Presented by Suzanne Saxman, partner, and Leslie Kersey, counsel, Seyfarth Shaw LLP
$349 billion ain’t what it used to be: When the amount budgeted to the Paycheck Protection Program (PPP) was announced, it seemed like a lot of money, and the application deadline of June 30 seemed perfect. And then the true depth of business damage from COVID-19 became apparent in the mad rush to make applications on its opening day, April 3. Another $250 billion could possibly be added, but the demand is simply crushing.
Suzanne Saxman said it: “We are telling people to run, not walk, to your lender to get into the queue …. I can’t say they’ve run out of money, but the commitments are mounting rapidly.”
Why is everybody so hot about PPP? There are two distinct features of PPP: Very attractive terms and the fact that it can be forgiven up to 100%.
Those terms. PPP is a low-cost loan that requires no personal guarantee or collateral. There are no bank or lender fees, which the Small Business Administration (SBA) will pay. The loan comes from your bank or lender not from the SBA. It has a cap of $10 million, though the amount a typical newspaper can apply for will likely be lower.
To forgive? Divine! PPP loans can be forgiven, up to 100% of the loan. And the catch is not very onerous: At least 75% must be used for payroll costs. There are a few allowable uses for up to 25%, including paying leases, mortgages and utilities.
I’m in! Am I? The SBA says companies qualify for PPP loans if they do business principally in the U.S. and have 500 or fewer employees per physical location. (Attention: Newspapers in groups or corporation, that last bit opens up big opportunities to get PPP loans at your individual paper.) PPP loans are also available for sole proprietors, independent contracts and self-employed individuals. Applications for those loans open Friday, April 10.
Affiliation confusion. Best to consult Seyfarth Shaw’s slides (the link is below) on this one, but basically the SBA defines ownership as having 50% or more business control. Caution: If you have a minority shareholder who has enough shares to block action or prevent a quorum, the SBA considers that a power of business control, too, and says you have to add their employees to your employee count. Why does that matter? Because it could put you over the 500-employee limit for PPP loans.
Do you have a guy? The SBA says PPP applicants are “strongly encouraged” to apply for the loan through a bank or lender with whom they already have a relationship. The administration has two reasons: It’s concerned about fraud what with, you know, $349 billion up for grabs. And because it will make for a smoother, more efficient loan process since your lender presumably knows you and your business.
Show me the money! Here’s how to calculate your eligibility. You’ll have to average your payroll cost over the 12 months prior to the date of application. Subtract any amount paid to an employee in excess of $100,000. Divide the money from step 2 by the number of months, usually 12 for newspapers. Then multiply the average monthly payroll cost by 2.5. Because you are eligible to get two and a half times your monthly payroll cost. (Check my math: There’s a more detailed slide in the presentation that’s linked below.)
What’s included in “payroll costs”? All the usual costs such as wage and compensation, vacation pay and the rest. Note: You cannot include cost of paying your independent contractors. Nor can you include subsidized family leave, taxes withhold for income, FICA, etc. You also cannot include payroll costs of employees working outside the U.S.
More on loan forgiveness. The 100% forgiveness feature will be reduced if the employer cuts headcount during the period of the loan or cuts pay by more than 25%. Here’s a simple way to look at it: If you had 100 employees and had 90 at the end of the loan period, 90% of the loan would be forgiven. If payroll is reduced more than 25%, then that excess reduces the amount of the loan dollar-for-dollar.
Welcome back! If you furloughed someone and bring them back, you’re eligible to count that person towards full forgiveness of the loan.
Welcome back (for now)! The SBA will judge forgiveness on what happens in the 8 weeks after the loan is disbursed.
Of course you asked: Can you furlough or layoff someone after the two weeks and still have the loan forgiven? One word: Yes. There are no requirements to keep people employed after the 8 weeks.
Suzanne Saxman said: “Protecting someone’s paycheck doesn’t mean the restaurant got re-opened, it means the payroll got re-opened.”
And again: “Look at it like this: The government wants everyone to be employed and at the same pay. That’s what’s behind the government philosophy on this.”
And again: “They’re not saying your product is going to go back to normal, just that your payroll will be back to normal. Your paper may not be rolling off the press — but your payroll will.”
But enough about the PPP. There are other programs out there available to newspapers distressed by COVID-19. Some $10 billion has been put aside for the Economic Injury Disaster Loan program or EIDL. With this loan you apply directly to the SBA, which is the lender. It has some attractive terms: You can borrow up to $2 million on a loan with a 30-year maximum term. The interest rate is 7.5% interest rate for for-profit businesses. Borrowers need not show they could not get a loan elsewhere. But … A personal guarantee may be required on loans greater than $250,000 and there is no possibility of forgiveness.
Other potential funding sources: The Main Street Lending Program is intended for much bigger companies. The terms are favorable, but not as favorable as the PPP. The loan comes from a bank or private lender, but the SBA buys 90% of the loan. And there are some state and local programs. An excellent source for identifying programs that could benefit your paper has been compiled by the National Governors Association at nga.org/coronavirus/.
You asked: Many complicated and individual questions about eligibility, what unique situations can be included in payroll costs and more. In this uncertain time, there is one way to find any answer. Leslie Kersey: “I would be fully transparent with the bank or the lender.” Make full and good faith disclosures.
Liked this webinar? You’ll love the resource-rich information on COVID-19 that Seyfarth Shaw is adding to its website every day at Seyfarth.com/covid19.
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Additional resources that members may find useful in applying for PPP and EIDL loans and starting to think about Main Street Lending program funding, etc.: