On Friday 4/10, Litwin Law client Phase2 Health is hosting a webinar entitled Operating During COVID-19: Crisis Management and Fundraising. The program is scheduled for 3PM Central Time and you can register here.
Have resources that might be of interest to our clients? Please email us and we will gladly post about them here.
We have tried hard to keep our ear to the ground on developments related to PPP Loans. Here are some updates as we understand them (meaning we cannot verify everything):
Check out our latest client alert here. We discuss calculations of payroll, 1099 eligibility, affiliation rules related to the 500 employee issue and strategies to consider if your business is currently shut down.
Rules on how to deal with affiliates/affiliations related to the 500 person threshold for the PPP loan program remain hazy and there's indication that further guidance is coming. Current determination as to affiliation by the SBA would presumably be made under existing statutes -- specifically 13 CFR 121.103. One of the major issues with venture-backed deal here relates to CONTROL. You must assume that all contingent equity rights (options, warrants, convertible notes, etc.) have been fully converted and then what entities have blocking rights (or other affirmative or negative control) in various situations. If an investor can block an action of the board or shareholders then they have control that would trigger an "affiliation" under SBA rules (same in an LLC for any operating agreement where an investor has a blocking right on the manager(s)).
We are also aware that one major bank is requiring applications to me the following representations and warranties:
1. No business which, when combined with the Applicant, would have more than 500 employees (or any higher number provided in SBA standards for the relevant industry): (a) owns or controls more than 50% of the Applicant’s equity, or (b) has, pursuant to the Applicant's charter, bylaws or shareholder agreements, the ability to prevent a quorum or otherwise block action by the Applicant board of directors or shareholders, or (c) has the ability to control day-to-day activities of the Applicant through its Board or Shareholders (including for example, setting employee compensation, hiring and firing of executives, and purchasing or selling equipment);
2. The Applicant is not one of the types of businesses ineligible for SBA business loans (see 13 CFR 120.110), nor is any owner of 20% or more of the business;
3. The Applicant has considered the SBA’s affiliation rules and included the employees of its affiliates (at any level) when determining its eligibility for this program; and
4. The Applicant has considered existing options, convertible securities, and agreements to merge when determining its eligibility for this program.
We're a bit late to announcing this but an issue recently arose on our end where we needed to consider how to notarize and witness documents with social distancing. In Illinois, the governor has issued an executive order very clearly spelling out the requirements for this. So long as the notary is physically located with the State of Illinois, a notary may satisfy the requirement that a person "appear before" a Notary Public by having that person execute a document via two-way audio-video communication technology (subject to any additional guidance the Secretary of State may issue and publish on its website). To witness a document, you mush follow more comprehensive requirements but it is still possible to do so remotely. Those are spelled out in Section 2 of the EO here. While we have not focused on other states at this time it is likely that many states have issued guidance on these matters.
Comments on this blog are open. Please feel free (and encouraged) to post a comment about anything you feel would be useful to anyone else as all our businesses deal with this situation. We're in this together! (Want to write a full post? Just email me.)
A handful of updates on the SBA's PPP Loan Program:
An investment firm we know well called Granite Creek Capital Partners, LLC (together with Theron Technology Solutions) came out with a calculator to assist companies in calculating their PPP Loan eligibility. It is free and you can access it here.
Late last week the SBA came out with "additional guidance" on the affiliate concerns under the loan program though after review the broad consensus (ours included) is that this did not change anything relevant to any startups or venture-backed companies (which is where the affiliate concerns have mostly arisen). Sen. Marco Rubio, one of the co-sponsors of the CARES Act, has indicated by Twitter that further guidance and changes are coming.
The overall process remains very hectic overall. We are seeing and hearing about different banks asking for different things. Since banks are processing these loans rather than the SBA (as is the case with the EIDL) and since the provisions here are so new and this is happening in such a hectic manner, we expect a wide range of requests as banks scramble to process these applications and maintain underwriting standards. If your bank is asking you for something that you can't easily provide you may want to run it by an attorney and we are happy to discuss. Sometimes you can effectively push back and see the bank yield but other times you may need to accommodate the request or seek out a new bank for the loan. (One frequent request is an updated good standing certificate from your state of formation. Our paralegal processes these regularly for clients and can do so for you as quickly as required. Feel free to write our paralegal, Jess, here.)
Everyone is scrambling to get loans in today after Friday was a bit of a false start for the PPP Loan program. While these loans ARE being processed on a first in first out basis, and while no one knows how far this money will go, the applications for this program are open for months so presumably (hopefully?) processing your application after the first few days will not result in a lack of funds here.
Chase is now accepting applications through the PPP Loan Program and we expect others are now as well or will be shortly. Other lenders are saying they will not be accepting applications today at all.
See our recent client alert on recent developments here.
The SBA just updated the PPP loan application and the most current version is now available here.
While we cannot assure that this is based on the most current SBA guidance, a worksheet put out for assistance in calculating maximum loan amount is available here. UPDATE: See another worksheet put out by Granite Creek Capital Partners and Theron Technology Solutions here.
B of A is currently the only major lender processing PPP applications. SBA just announced that the loans will have a 1% interest rate (up from 0.5% yesterday) and up to a 2 year term. Inclusion of 1099s is unclear and latest guidance suggests that payments to 1099s will NOT be eligible for inclusion in loan forgiveness. We will keep updating as possible.
Until now it has been widely and universally reported that the Paycheck Protection Program that is part of the SBA's revised 7a program (modified by the CARES Act) would entail loans with an interest rate of up to 4% and a loan term of up to 10 years. Recent guidance from the US Treasury, however, now indicates that loans will be at a 0.5% fixed rate and for a term of only up to 2 years. See the Treasury's fact sheet here. We will continue to provide updates as we learn more.
NOT LEGAL ADVICE
Please be advised that we have provided the information contained here as a courtesy and while we have sought to be as current and accurate as possible we do not represent the accuracy of anything contained here. Nothing contained here should be considered legal advice.