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The President Signs the Fourth Coronavirus Bill on April 24th

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The “Paycheck Protection Program and Healthcare Enhancement Act” is officially official. On Thursday evening the United States House of Representatives voted in another piece of legislation authorizing $484 Billion dollars of coronavirus relief. The President then signed the bill Friday morning. The legislation expands on some programs that were initiated by the CARES Act, including further funding for small business loans under the Paycheck Protection Program, and authorizes new emergency funding for hospitals and research and testing to combat coronavirus. This brings total federal funding of coronavirus stimulus and relief efforts up to $2.8 trillion in seven weeks.

Additional Funding for Paycheck Protection Program Loans

The centerpiece of the new legislation is an extension of the Paycheck Protection Program (PPP) loans for small businesses guaranteed by the SBA and administered by banks and other qualified lenders. The Act strikes out the original $349 billion, which was consumed in a matter of 13 days, and now authorizes $659 billion in PPP loans. Some experts expect this $310 billion allotment to be depleted even faster than the original loans were. Many banks have been preparing to submit loan applications on this “round” of funding for several days.

Presumably with an eye on underserved communities and borrowers the Act sets aside $30 billion in SBA guaranteed PPP loans for lenders and credit unions with assets between $10 billion and $50 billion in assets. An additional $30 billion is set aside for community financial institutions, small insured depository institutions, and credit unions with assets of less than $10 billion.

Economic Injury Disaster Loans and Emergency Grants

The act also authorizes an additional $10B for Emergency Economic Injury Disaster Loans (EIDL) and grants. These resources are available to small businesses impacted by the pandemic and are administered directly by the SBA. The Act also makes agricultural enterprises with under 500 employees eligible for the EIDL loans and emergency grants.

Public Health and Social Services Emergency Fund

It is no secret that the health care industry has been deeply impacted by the pandemic. The Act authorizes $75 billion of emergency relief for eligible health care providers for health care related expenses or lost revenues that are attributable to the coronavirus. There are a number of restrictions for eligibility in the Act, including that the entity applying for aid has provided diagnoses, testing, or care for individuals with possible or actual cases of COVID-19.

In addition to the emergency relief for hospitals the Public Health and Social Services Emergency Fund includes $25 billion for R&D, testing, manufacturing and administration of expanded diagnosis and suppression of COVID-19. This provision includes a myriad of restrictions and funding carve-outs for states, localities, tribal organizations, and more.

Insights and Practical Considerations

The Small Business Administration quietly updated their FAQs for PPP loans on April 23rd. “Question 31” as it will undoubtedly become (infamously) known as asks if businesses owned by large companies with adequate sources of liquidity qualify for PPP loans. The answer (no doubt influenced by the public outcry against Ruth’s Chris and Twitter musings by certain notable politicians) advises that businesses certifying that economic uncertainty made the loan request necessary might want to re-think that conclusion if, for example, that business is a public company with substantial market value and access to capital markets. Question 31 goes on to state that a borrower that applied for a PPP loan prior to issuance of Question 31 and repays the loan in full by May 7, 2020 will be deemed to have made the certification of need in good faith. To the point: Question 31 does not instill a lot of extra confidence in the loan application process for round number two of the PPP.

Self-assessment of need has been thrust into the spotlight on this program. If you are a small business and you have been adversely affected the pandemic and you have not been fortunate enough to obtain a PPP loan previously, the fact remains however this is the best relief program available today. Here are some practical considerations if your business plans to pursue a PPP loan under the Paycheck Protection Program and Healthcare Enhancement Act:

• If you have already submitted a loan application, ride it out. It is generally not recommended to cancel a loan application already in process. If modifications to the application are required work with your existing lender to resolve them.

• If your business has not submitted an application your highest odds in successfully submitting a loan application is likely with your existing and established lender. If your lender is unable to assist you, reach out to your trusted advisor at Berntson Porter to discuss other potential options.

• Rules and clarity around the loan forgiveness aspects of the program are not yet fully defined. In general payroll costs, rents, utilities, and loan interest will be forgivable. Within those categories and confines of the eight-week “Covered Period” many of these costs can be interpreted many different ways. Theories abound on what will be forgiven but we are all awaiting final guidance from the SBA.

• If your business needs the money to keep people on payroll, the expectation is that if the funds are used for paying your employees and “keeping the lights on”, a substantial portion of the loan will be forgiven. This was intended to largely function as a grant program to keep people employed.

• PPP loans will be a matter of public record; therefore if you receive a loan the government and greater business community will know about it.

• Maintain excellent records if you apply for and obtain a PPP loan. The first priority will be determining forgiveness. Until the SBA issues guidance, there are many costs, especially early in the Covered Period, which may or may not be forgiven. There is much debate on costs paid vs. costs incurred vs. costs incurred AND paid. Excellent record keeping will allow you to compensate for any outcome on this issue.

• The SBA will have authority to audit the records of PPP loan recipients. There is a high risk for fraud in this program and we expect a long period of scrutiny by the program’s inspector general. The value of complete and accurate record-keeping of PPP loans cannot be understated.

Berntson Porter is here to help you navigate these unprecedented times. Visit our online Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business.