Category: Peter

You know that your business is “life sustaining” – and entitled to remain open despite the “stay at home” order which now restricts business in all of Pennsylvania – because you checked the latest version of the order at (https://www.governor.pa.gov/wp-content/uploads/2020/04/20200401-GOV-Statewide-Stay-at-Home-Order.pdf)
(The list of such businesses – already updated several times – is online at https://assets.documentcloud.org/documents/6816337/452553026-UPDATED-Industry-Operation-Guidance.pdf. Pennsylvania’s general guidelines are at https://www.pa.gov/guides/responding-to-covid-19/.)

However, the state trooper who sees your employees driving to work probably doesn’t know all those details, and may pull them over.

Although your employees may trust your instruction that they can drive to work safely, can they explain why to a uniformed officer under the pressure of a traffic stop?
So a citation on the way to work may seem inevitable if a trooper sees an employee driving to work – unless, of course, the employee can provide a brief, clear explanation of why the employee can still commute, when most people (including the author of this memo) can’t do so.

On the first day of enforcement of the stay at home order, a client pleaded for help after several of its employees had been detained in a rural county on their way to work.

After investigating the newly adopted rules, however, we recommended that our client’s employees carry a portable, one page explanation of why its employees were allowed to work and commute, complete with citations to the list of permitted businesses.

We also recommend our client’s suggestion, that its commuting employees carry a pay stub or other proof of employment by its essential business.

(However, you should not assume that the rules our client’s employees faced under Pennsylvania’s stringent rules are what your employees may face in your own location.  In addition to checking your local guidelines, the Department of Homeland Security lists “essential critical infrastructure” firms in its Guidance on the “Essential Critical Infrastructure Workforce” at https://www.cisa.gov/publication/guidance-essential-critical-infrastructure-workforce#.)
If your business is eligible to remain open during a stay at home order, we can assist you in preparing a letter which may be helpful in avoiding a citation should your employees be stopped while commuting.

Our employment and business law attorneys listed below can help you navigate these issues.

We hope that you and your business weather the COVID-19 storm.

Please contact Nancy Abrams or Jennifer Chalal for employment matters, or Peter Cripps, Joseph Devine or Stanley Jaskiewicz for business matters:

Nancy Abrams 215-241-8894 nabrams@sgrvlaw.com
Jennifer Chalal 215-241-8817 jmyers@sgrvlaw.com
Peter Cripps 215-241-8884 pcripps@sgrvlaw.com
Joseph Devine 215-825-8942 jdevine@sgrvlaw.com
Stanley Jaskiewicz 215-241-8866 sjaskiewicz@sgrvlaw.com

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On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in response to the COVID-19 pandemic. The CARES Act is phase three of the federal government’s legislative response to the coronavirus crisis. The CARES Act is intended to provide a $2 trillion economic stimulus package to the United States economy. An important component of this stimulus package is the expansion of the Small Business Administration’s (SBA) traditional 7(a) loan program with the addition of the Paycheck Protection Program (PPP). Under the PPP, the SBA will guarantee 100 percent of the funds loaned by participating lenders to eligible small businesses, non-profit organizations and certain other entities. The CARES Act authorizes the SBA to provide $349 billion in loan guarantees for qualifying loans under the PPP.

On March 31, 2020, the SBA published a sample loan application for use by borrowers under the Paycheck Protection Program. A copy of that loan application is available here at the SBA’s website.

How Does My Company Apply For A Paycheck Protection Program Loan? Companies seeking a PPP loan need to understand that PPP loans will be offered in a manner similar to loans under traditional SBA loan programs such as the popular 7(a) program. PPP loans are technically within the scope of the 7(a) program and will utilize commercial banks and other SBA lenders as the contact point for loan applications and disbursement of loan proceeds. Accordingly, small business owners should contact their existing lender to discuss the application process. If you need assistance in finding a bank participating in the PPP program, please contact us and we can assist you with finding an SBA lending institution that is participating in the PPP loan program.

Potential borrowers need to realize that the PPP program is different from the previously announced Economic Injury Disaster Loan Economic Injury Disaster Loan (EIDL) program. Under the EIDL program, small businesses seeking EIDL loans will apply directly to the SBA and receive disbursements directly from the SBA. The SBA application for EIDL loans is available here. The PPP permits borrowers under the EIDL program to refinance that loan into the PPP program under certain circumstances.

