The past six months need no explanation; the on-going global health and financial hardships have led to heavy hearts and tired minds.
Through our dedicated consulting team efforts (including dialogues with professional partners, local government officials and the Small Business Administration), we wanted to share our firm’s current stance on all things pandemic assistance, in addition to widely disseminated information already available.
PPP Loans – Forgiveness
Most PPP borrowers are concentrating on the forgiveness process. We recognize this and have allocated significant resources to advising on PPP loans. Barring unique circumstances (i.e. pending business transaction), our current recommendation is to WAIT on the application process. Here’s why:
- Authoritative guidance continues to be released.
MKS: More information available = reduced uncertainty during the review process.
- Pending legislation.
MKS: Loans under $150,000 represent 87% of the total population, yet only account for 28% of the loan dollars. A “check the box” forgiveness application for these loans has extensive support, yet requires an act of Congress. The professional community feels confident this will materialize, just not imminently. Other favorable developments may occur in the next few months, such as the reversal of the IRS decision to not allow the deduction of PPP expenses.
- Deadlines for application submission and payments.
MKS: Per the SBA’s FAQ release on August 4th, a borrower has 10 months FOLLOWING the end of the covered loan period to submit a forgiveness application to the lender. Additionally, no payments on an outstanding obligation (if any) will be required until the SBA has provided a remittance and notice of forgiveness to the lender. In summary, even April borrowers have until at least 2021 to begin this process.
Additionally, our experience with PPP forgiveness to date has highlighted issues with payroll processor reports, general confusion on program compliance/documentation, and a lack of conformity amongst the lending institutions. We also observed that PPP loan underwriting was much smoother for applicants who applied in June/July, and believe this trend will repeat itself during the forgiveness process.
Other Federal Loans
Previous posts on our website (www.myslajek.com) have broken down the other significant loan programs:
- Main Street Lending Facility
- SBA Economic Injury Disaster Loans (EIDL)
MKS: The Main Street Lending Facility has flopped – of the $600 billion allocated, the Fed’s Jerome Powell recently indicated 0.3% of the funds have been underwritten. Why? Lenders are wary of the rules and requirements, and our team concurs – not a comfortable avenue of relief for businesses without in-house counsel or robust finance departments.
EIDL loans are non-forgivable government loans. Borrowers will work directly with the SBA, not a private lender. Some applicants received “advanced grants” when applying, which are entirely separate from the actual loan itself and do not require repayment. Our recommendation for those in possession or seeking an EIDL loan (which remain available) are to be mindful of the restrictions in the loan documents, such as permission needed to purchase/sell assets, make distributions to owners, etc. These were originally designed for physical disasters, and the SBA is understandably vague so far on what the funds can be used for and how oversight of these loans will occur. However, there is no pre-payment penalty! If an attractive working capital loan would help business in the short-term, accepting an EIDL loan may be wise, considering the ability to return the funds at any time.
Congress and the White House are at an impasse on a “Phase IV” stimulus package. Recall that the House passed a $3.5 trillion HEROES Act in May. In response, the Senate attempted a skinnier stimulus bill in early September with a price tag 1/5th the size (roughly $650 billion).
MKS: The wide gap has led to a stalemate on further stimulus spending. Coupled with the election, government funding deadline and a surprise battle over the Supreme Court justice nomination, momentum for further fiscal aid has all but disappeared. Standalone bills (i.e. the extension of enhanced unemployment benefits and fixing PPP loan issues) have been drafted, but we no longer feel confident in any meaningful legislation being passed before November.
State and Local Aid
The March CARES Act legislation provided federal funding for enhanced unemployment assistance and local government programs. Additional $600 payments for the unemployed have expired, and most state, county and city relief funds have been exhausted.
MKS: Unemployment benefits are still available – just less attractive without the extra federal payment. Additionally, countless grant programs have been rolled out, some with little fanfare. We still recommend visiting state, county and city websites on a frequent basis to avoid missing future opportunities for grants/assistance.
We wish there were answers to every question, and empathize with those that continue to deal with serious health and financial concerns. We cannot predict the future, but remain dedicated to things we can control – like serving our clients and community to the best of our abilities.
As we approach the final three months of the year, please continue to visit our website and contact our firm professionals with any questions or concerns.