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Food Venture Financing News - Weekly Issue No. 12

06.09.20
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In This Issue:

Summary of Key PPPFA Provisions

1. PPPFA changes amount of loan needed for payroll to 60% 

  • The biggest complaint around the PPP loan program was that it required businesses to spend 75% of the loan on payroll.
  • The PPPFA reduces the amount of the loan needed to be spent on payroll from 75% to 60%, thus increasing the amount of funds available for other expenses from 25% to 40%.
  • The PPPFA does not change the list of expenses eligible for forgiveness: rent, mortgage payments, utilities, and interest on loans. Business groups will continue to lobby to expand eligible expenses.

2. PPPFA extends time period to use funds from 8 to 24 weeks 

  • The second biggest concern about the PPP was that it required businesses to spend the funds in the eight-week period from the date funds were received.
  • The PPPFA extended the time period to spend the loans to 24 weeks. While businesses will still need to spend the money on payroll and authorized expenses, they now have until the end of 2020 to do so.
  • Presumably, this will make receiving complete loan forgiveness more likely since the loan amount was based on one month of 2019 payroll multiplied by 2.5, which equals approximately 10 weeks. Businesses should now have the flexibility to spend the PPP funds when they need to for the remainder of the year.
  • The PPPFA also does not require businesses to wait for 24 weeks to apply for forgiveness.

3. PPPFA pushes back a June 30 deadline to rehire workers to December 31, 2020 

  • Many small businesses took issue with the PPP requirement that all workers had to be rehired by June 30, 2020, in order for their salaries to count towards forgiveness.
  • Under the PPPFA, businesses now have until December 31, 2020, to rehire workers in order for their salaries to count towards forgiveness.

4. PPPFA eases rehire requirements 

  • The PPP required a business to rehire the same number of full-time employees or full-time equivalents by June 30, 2020. The only exception to this rule was if an employer could document in writing an attempt to rehire an employee who rejected this offer.
  • The PPPFA makes two significant changes to these requirements. First, it extends the rehire date to December 31, 2020, and second, it adds additional exceptions for a reduced head count. The PPPFA states a business can still receive forgiveness on payroll amounts if it:
    • Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;
    • Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
    • Is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.

5. PPPFA extends the repayment term from 2 years to 5 

  • The PPPFA also eases repayment terms in the event loans or portions of them are not forgiven. A business now will have five years at 1% interest to repay the loan, and the first payment will be deferred for six months after the SBA makes a determination on forgiveness.
  • In addition, the PPPFA also allows borrowers to take advantage of the CARES Act provision allowing deferment of the employer’s payroll taxes for Social Security.

Treasury Guidelines Still Provide for SBA Loan Audits

  • The PPPFA does not address the issues around SBA audits of loans as outlined in the Treasury Department "Interim Final Rules" on PPP loans issued on May 22.
  • According to PPP Loans FAQs, the SBA can audit any loan at its discretion to determine if "the borrower may be ineligible for a PPP loan, or may be ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower." This includes loans under $2 million, which have a "safe harbor" on the issue of whether economic uncertainty made the loan necessary.
  • The SBA can still look at how a business calculated the original loan amount and review whether it had "access to credit elsewhere" when determining if all or a portion of the loan should be forgiven.

At Davis Wright Tremaine LLP (DWT), we are proud to have one of the largest Food & Beverage legal practices in the country, with over 40 attorneys representing food innovators, entrepreneurs, and investors at every level of the food chain, from Farm to Label.

Please contact our Food and Beverage team if we can assist you in any way in these unprecedented times.

The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.

DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.

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