On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act of 2020 (the “Act”), a bipartisan measure aimed at providing additional flexibility and extended relief to small business borrowers under the Paycheck Protection Program (“PPP”). Below is a summary of the key provisions of the Act, highlighting material deviations from those terms initially proposed under the CARES Act and subsequent guidance and regulations issued by the Small Business Administration (“SBA”) in consultation with the Department of Treasury (the “Treasury”).

  1. Extension of Maturity Date. The Act extends the maturity date for all PPP loans made on or after the effective date of the Act from 2 years to 5 years. The Act specifically provides that nothing contained in any previously enacted PPP legislation (including the CARES Act and the Paycheck Protection Program and Health Care Enhancement Act) will prohibit lenders and borrowers from mutually agreeing to modify the maturity terms of any PPP loan in effect prior to the date of the Act in order to conform to the Act. Consistent with PPP guidelines, such provisions are applicable only to that portion of a PPP loan that remains outstanding after application of the forgiveness provisions of the PPP.
  2. Loan Forgiveness.

(a) Extension of Covered Period. As originally proposed, the forgiveness amount of any PPP loan was to be determined based on the total loan proceeds deployed to cover payroll costs and certain operational expenses over the 8-week period following disbursement of the loan, subject to adjustment. Subsequent SBA guidance contained in the Paycheck Protection Program Loan Forgiveness Application provided for an alternate covered period, commencing on the day of the first pay period following disbursement of PPP loan proceeds. The Act further extends such covered period to the earlier of (i) the date that is 24 weeks after the loan origination date, or (ii) December 31, 2020. Notwithstanding the foregoing, borrowers to which PPP loan proceeds have already been disbursed may elect to use the original 8-week period.

(b) Use of Proceeds. To be eligible for forgiveness under the PPP, the Act provides that borrowers must use at least 60% of the loan amount to fund payroll costs, reduced from the originally proposed 75%. and up to 40% of the loan proceeds (increased from 25%) may be used for eligible non-payroll expenses.

(c) Safe Harbor. The aggregate forgiveness amount remains subject to decrease in connection with any reduction in a borrower’s full-time equivalent employee headcount measured against the applicable reference period. However, the Act extends the existing safe harbor, such that borrowers will be eligible for the full forgiveness amount if such employee headcount is restored by December 31, 2020.

(d) New Exemptions. The Act incorporates the following new exemptions to the PPP forgiveness amount adjustment due to workforce reductions.

(i) Exemption Based on Employee Availability. During the period beginning on February 15, 2020 and ending on December 31, 2020, the aggregate forgiveness amount shall be determined without proportional adjustment for workforce reductions if an eligible borrower is able to document an inability to rehire individuals who were employees of borrower on February 15, 2020, and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.

(ii) Exemption Based on Business Operations. In addition to the above, the Act provides that the forgiveness amount will not be proportionately reduced due to workforce reductions if an eligible borrower is able document an inability to return to the same level of operating capacity as such business was able to sustain prior to February 15, 2020, due to compliance requirements or guidance issued by the Department of Health and Human Services, the Center for Disease Control and Prevention and/or the Occupational Safety and Health Administration, in each case between March 1, 2020 and December 31, 2020, related to maintenance of standards for sanitation, social distancing or any other worker or customer safety requirement in connection with COVID-19.

  1. PPP Loan Deferral Period. The Act extends the PPP loan repayment deferral period from 6 months to either (a) such date on which the forgiveness amount is remitted to lender, or (b) such date that is 10 months after the last day of the covered period, in the event that borrower fails to apply for forgiveness within such 10-month period.
  2. Payroll Tax Deferral. The Act revokes the initial prohibition imposed by the CARES Act with respect to a borrower’s deferral of payroll taxes. As a result, all borrowers are now eligible to defer payment of payroll taxes, regardless of whether all or any portion of such borrower’s PPP loan is ultimately forgiven.

We are continuing to monitor any developments, including supplemental guidance issued by the SBA and/or the Treasury. For additional information regarding the PPP and related federal guidelines, please reference our comprehensive Paycheck Protection Program Guide, linked here, which will be updated promptly to reflect the provisions of the Act.  Our attorneys are available to guide you and answer any questions regarding this Alert and our prior alerts, all of which can be found in our COVID-19 Resource Center.