Which Companies Are Eligible For PPP Loans? A “small business concern” is eligible to receive a PPP loan. Eligible borrowers include:

* A small business with fewer than 500 employees

* A small business that otherwise meets the SBA’s size standards for businesses in that industry

* A 501(c)(3) non-profit with fewer than 500 employees

* An individual who operates as a sole proprietor or as an independent contractor

* An individual who is self-employed who regularly carries on any trade or business

The 500-employee threshold includes all employees, whether full-time or part-time.

Businesses in the accommodation and food services sector (NAICS 72) with more than an aggregate 500 employees, may apply the 500-employee rule on a per physical location basis (e.g., each hotel or restaurant location). Typically, SBA loans have a complicated set of affiliation rules which require the aggregation of the number of employees among affiliated companies for purposes of meeting the eligibility requirements of being a “small” business. The CARES Act relaxes these affiliation rules under certain circumstances for certain borrowers under the PPP loan program, especially businesses that either operate as a franchise or receive financial assistance from an approved Small Business Investment Company.

What Terms Are Available For PPP Loans?

PPP loans are, in fact, loans – not grants. However, PPP loans are eligible for loan forgiveness under the CARES Act if the proceeds are used for the purposes described below and the borrower meets certain tests regarding employment and payroll levels during the eight weeks after the receipt of PPP loan proceeds. These loan forgiveness provisions will have the effect of converting a PPP loan into a grant if the borrower complies with the loan forgiveness conditions.

* Maximum Loan Amount: Two and one-half (2.5) times the borrower’s Average Monthly Payroll (as defined below) costs; but not to exceed an aggregate loan size of $10,000,000.

* Interest Rates: Not to exceed 4% under the CARES Act. On March 31, 2020, the SBA announced that the interest rate for the initial PPP loans would be fixed at 0.5% per annum and that all PPP loans would have the same terms.

* Repayment Terms: All payments are deferred for 6 months; however, interest will continue to accrue over this period. Under the CARES Act, the SBA has the authority to provide payment deferrals for up to 12 months.

* Loan Term: 2 years. Borrowers may prepay PPP loans prior to the maturity date without any prepayment penalty or fee.

* Use of Proceeds: Proceeds may be used to pay fixed debts, payroll, accounts payable and other bills that can not be paid as a result of the COVID-19 emergency.

* Collateral: No collateral is required for a PPP loan. Traditionally, the SBA requires collateral for loans under the 7(a) program, however the collateral requirement has been waived for PPP loans.

* No Personal Guarantees: Unlike traditional 7(a) program loans, business owners will not be required to personally guarantee PPP loans. However, there will be certification procedures that will allow the government to pursue individuals that fraudulently obtain PPP loans or use the proceeds for improper purposes.

How Do I Calculate My Company’s Average Monthly Payroll Costs?

For purposes of calculating “Average Monthly Payroll”, most PPP borrowers will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee. For seasonal businesses, the borrower may elect to instead use average monthly payroll for the time period between February 15, 2019 and June 30, 2019, excluding costs over $100,000 on an annualized basis for each employee. For new businesses, average monthly payroll may be calculated using the time period from January 1, 2020 to February 29, 2020, excluding costs over $100,000 on an annualized basis for each employee.

Amounts that can be included in the average monthly payroll calculation include the sum of payments of any compensation with respect to employees that is a:

* salary, wage, commission, or similar compensation;

* payment of cash tip or equivalent;

* 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 the employee.

What Restrictions Apply To My Company’s Use Of Proceeds From A PPP Loan?

There are restrictions on the use of proceeds from a PPP loan. Small business borrowers may use loan proceeds on the following categories of expenses:

* payroll costs;

* costs related to the continuation of group healthcare benefits during periods of paid, sick, medical, or family leave, and related insurance premiums;

* employee salaries, commissions, or similar compensation;

* payments of interest on any mortgage obligation, but not any prepayment of or payment of principal on a mortgage obligation;

* rent;

* utilities;

* interest on any other debt obligations that were incurred before February 15, 2020.

It is important to note that not all uses of proceeds will qualify the borrower for later debt forgiveness under the PPP loan program.

How Does My Company Qualify For Forgiveness Of A PPP Loan?

