.  

Where To Use

Applicants can use a PPP loan for 

  • payroll costs, including benefits
  • interest on non-federal mortgage obligations incurred before February 15, 2020
  • rent under a lease agreement in force prior to February 15, 2020, and 
  • utilities, with service that began before February 15, 2020.  

Payroll costs and benefits include 

  • salary 
  • bonuses
  • vacation time
  • parental or family leave
  • medical or sick leave
  • allowance for separation or dismissal
  • group healthcare
  • insurance premiums
  • retirement benefits, and 
  • state and local taxes.  

Application Process

Starting April 3, 2020, small businesses and sole proprietorships can apply for a Paycheck Protection Program loan. Independent contractors and self-employed individuals can also apply starting on April 10, 2020. 

The SBA is offering PPP loans through June 30, 2020 or until the funds run out, whichever occurs first.  

To apply for a PPP loan, a Borrower must seek out an existing SBA 7(a) lender. If a Borrower is not aware of an SBA 7(a) lender, they should first contact the bank they currently use and see if their bank qualifies. Otherwise, Borrowers can go to http://www.SBA.gov/pa and look at “Loan Volume Report” to see what banks are lending SBA 7(a) loans in Eastern PA (look under heading “From Our Office” of the page).  

Please be aware that not all banks who are SBA 7(a) lenders are offering this loan, so it may take some work to find one.          

The SBA included a sample application form that you can review to know what information the SBA needs. To apply, a business will need at minimum:

  1. the average monthly payroll
  2. the number of jobs
  3. the purpose of the loan 
  4. applicant information (EIN/SSN, address, owner name, etc.)
  5. the operating agreements/organizational documents
  6. payroll documentation (As each lender will require different documentation, we recommend pulling everything for the past year in preparation of what the lender will ask for), and 
  7. certifying information on the business and each owner that owns more than 20% of the company, including:
    1. that current economic uncertainty makes the loan necessary
    2. that they will use the funds to retain employees and maintain payroll or make mortgage payments, lease payments, or utility payments for eight weeks following the loan, and
    3. that they have not and will not receive another loan under the PPP program between February 15, 2020 and December 31, 2020.

Loan Terms

The SBA will defer your loan payments for six months, but interest will continue to accrue. However, they do not require any collateral or personal guaranties from Borrower. Also, neither the government nor the lenders will be able to charge any fees related to this loan.  

The maturity on a PPP loan is two years, and the interest rate is 1%.  

Forgiveness

The SBA will 100% forgive the loans upon certain conditions.  

A borrower will owe money when the loan is due and payable if they use loan funds for anything but payroll costs, mortgage interest, rent, and utility payments during the eight weeks after they receive the loan. 

However, due to the high use of this program, a borrower must use 75% of the loan for payroll costs.  The SBA also caps payroll costs at $100,000.00 on an annualized basis for each employee.  

In addition, the SBA may reduce or eliminate forgiveness for a borrower if they

  • do not maintain their staff and payroll
  • reduce their full-time employee headcount
  • reduce salaries by more than 25%, or
  • fail to re-hire their employees  

Borrowers have until June 30, 2020 to restore their fulltime employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.  

Please note that lenders are overwhelmed with applications for this program. Apply early, but be patient on the loan turnaround.  

Additionally, the SBA does not require a Borrower to look for funds elsewhere prior to applying to this program. This is known as the “Credit Elsewhere” requirement, and it has been waived under the CARES act for the SBA PPP and SBA EIDL programs.   

If employers need more assistance than what the Paycheck Protection Program offers, they may apply for an Economic Injury Disaster Loan directly through SBA.

Nichole Baer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. She received her law degree from Stetson University, College of Law and practices in several areas including BusinessCommercial Real EstateEstate Planning, and Estate Administration.