 


As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice.  For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

As part of the phased opening of businesses in New Jersey limited outdoor restaurant food and beverage service is set to begin on June 15th. Operators should remember to obtain all necessary consent from their Landlord to permit the outdoor dining and such operations must still observe all state and local health and safety regulations and meet all social distancing and occupancy limitation requirements.

As for the service of alcoholic beverage in these outdoor areas. The NJ ABC is set to  roll out a new permit this week called a COVID-19 Expansion of Premises Permit. This permit would  allow current  licensees to expand their establishments, beginning on June 15, 2020, into outdoor areas contiguous and non-contiguous to their licensed premises. NJ Licensees should be on the lookout for the announcement on ABC’s website.  We are told to  expect the permit application to be available on the NJABC web site by Friday, 6/5.

For those with food and beverage operations based in NYC we are advised that NYC is supposedly voting this week on measures similar to that adopted by NJ. Once adopted we will have to see how three agencies – Dept of Transportation, Dept of Consumer Affairs and NY SLA coordinate to make this a quick and easy process so that outdoor food an beverage service can be readily provided by all Licensees.

 


As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice.  For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

On May 22, 2020, New York Governor Andrew Cuomo announced the launching of the New York Forward Loan Fund (NYFLF), a loan program providing relief for small businesses or non-profits located in New York State or small landlords with properties located in New York State which did not receive loans under the SBA’s Paycheck Protection Program or Economic Injury Disaster Loan program related to COVID-19. The NYFLF is an effort to help these businesses get back on their feet as they start to reopen.

The loans are available to certain businesses and non-profits with 20 or fewer full-time equivalent employees and landlords. Borrowers are required to have been in existence at least one year prior to the loan application and demonstrate direct economic hardship resulting from social distancing and stay at home orders related to COVID-19 that materially impacted their operations. The loan will bear interest (3% per annum for small businesses and landlords; 2% per annum for non-profits), and will be payable over a 5-year term (interest only for the first year, principal and interest over the balance of the term).  They can be prepaid at any time without penalty, and will be non-recourse (i.e. no collateral required). These loans are not forgivable (unlike the Paycheck Protection Program loans).  Proceeds may be used for working capital, inventory, marketing, refitting for social distancing guidelines, rent, supplies and other uses, but not refinancing of existing loans.

Small businesses can borrow up to the lesser of $100,000 or 100% of their average monthly revenues in any three-month period from 2019 or the first quarter of 2020, so long as they have gross revenues of less than $3 million per year.

Non-profits (must be 501(c)(3) or faith-based organization (but not to supporting religious worship or activities) can borrow up to the lesser of $100,000 or 100% of their average monthly expenses in any three-month period from 2019 or the first quarter of 2020, so long as they provide direct services to New Yorkers (e.g. daycare, legal aid, food banks, senior services, and the like), and have an annual operating budget of less than $3 million per year.

Small landlords can borrow up to the lesser of $100,000 or their projected reduction in three months’ net operating income based on actual reductions in NOI for April or May 2020, so long as they own no more than 200 units (and no single property greater than 50 units), properties are located in a low or moderate income census tract or meet a specified rent test and in good repair with no major violations, and the landlord has positive cash flow for a 12-month period prior to their loan request.  They must demonstrate that any mortgage is either subject to an active forbearance agreement, that they have not missed a debt service payment in the past 12 months and/or no active mortgage, and that they are current on their property taxes through March 2020.

Complete information is available on the NY Empire State Development website here.

Pre-applications will open on May 26, 2020, at noon Eastern time, will begin to be processed on June 1, 2020 based on industries and regions that have been opened, and are available here.

 


As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice.  For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

On Friday, May 15, 2020, the Small Business Administration (“SBA”) released the Paycheck Protection Program Loan Forgiveness Application (the “Application”) and instructions (the “Instructions”), which, together with applicable rules, will govern loan forgiveness under the Paycheck Protection Program (“PPP”).  Despite varying predictions, and with only limited exception, the Application and Instructions are generally consistent with the forgiveness rules originally proposed under the CARES Act, as subsequently clarified and interpreted by the SBA interim final rules and frequently asked questions, in each case issued in consultation with the Department of Treasury (collectively, “SBA Guidance”).

This Alert summarizes the key provisions of the Application and Instructions, highlighting those terms which  deviate from the initially proposed rules, interpretations and supplemental SBA Guidance.