A borrower is eligible for loan forgiveness equal to the amount (the “forgivable amount”) the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:

* payroll costs (using the same definition of payroll costs used to determine loan eligibility);

* interest on mortgage obligations incurred in the ordinary course of business prior to February 15, 2020;

* rent on a lease in force on February 15, 2020;

* payments on utilities (electricity, gas, water, transportation, telephone, or internet); and

 

* for borrowers with tipped employees, additional wages paid to those employees.

The loan forgiveness cannot exceed the principal. Amounts forgiven will not be treated as cancellation of indebtedness for federal income tax purposes and will be excluded from the calculation of gross income for federal income tax purposes.

The loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. If employees/wages have already been reduced, there are provisions that allow a business to “recapture” the full amount of the loan forgiveness benefit if the head count and wages are restored in the next three months (by June 30).

The amount of loan forgiveness is reduced by multiplying the forgivable amount by a fraction (a) the numerator of which is the average number of full-time equivalent employees per month employed by the borrower during the eight week period after the origination of the PPP loan, and (b) the denominator of which is the average number of full-time equivalent employees per month employed by the borrower during one of two time periods, at the borrower’s election, either (x) February 15, 2019 through June 30, 2019 or (y) January 1, 2020 through February 29, 2020. For seasonal employers, the time period of February 15, 2019 through June 30, 2019 applies.

In addition, reduction in the amount of loan forgiveness applies if the borrower reduces salaries and wages by more than 25%.

What Certifications Will A Borrower Be Required To Provide To SBA?

As part of the current version of the loan application, borrowers need to certify in good faith that:

* Current economic uncertainty makes the loan necessary to support ongoing operations.

* The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.

* The borrower has not and will not receive another loan under the program.

* The borrower will provide to the lender documentation that verifies the number of full-time equivalent employees on its payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after receiving the loan proceeds.

* Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, the SBA anticipates that not more than 25% of the forgiven amount may be for non-payroll costs.

* All the information provided in the loan application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under the program is punishable by law.

* The borrower acknowledges that the lender will calculate the eligible loan amount using the tax documents submitted by the borrower. The borrower is required to affirm that the tax documents submitted to the lender are identical to those submitted to the IRS. The borrower also agrees that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews

Will PPP Loans Impact Existing Commercial Loans? Yes. Companies that have existing loans with commercial banks or non-bank financial institutions should review their existing loan documents and consult with legal counsel. Both secured and unsecured commercial loans often contain covenants that restrict or prohibit the borrower from incurring additional indebtedness. Before closing a PPP loan (or any other SBA loan), companies should discuss with counsel the need for any required waivers, consents or amendments from existing lenders. For this reason, many companies seeking PPP loans will likely pursue such assistance with their existing lender, especially if that lender regularly participates in other SBA lending programs.

We will continue to provide updates to our clients and friends regarding important COVID-19 legislation that affects small businesses. If you have any questions regarding the foregoing, please contact Pete Cripps at pcripps@sgrvlaw.com or 215-241-8884.

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CONGRESS PASSES EXTENSIVE CORNAVIRUS ECONOMIC STIMULUS BILL

                Last Friday Congress passed a $2 Trillion Economic Stimulus Bill (the “CARES Act”) that provides for loans to small businesses (under 500 employees) as well as payroll tax credits to encourage employers to continue to pay their employees while their businesses are closed down or curtailed due to the coronavirus pandemic. Information regarding small business loans will be included in another Alert. Key employment-related provisions include:

Unemployment Insurance Provisions

This CARES Act creates a temporary Pandemic Unemployment Assistance program through December 31, 2020 to provide payments to workers displaced as a result of the COVID-19 crisis, and includes payments to those not traditionally eligible for unemployment benefits (self-employed, independent contractors, those with limited work history, and others) who are unable to work as a direct result of the coronavirus public health emergency.  The CARES Act also supplements traditional state unemployment insurance and provides an additional $600 per week payment to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months. In addition, the CARES Act provides funding to pay the first week of unemployment benefits, permitting states to pay unemployment compensation benefits to recipients as soon as they become unemployed instead of waiting one week before the individual is eligible to receive benefits.

The CARES Act also provides an additional 13 weeks of unemployment benefits through December 31, 2020 to help those who remain unemployed after the applicable weeks of state unemployment benefits are no longer available (i.e., increasing total weeks of eligibility in Pennsylvania from 26 to 39). Employees whose hours are reduced are eligible for pro-rated unemployment benefits.