The COVID-19 pandemic has created a challenging situation for small businesses across the Commonwealth and the United States, including closed courts. Most, if not all, businesses in Pennsylvania are struggling, but there are COVID-19 loan programs out there that can help with cash flow and payroll expenses. This post is a summary of some of the loan programs currently available.

SBA Economic Injury Disaster Loan (EIDL)

The SBA EIDL loan provides up to $2 million in loan assistance with a 3.75% rate for small businesses and a 2.75% rate for non-profits. The SBA decides the terms on a case by case basis and will consider the borrower’s ability to pay in determining the term and amount to be loaned. 

The EIDL loan repayment term may be up to 30 years. No payments are due for a year on this loan.  

EIDL is a working capital loan, and the SBA will take real estate as collateral when it’s available. Any loan over $25,000 will require collateral, but the SBA will not decline a loan for lack of collateral. Instead, it will require the borrower to pledge what collateral is available. SBA will take a lien on inventory and business equipment. The SBA will also take a junior position to other lenders.

There are no costs to apply, but there are costs associated with the documents required to secure the loan.  

SCORE is offering a daily webinar on the EIDL program at Noon Eastern Time.  

SBA Economic Injury Loan Emergency Advance

Small businesses may apply for an advance of up to $10,000 with the Economic Injury Loan Emergency Advance. The advance is available within days following a successful SBA application (the application asks for direct deposit information).

The SBA does not require recipients to repay this advance.  

The loan advance is part of the Economic Injury Disaster program mentioned above and is available even if you do not receive that loan. 

SBA Paycheck Protection Program  

The Paycheck Protection Program (“PPP”) provides loan funds to small businesses to increase employee payroll retention during the COVID-19 pandemic. Several entities may be eligible under this program if they meet certain program requirements, including:

  • small businesses under 500 employees
  • private non-profit organizations, and 
  • 501(c)(19) veterans’ organizations 

To apply for the PPP, an employer must seek out an existing SBA 7(a) lender. Please be aware that not all banks who are SBA 7(a) lenders are offering this loan, so it may take some work to find one.   

The PPP will be available through June 30, 2020. The SBA will even forgive 100% of the PPP if an entity uses the funds for 

  • payroll costs (salary, bonuses, vacation time, group healthcare, insurance premiums, retirement benefits, state and local taxes, etc.) 
  • interest on mortgages
  • rent, and 
  • utilities 

However, due to interest in the program, applicants must use at least 75% of the forgiven amount for payroll. You also must maintain the same employee headcounts and salary levels. The SBA will reduce the forgiveness you are allowed if full-time headcounts decline and/or the salaries and wages paid to employees decrease.  

The SBA will defer your loan payments for six months, but interest will continue to accrue. The PPP will not require employers to give collateral. The government and the lenders will not be able to charge any fees related to this loan. The maturity on the PPP is two years, and the interest rate is 1%.  

To apply, at minimum, a small business will need: 

  1. the average monthly payroll
  2. the number of jobs
  3. the purpose of the loan 
  4. applicant information (EIN/SSN, address, owner name, etc.)
  5. the operating agreements/organizational documents
  6. payroll documentation (As each lender will require different documentation, we recommend pulling everything for the past year in preparation of what the lender will ask for), and 
  7. information on the business and each owner that owns more than 20% of the company

Applications open on April 3, 2020, for small businesses and April 10, 2020, for independent contractors.  

SBA Express Bridge Loans  

Small businesses that already have relationships with an SBA Express Lender may apply for access to loan funds up to $25,000. 

Said funds have a fast turn around and can be used as a term loan or a bridge loan while waiting for an SBA Economic Injury Disaster Loan to fund.  

SBA Debt Relief

During the COVID-19 pandemic, the SBA will automatically pay the principal, interest, and fees of all current SBA 7(a), 504, or micro-loans. It will make these payments for the next six months. 

Additionally, the SBA will pay for the principal, interest, and fees of any new SBA 7(a), 504, or micro-loans that were issued before September 27, 2020.  