  1. Covered Period. As originally proposed, the aggregate forgiveness amount of any PPP loan is determined based on the total loan proceeds deployed to cover payroll costs and certain operational expenses over the eight-week period following disbursement of the loan, subject to adjustment (the “Covered Period”). The Application and Instructions provide for an alternative eight-week covered period, which would commence on the first day of the first pay period following disbursement of PPP loan proceeds (the “Alternative Payroll Covered Period”).
  2. Costs Eligible for Forgiveness.

a. Payroll Costs. Per the Instructions, PPP borrowers are eligible for forgiveness for payroll costs paid and payroll costs incurred during the Covered Period or Alternative Payroll Covered Period, as applicable, without duplication. For purposes of the calculation, (i) payroll costs are considered paid on the date that paychecks are distributed or the date on which a borrower initiates an ACH transfer, and (ii) payroll costs are considered incurred on the date that an employee’s pay is earned. In order to be eligible for forgiveness, all payroll costs must be paid during the Covered Period or Alternative Covered Period, as applicable, except for those payroll costs incurred but not paid during the borrower’s last pay period of the Covered Period (or Alternative Covered Period), which will be eligible for forgiveness if paid on or before the immediately succeeding regular payroll date.

Consistent with the CARES Act and SBA Guidance, the total amount of cash compensation eligible for forgiveness may not exceed $100,000 per employee (annualized), as prorated for the covered period. There are still open questions on annual payments of retirement and pension benefits that are not due during the Covered Period or Alternative Payroll Covered Period.

b. Non-Payroll Costs. As previously provided by the CARES Act and SBA Guidance, the following non-payroll costs are also eligible for forgiveness under the PPP:

    • Covered Rent Obligations: Business rent or lease obligations, in each case pursuant to lease agreements entered into and in force prior to February 15, 2020. The Instructions clarify that such lease obligations may relate to real or personal property.
    • Covered Mortgage Obligations: Payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation incurred prior to February 15, 2020. Similar to covered lease obligations, the Instructions provide that such mortgage obligations may relate to real or personal property.
    • Covered Utility Payments: Business payments for utility services for the distribution of electricity, gas, water, transportation, telephone or internet access, in each case for which service commenced prior to February 15, 2020. There is no definition or limitation provided for any of these terms.

Each of the foregoing non-payroll costs must be paid during the Covered Period or the  Alternative Payroll Covered Period, as applicable, or incurred during such period and paid on or before the next regular billing date (even if such date is after expiration of the Covered Period or the Alternative Payroll Covered Period, as applicable). Consistent with the CARES Act and prior SBA Guidance, the foregoing eligible non-payroll costs are not permitted to exceed 25% of the total PPP loan forgiveness amount.

3. Forgiveness Reductions. As introduced by the CARES Act and SBA Guidance, forgiveness amounts are subject to decrease in the event that a borrower (i) reduces its full-time employee headcount, or (ii) decreases salaries and wages by more than 25% for employees making less than $100,000 per year, in each case, during the eight-week covered period, as compared to the selected reference period (detailed below).

a. Workforce Reduction: For purposes of determining the workforce reduction amount, the Instructions require the borrower to calculate its average weekly full-time equivalency (“FTE”) during a selected reference period, which may be either (i) February 15, 2019 to June 30, 2019, (ii) January 1, 2020 to February 29, 2020, or (iii) in the case of seasonal employers, either of the preceding periods or a consecutive 12-week period between May 1, 2019 and September 15, 2019, in each case at the borrower’s option. A borrower’s aggregate forgiveness amount will be reduced if the average number of full-time equivalent employees during the Covered Period (or Alternative Payroll Covered Period) is less than the average number employed during the applicable reference period.