Employee Retention Credit For Employers Subject To Closure Due To Covid-19

This provision provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis in order to induce employers to retain employees. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.

The credit is based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.

Delay Of Payment Of Employer Payroll Taxes

The CARES Act also allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2 percent Social Security tax on employee wages and must submit those amounts to the IRS quarterly. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. The Social Security Trust Funds will be held harmless under this provision.

Direct Payments To Individual Taxpayers

Under the CARES Act, the Secretary of the Treasury has been directed to provide rebate checks to individual taxpayers in order to stimulate the economy.  Individual taxpayers with an adjusted gross income of $75,000 or less will receive a $1,200 rebate check, and an additional rebate of $500 per dependent child.  Taxpayers filing jointly will receive $2,400 in addition to the $500 per child.  The rebates will be proportionally phased out for individual taxpayers with adjusted gross income of $75,000 to $99,000 and for joint filers with adjusted gross income of $150,000 to $198,000.  The phase out reduces a taxpayer’s rebate by $5 for each $100 of adjusted gross income in excess of the applicable phase-out thresholds (i.e. $75,000 or $150,000, as the case may be).

We will continue to provide updates to our clients regarding important COVID-19 legislation that affects employers and employees.  If you have any questions regarding the foregoing, please contact Jennifer Chalal at jchalal@sgrvlaw.com or Nancy Abrams at nabrams@sgrvlaw.com or Peter Cripps at pcripps@sgrvlaw.com.

 

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COVID-19 ALERT

APPLYING FOR AN SBA ECONOMIC INJURY DISASTER LOAN (EIDL)

In response to the COVID-19 pandemic, the federal government has authorized the Small Business Administration (SBA) to provide emergency disaster loans to small businesses affected by the COVID-19 crisis and the slow down in economic activity resulting from the emergency.

These loans are available under the SBA program that is normally used to provide emergency relief to businesses adversely affected by natural disasters such as tornados, hurricanes and earthquakes. In particular, qualifying small businesses and non-profits may apply for up to $2 million under the SBA Economic Injury Disaster Loan (EIDL) program.

EIDL loans may be used to pay fixed debts, payroll, accounts payable and other bills and expenses that companies are unable to pay as a result of the COVID-19 emergency.

It is important to note that the EIDL program is separate and distinct from the programs which may become available under the CARES Act that is expected to be passed by Congress this week. After the CARES Act is enacted, we will provide a supplemental alert discussing SBA funding programs under the CARES Act, especially the terms of the payroll protection loans that are expected to be part of the CARES Act.

How Does a Company Apply For An EIDL Loan? Unlike traditional SBA loan programs such as the popular 7(a) program which utilize commercial banks and other SBA lenders as the contact point for loan applications and disbursement of loan proceeds, small businesses seeking EIDL loans will apply directly to the SBA and receive disbursements directly from the SBA.   The SBA application is available at https://disasterloan.sba.gov/apply-for-disaster-loan/index.html.

What Terms Are Available For EIDL Loans? EIDL loans are, in fact, loans – mot grants. EIDL loans are not subject to the forgiveness provisions that are expected to be applicable to certain payroll protection loans under the proposed CARES Act. However, EIDL loans may provide up to $2 million in low-interest loans to small businesses that may be used for permitted working capital purposes.

  • Maximum Loan Amount: $2,000,000.
  • Interest Rates: 3.75% for eligible small businesses and 2.75% for eligible nonprofits.
  • Repayment Terms: Payments may be deferred for 12 months.
  • Loan Term: Up to 30 years. The SBA will determine the loan term for each borrower on a case-by-case basis, taking into account the borrower’s ability to pay.
  • Use of Proceeds: Proceeds may be used to pay fixed debts, payroll, accounts payable and other bills that can not be paid as a result of the COVID-19 emergency. EIDL loans may not be used for expansion and are not intended to replace lost profits.
  • Collateral: Traditionally, the SBA requires collateral for loans under the EIDL program in excess of $25,000. In light of the stated purposes of EIDL loans and the nature of the COVID-19 crisis, we are optimistic that the SBA will be flexible in its collateral requirements for companies without collateral or with existing senior secured debt.