PIDA COVID-19 Working Capital Access Program (“CWCA”)  

As of March 31, 2020, the Pennsylvania Department of Community and Economic Development (“DCED”) is no longer accepting applications for the CWCA loan. 

Presently, the DCED does not expect to re-open this loan program. If it does, this blog post will be updated.

PIDA’s Small Business First Fund established this program to help businesses through the pandemic. It authorized up to $61 million in loan funds to borrowers. Every small business (with less than 100 employees worldwide) was eligible for working capital loans up to $100,000.00. PIDA would take a junior position to other lenders, and the only collateral would be for personal property and/or fixtures. Interest rates were 0% for small businesses and 2% for agricultural producers with a 3-year repayment term. No payment was due the first year of the term. 

If you need assistance figuring out which of these loan programs may be best for you, we are here and ready to help.   

Nichole Baer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania.  She received her law degree from Stetson University, College of Law and practices in several areas including Business, Commercial Real Estate, Estate Planning, and Estate Administration.

More small business relief has arrived! On Monday, June 8, 2020, Governor Wolf announced additional relief for small businesses in Pennsylvania.  The relief funding consists of $225 million of the $4 billion provided to the Commonwealth through the CARES Act. In addition, the Lancaster County Small Business Recovery and Sustainability Fund is also launching grants to local businesses.

State Relief

The state relief from Governor Wolf will not consist of loans; instead, the fund will consist of grants to applicants.  However, the Pennsylvania Department of Community and Economic Development (the “PA DCED”) will not administer it.  Instead, a series of non-profit lenders known as community development financial institutions (the “CDFI”), such as Community First Fund, will be handling the funds.

The Governor announced in a press conference on Monday that the goal of the program is to help small businesses that have not been helped from earlier efforts, including the Paycheck Protection Program.  There will be a common application created for the CDFIs to use, and it should be ready by the end of June.

The state will divide the relief into three programs:

Historically Disadvantaged Business Revitalization Program

This program offers $100 million for small businesses:

  • that have experienced a loss as a result of the order to close all non-life sustaining businesses
  • that have or will incur additional costs in order to adapt to new business operations due to COVID-19, and
  • where socially and economically disadvantaged individuals own at least fifty-one percent (51%) of the company and control management and daily operations.

Main Street Business Revitalization Program

The next program offers $100 million for small businesses that realized a loss as a result of the order to close all non-life sustaining businesses and have or will incur additional costs in order to adapt business operations due to COVID-19.

Loan Payment Deferment and Loss Reserve Program

The final program will provide $25 million to the CDFI, which will allow the CDFI’s to offer forbearance and payment relief to existing borrowers of the CDFI.  The intention is that these funds are for borrowers of the CDFI who are struggling due to COVID but also to provide support to the CDFI’s who are experiencing increased borrower defaults.

Grants will be capped at $50,000 per applicant.  The Governor has not yet announced the priority of awards but has stated that they will not be on a first-come, first-serve basis.  To qualify, businesses must have less than 25 employees and less than $1 million in annual sales plus have been in operation as of February 15, 2020.  All applicants must submit a recent tax return.

Recipients should use the grant funds to cover operating expenses during the shutdown and to transition a small business for re-opening.  They may also use grant funds for technical assistance, such as training and guidance for business owners.

Local Relief

In addition to the CDFI’s management of these new state programs, Lancaster County launched a new website for local businesses to apply for free personal protective equipment (“PPE”).  Businesses must have less than 100 employees to apply.

Lancaster County also received $25 million of federal aid, which the Lancaster County Small Business Recovery and Sustainability Fund (the “Fund”) will administer as grants to local businesses.

Phase I

Phase I of the Fund will provide $10 million to small Lancaster County businesses who have a demonstrated need for working capital or retrofit. To qualify, the business must have 20 or fewer employees.

