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March 30, 2020 – 12:25 PM

We hope you, your partners, employees, and families are all staying healthy and doing the best to cope with these unprecedented times.

As you may know, you may be eligible for assistance under a variety of programs, including the recently passed CARES Act, and in particular its Paycheck Protection Program. This Program aims to provide relief to small businesses of all sizes, from sole proprietors to larger organizations with up to 500 employees. We can assist you through the process with its various nuances and issues for the application and potential forgiveness components, all of which we discuss below.

If you meet the criteria, the Program can provide you with a loan of up to $10M dollars that can be forgiven in whole or in part. Any amount not forgiven will then be paid back on a term not to exceed ten years at an interest rate not to exceed 4%. The loan principal is calculated based upon 2.5 times your average “payroll costs” over a designated 12-month period. The determination of payroll costs is somewhat broad and may include, salary, wage, commission, or similar compensation, payment of cash tips or equivalents, payment for vacation, parental, family, medical, or sick leave, allowance for dismissal or separation, payment required for the provisions of group health care benefits (including insurance premiums), payment of any retirement benefit, and payment of state or local tax assessed on the compensation of employees.

The Paycheck Program is designed for those with 500 or fewer employees, but if you are in the Accommodation and Food Service Industry (North American Industry Classification System (NAICS) code 72) – such as hotels and restaurants or part of a franchise system that is on the SBA registry, those businesses for purposes of the 500 employee count will be looked at per location – not using the typical affiliate count rules.

As we are working with clients on these programs, we strongly suggest that you immediately contact your bank (today) and let your loan/banking officer know that you want to receive the application for the Paycheck Program as soon as it is available. Not all banks will be implementing the Program, as they must be an SBA approved lender (or under a special exception).  If your bank is not an SBA lender, then we can help you find one in your area.  

Even though there is a lot of money being made available ($350 Billion) and as large as that may seem, it will go fast as the eligibility is somewhat easy – but the details are not. Also, banks are supposed to prioritize the applications for smaller businesses, and those that are minority or women-owned, along with other designated categories. Make sure your bank identifies your business as one that qualifies for prioritization in the application process.

The Paycheck Program’s goal is to assist you with certain expenses and incentivize you to keep your employees on the payroll. It could be of significant assistance to your business since funds are available to be used not only for payroll, but also rent, utilities, mortgage interest, and certain other overhead costs. However, this is where you will need to pay attention to the details because if you meet the required criteria and follow up tests, the principal could be forgiven. Those details include issues with employee retention, reductions, layoffs and rehiring. These will all factor into the forgiveness formula.  

Do not be deterred even if you had to lay off employees after February 15th, because you may still be eligible and have until June 30th to bring them back onto the payroll. Even if you do not, you may still be granted forgiveness, or at least a reduced amount of forgiveness based upon a proportionality formula.

Also, there is certain financial information required to be provided when submitting your application, such as various payroll, employee financial information, and matters relating to: paid time off; vacation; family medical leave; independent contractors; tax returns and/or P&Ls; group health benefits; and retirement benefits, among other requirements to determine the loan amount.

There may also be other state and local disaster and funding programs available.  For instance: along with a host of other assistance being offered throughout the United States, Pennsylvania has launched a 0% interest twelve-month loan program for small businesses; the New Jersey Economic Development Authority (NJEDA) offers a suite of loan and grant programs; Delaware has launched a Hospitality Emergency Loan Program (HELP); businesses in New York State are taking advantage of the Shared Work Program to help continue to pay employees on a part-time basis; and Philadelphia now has a small business relief loan fund for city businesses. We can help you navigate the different programs, forms and other submissions at each level.

We are here to assist you with this and other programs along with your on-going business, labor/employment, business interruption insurance, estate planning, and other legal needs during this very trying time.

Stay healthy!

Harris Chernow and Dan Fiore

Representatives of the RRD COVID Task Force