      • Full-Time Equivalent Employees: For purposes of calculating average FTE, borrowers should take the average number of hours paid per week per individual employee, divided by 40 and rounded to the nearest tenth, capped at 1.0. A borrower may also elect to employ a simplified formula, assigning 1.0 for employees who work 40+ hours per week and 0.5 for employees who work less than 40 hours per week.
      • Exceptions: The Application provides that the aggregate forgiveness amount will not be reduced for headcount reductions related to: (A) any position for which the borrower has made a good-faith, written offer to rehire an employee during the Covered Period (or Alternative Payroll Covered Period), which was rejected by such employee, or (B) any employee who, during the applicable period, (1) was fired for cause, (2) voluntarily resigned, or (3) voluntarily requested and received a reduction of their hours.
      • Safe Harbor: As initially proposed under the CARES Act, the Application provides a safe harbor for those borrowers who restore FTE levels by June 30, 2020. Specifically, a borrower will be exempt from PPP loan forgiveness reductions on the basis of headcount decreases if such borrower has reduced its FTE levels during the February 15, 2020 – April 26, 2020 period, and restores such FTE levels by no later than June 30, 2020 to its FTE count in the pay period that included February 15, 2020.

b. Compensation Reduction: As originally proposed, the aggregate forgiveness amount is subject to reduction due to salary or wage decreases of more than 25% for employees making less than $100,000 per year (annualized). The compensation reduction is measured against the period beginning on January 1, 2020 and ending on March 31, 2020. In the event that salary/hourly wage levels are ultimately restored, then the applicable reduction may be eliminated.

4. Unauthorized Use of Funds. Consistent with SBA Guidance, the Application and Instructions reinforce potential civil penalties and/or criminal fraud charges for the unauthorized use of PPP funds. In submitting the Application, an authorized representative of borrower must certify that the requested forgiveness amount (a) was used to pay costs eligible for forgiveness (payroll costs; mortgage obligations, rent or lease payments and utilities payments), (b) includes all applicable reductions due to decreases in the number of full-time equivalent employees and/or salary/hourly wage reductions, (c) does not include non-payroll costs in excess of 25% of the forgiveness amount requested, and (d) does not exceed eight-weeks of 2019 compensation for any owner-employee or self-employed individual or general partner, in each case capped at $15,385.

5. Document Retention. The Application and Instructions require borrowers to retain all PPP loan supporting documentation for a period of six years after the date that the loan is forgiven or repaid in full. Such information includes payroll documentation, documentation supporting borrower’s certifications as to the economic necessity of the PPP loan, documentation delivered in connection with, and in support of, borrower’s loan forgiveness application and any other records demonstrating material compliance with PPP requirements.

The SBA is expected to issue further guidance with respect to the above in the coming weeks and there continues to be some unanswered questions related to loan forgiveness under the PPP. We are continuing to monitor any developments and will update this alert as appropriate. For additional information regarding the PPP and related forgiveness guidelines, please reference our comprehensive Paycheck Protection Program Guide, linked here.  Our attorneys are available to guide you and answer any questions regarding the PPP or other aspects of the CARES Act.

 


As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice.  For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

On Thursday, May 14, 2020, New York Governor Andrew Cuomo issued Executive Order 202.31, which extended the “PAUSE” for non-essential gatherings and in-person conduct of non-essential businesses through May 28, 2020. The Governor cited the expected continued increase in cases and transmission of COVID-19, in contrast to New Jersey where Governor Phil Murphy recognized the efforts and success in limiting the disease, to justify the extension of the emergency orders already in place.

The Executive Order does not direct any State or local agency to issue new guidance on what constitutes “essential” business, so the existing Empire State Development guidelines on the construction industry are expected to remain in place.

However, there is some evidence of progress. In line with the Governor’s phased reopening plan, certain upstate and western New York State regions have been deemed to have met the criteria for Phase 1 industries reopening as of May 14, 2020. Phase 1 industries, identified as construction, agriculture, forestry, fishing and hunting, retail (limited to curb-side or in-store pick-up/drop-off), manufacturing, and wholesale trade, must still operate in accordance with the State Department of Health Guidelines, regardless of whether they have been operating to date.

The regions deemed suitable for Phase 1 reopening consist of the following counties: Genesee, Livingston, Monroe, Ontario, Orleans, Seneca, Wayne, Wyoming, Yates Cayuga, Cortland, Madison, Onondaga, Oswego, Fulton, Herkimer, Montgomery, Oneida, Otsego, Schoharie, Broome, Chemung, Chenango, Delaware, Schuyler, Steuben, Tioga, Tompkins Clinton, Essex, Franklin, Hamilton, Jefferson, Lewis, and St. Lawrence.

The rest of the State’s regions, including New York City, have not yet met the seven metrics for reopening and remain on “pause” until May 28. When the State determines that a region has met the standards, it may then reopen.

 


As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice.  For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.