The application for this phase will go live on Monday, June 15, 2020 at 7 a.m.   The grants provided will not be on a first-come, first-serve basis.

Phase II

The Fund has not yet finalized details for Phase II, but there should be an additional $10 million aimed at small businesses with 100 or less employees.

To find out more information regarding the Lancaster County Small Business Recovery and Sustainability Fund, click  .

To find out more about Phase I application, click and   for their summary sheet.

To read other news about more small business relief during COVID, click here for my blog post on recent updates to the Paycheck Protection Program.

Nichole Baer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. She received her law degree from Stetson University, College of Law and practices in several areas, including BusinessCommercial Real EstateEstate Planning, and Estate Administration.

The government is doling out more money than it ever has in response to an emergency, and it is doing it faster than ever before. From Economic Injury Disaster Loans (EDILs) to Paycheck Protection Program (PPP) loans to federal, state, and local grants through the Coronavirus Aid, Relief and Economic Security Act (CARES Act) – the largest economic stimulus package in history – trillions of dollars are currently being disbursed to individuals and businesses who are facing the severe financial hardships created by COVID-19.

The emphasis so far has been to get the money into the hands of those who need it as quickly as possible. Given the amount of money that the government has been giving out and how fast they’ve been doing it, there is a lot of confusion as to who is entitled to receive the emergency assistance and how they should use it.

On an almost daily basis, various governmental entities are issuing new regulations and guidance. As an example, the Small Business Administration had to revise the PPP loan applications that many lending institutions were using several times due to ongoing revisions to the PPP distribution guidance. As quickly as we can understand the rules is as quickly as they are changing.

Now that the chaos of the early days of COVID-19 has started to die down, attention will soon switch to implementing COVID-19 compliance oversight of the rules and regulations pertaining to each type of emergency aid.

Because of this, there is the risk that well-intentioned, legitimate businesses receiving relief funds can run afoul of the rules and regulations regarding how they can use them. This possibility may open the door to investigations into how individual businesses received and used emergency aid even if they did their best to follow the law.  Even if no wrongdoing occurred, the financial and reputational expense of defending against this type of investigation could be extremely costly.

As a business owner or decision-maker, there are steps you can take to protect yourself from being investigated and to prepare if you are.

1. Keep Abreast of Laws, Rules, Regulations and Changes

Regarding COVID-19 aid, it seems that the government is acting first and asking questions later. This rapid action can make it very difficult to stay on top of what the government requires for each type of aid. Take the time to read articles, such as the ones posted on Lancaster Law Blog, to keep up to date on changes to the laws.

Also, review regulations and Frequently Asked Questions published by the government body issuing the funds. Consult with an attorney or your financial institution to get help staying up to date on the latest changes in the law. The attorneys at Russell, Krafft & Gruber, LLP are reviewing changes to federal, state and local rules and regulations daily and are here to help you understand them.

2. Be Truthful and Accurate

Most, if not all, loan or assistance programs require an application. One of the best ways to avoid any questions about your eligibility is to be truthful from the time that you complete the application. Take the time to fully review any applications and do not answer any questions that you do not understand until you can get clarification.

In addition, maintain accurate and truthful disclosure of information throughout the entire process. Even if being honest means that you will not qualify for a particular type of assistance, it would cost a lot more than the lost aid if you are investigated and prosecuted for lying.

The best defense to allegations of dishonesty is the truth.

3. Create a Strong Audit Trail

It is vitally important that you keep track of all the money you receive and how you spend it as you go. The longer you wait to track your spending, the more likely it is that you will not capture all the information and that you will not spend the money properly.

In the unfortunate event that you are audited, you want to be prepared to show how you received the funds and how you spent every penny. Keep all the paperwork you receive and copies of any paperwork that you submit. Once you receive the funds, keep paper records of how you spent the money, who you gave it to, and when. Leave no question as to what happened to the money.

Although daunting, taking these steps will protect you from the attention of government oversight agencies and protect you if you are audited or investigated. If you have any questions on COVID-19 compliance oversight, how to apply for COVID-19 emergency assistance or how that assistance should be used, contact one of our attorneys.

Laura McGarry is an attorney at Russell, Krafft and Gruber, LLP in Lancaster, Pennsylvania. She received her law degree from Penn State Law and provides legal counsel to individuals and businesses in Lancaster and surrounding communities.

The federal government has taken significant steps over the past weeks to provide relief to individuals and businesses struggling to manage their finances during the COVID-19 crisis. The first of these, the Families First Coronavirus Response Act (FFCRA), went into effect on April 1.  

Most notable of the provisions in FFCRA were the requirements for employers with fewer than 500 employees to provide paid sick leave and expanded FMLA leave for employees who missed work for COVID-19-related reasons. 

Closely behind that came the Coronavirus Aid, Relief, and Economic Security (CARES) Act. CARES rolled out payments to individuals, tax credits to businesses, and loans through the Paycheck Protection Program (PPP) to encourage employers to retain or bring back their employees.  

While the relief provided by these Acts is significant and will help countless businesses handle the uncertainties that lay ahead, they also present potential challenges for employers as they try to navigate these various programs and determine which ones are right for their business. These two Acts also interplay and overlap on employee wages in complicated ways. Businesses should review both carefully to make informed decisions about which programs or credits to participate in and understand whether that disqualifies them from other forms of relief.

The Department of Labor and the IRS have been releasing further guidance, seemingly by the day, to clarify the relationship between the FFCRA and the CARES Act. The most helpful of these thus far are:

Notably, participation in one program can disqualify or limit your relief in another.  

Here’s how:

The FFCRA Employee Retention Credit Overlaps with its own Paid Sick Leave Provisions

The FFCRA provides for an Employee Retention Credit in the form of a refundable tax credit against payroll taxes for qualified wages paid to employees. 

Similarly, the Paid Sick Leave provisions of the FFCRA also provide for a refundable tax credit for employers who pay sick leave to employees who miss work for COVID-19-related reasons.

IRS guidance is clear, however, that employers cannot use the same wages to qualify for both credits.

The FFCRA Employee Retention Credit Overlaps with the CARES Act’s PPP Loan and Small Business Interruption Loan

An employer who receives a CARES Act PPP Loan or a Small Business Interruption Loan may not also 

  • receive the FFCRA Employee Retention Credit or 
  • use those funds to pay sick leave to an employee and also take a credit against payroll taxes.

In other words, a business that receives a PPP Loan can still take a tax credit for qualified paid sick leave wages. However, they cannot then use those wages for the sick leave credit and count that toward the loan forgiveness offered under the PPP loan. 

The FFCRA also contained a provision that allows employers to defer certain portions of their payroll taxes on wages paid between March 27, 2020 and December 31, 2020. An employer can then pay the payroll taxes they chose to defer over the following two years.  

It is not yet clear whether employers who receive the Employee Retention Credit against payroll taxes or those that receive a PPP Loan can also defer their payroll taxes. The IRS needs to supply further guidance on that question.

These are just some of the many entanglements between the relief packages stemming from the COVID-19 pandemic. While many businesses are looking for relief wherever they can find it, you must educate yourself and make informed decisions about the types of relief that will work best for your business and your situation.  The attorneys at Russell, Krafft, & Gruber, LLP are here to assist you in sorting out what is best for you and your business.

Aaron Zeamer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. He practices in a variety of areas, including Business Law and Liquor License matters. Aaron works frequently with commercial real estate agents, brokers, restaurant and bar owners, breweries, distilleries, and wineries to facilitate the sale and transfer of PA liquor licenses.

The Small Business Administration is doing everything it can to establish programs that relieve some of the financial burden COVID-19 has caused the business community. One of the programs it is offering is the Economic Injury Disaster Loan (EIDL).

What is the EIDL?

The EIDL is a working capital loan, and businesses can use it for 

  1. fixed debts (such as rent)
  2. payroll
  3. accounts payable, and 
  4. some bills that would have been paid had the disaster not occurred  

In total, the EIDL provides up to $2 million in loan assistance with a 3.75% rate for small businesses and a 2.75% rate for nonprofits. The maximum loan term for EIDL is 30 years; however, no payments are due for the first year.  

Also, the EIDL may not be used to pay other federal loans. 

Am I eligible for an EIDL?

The SBA bases eligibility for the EIDL on the size of the business, type of the business, and financial resources.   

Eligible borrowers include: 

  1. businesses with less than 500 employees, 
  2. sole proprietorships (including independent contractors), 
  3. ESOP with less than 500 employees, and 
  4. private nonprofits.  

Applicants who are ineligible include: 

  1. anyone engaged in an illegal activity
  2. a principal applicant (someone who owns 50% or greater ownership interest) who is 60 days delinquent or more on child support
  3. farms
  4. businesses that derive more than one-third of their gross annual revenue from legal gambling activities
  5. lobbyists, and 
  6. state/local/municipal governments

Do I need collateral?

The maximum unsecured loan amount is $25,000. Any loan over that amount will require collateral – real estate if it is available. 

However, the SBA will not decline a loan for lack of collateral. Instead, the SBA will require the borrower to pledge what collateral is available.  

The SBA can also take a lien on inventory and business equipment. In addition, the SBA will take a junior position to other lenders.  

What do I need to apply?

The application for an EIDL is through the SBA. The EIDL application relies on a series of self-certifications from the business and the business owners.  

For the twelve months before January 31, 2020, borrowers will need to know:

  • the gross revenues of their business
  • the cost of goods sold
  • lost rents (for rental property owners)
  • the cost of operating expenses (for nonprofits)
  • other reimbursements the company will receive (such as business interruption insurance), and 
  • the number of employees.  

The loan processor may also request that a business fill out additional forms and may request 

  • federal income tax returns 
  • a current profit and loss statement, and 
  • a personal financial statement 

What else should I know about the EIDL program?

There are no costs to apply for an EIDL, but there are costs associated with the documents required to secure the loan, such as recording costs. There is also no obligation to take the loan if the SBA offers it.  

If, after the SBA approves the loan, the borrower needs more money, they can submit additional supporting documents and request an increase to the loan.

If the borrower requires fewer funds, they can request a reduction. 

If the SBA denies the loan request outright, the borrower will be given up to six months to provide new information and submit a written request for reconsideration.   

EIDL Advances: the SBA Economic Injury Grant

The EIDL also offers an emergency advance of up to $10,000 known as an economic injury grant. During the application process for an EIDL loan, the SBA will ask businesses if they want to apply for the advance. If yes, it will ask them to provide their direct deposit information.  

The advance is available within days following a successful submission of the SBA application, and most notably, the SBA does not require businesses to repay it.

While you’re waiting, get an SBA Express Bridge Loan

If a small business already has relationships with an SBA Express Lender, it may apply for a bridge loan of up to $25,000. The bridge loan will have a fast turn around and can be used as either a term loan or a bridge loan while waiting for an SBA EIDL to fund.  

You are not excluded from one COVID-19 relief loan simply because you have taken out another.

Borrowers may obtain one or all of the other CARES Act loans (Paycheck Protection Program, EDIL, or economic injury grant) in addition to receiving the 6-month payment subsidy on a presently held SBA 504 loan. However, a Borrower cannot duplicate the use of the funds between the programs (no double-dipping).  

If you’re unsure if you qualify for an EIDL, one of our attorneys can help you.

Nichole Baer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania.  She received her law degree from Stetson University, College of Law and practices in several areas including BusinessCommercial Real EstateEstate Planning, and Estate Administration.