What Forms Are Necessary To Apply? The SBA has modified its normal application process and is requiring fewer forms with the initial application.   As of today, the SBA requires the following documents with the initial online application:

  • Business Loan Application (SBA Form 5)
  • Economic Injury Disaster Loan Supporting Information (SBA Form P-019)

Initially, additional forms were to be required with the original application. Yesterday, the SBA adjusted the application process and now provides that a Disaster Assistance loan officer may contact an applicant and request that it fill out the following additional forms:

  • Fee Disclosure Form and Compensation Agreement (SBA Form 159D)
  • Personal Financial Statement (SBA Form 413D)
  • Request for Transcript of Tax Return (IRS Form 4506-T)
  • Schedule of Liabilities (SBA Form 2202)
  • Additional Filing Requirements (SBA Form 1368)
  • Additional Filing Requirements (SBA Form 413D)

Will EIDL Loans Impact Existing Commercial Loans? Most likely, yes. Companies that have existing loans with commercial banks or non-bank financial institutions should review their existing loan documents and consult with legal counsel. Both secured and unsecured commercial loans often contain covenants that restrict or prohibit the borrower from incurring additional indebtedness. Before closing an EIDL loan (or any other SBA loan), companies should discuss with counsel the need for any required waivers, consents or amendments from existing lenders.

Can an EIDL Borrower Also Take Advantage of CARES Act Payroll Protection Loans?   It appears likely that the CARES Act will permit any EIDL loan granted as a result of the COVID-19 emergency will be able to be refinanced by a loan granted under the proposed payroll protection loan provisions of the CARES Act – which may effectively convert all or a portion of the EIDL loan into a payroll protection loan eligible for the forgiveness provisions expected to be contained in the CARES Act for payroll protection loans that meet the terms and conditions of such loan forgiveness.

We will continue to provide updates to our clients and friends regarding important COVID-19 legislation that affects small businesses. If you have any questions regarding the foregoing, please contact Pete Cripps at pcripps@sgrvlaw.com or 215-241-8884.

 

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COVID-19 ALERT

IRS EXTENDS TAX DEADLINES FROM APRIL 15 TO JULY 15

Last Friday, March 20, 2020, the IRS announced that the due date for filing Federal income tax returns and making Federal income tax payments due April 15, 2020, is automatically postponed to July 15, 2020.

These extensions are automatic, and taxpayers do not need to file Forms 4868 or 7004 to obtain an extension. There is no limitation on the amount of the payment that may be postponed.

This temporary relief for taxpayers was granted by the IRS after President Trump issued an emergency declaration under the Stafford Act in response to the ongoing COVID-19 pandemic and instructed the Secretary of the Treasury to provide relief from tax deadlines for American taxpayers adversely affected by the COVID-19   emergency.

Earlier in the week, the IRS had granted a limited three month deferral of up to $1 million in tax payments which had been incorrectly reported by some media outlets as also extending the April 15 filing deadline. This new IRS notice (Notice 2020-18) supersedes the earlier notice and both extends the filing deadline until July 15 and removes the $1 million limitation.

The relief provided this week is available solely with respect to Federal income tax payments (including payments of tax on self-employment income) and Federal income tax returns due on April 15, 2020, in respect of an affected taxpayer’s 2019 taxable year, and Federal estimated income tax payments (including payments of tax on self-employment income) due on April 15, 2020, for an affected taxpayer’s 2020 taxable year.

No extension is provided for the payment or deposit of any other type of Federal tax, or for the filing of any Federal information return.

As a result of this relief, the period from April 15, 2020 to July 15, 2020 will be disregarded in the calculation of any interest, penalty or addition to tax for the failure to file the Federal income tax returns or pay the Federal income taxes postponed thereby.

Small business owners are anxiously waiting to see whether or not the stimulus package under consideration by Congress (the proposed CARES Act) provides additional relief to small businesses, such as a massive expansion of the Small Business Administration 7(a) loan program. In the meantime, small business owners that have “pass-through” entities such as S-corporations, limited liability companies and partnerships may postpone tax payments due on April 15 and use that money as what amounts to an interest-free short-term loan from the Federal Government providing liquidity during the COVID-19   emergency. Note that this relief is not tax forgiveness, just a three month postponement of the obligation to pay the taxes that are subject of the notice.

We will continue to provide updates to our clients and friends regarding important COVID-19   legislation that affects small businesses. If you have any questions regarding the foregoing, please contact Pete Cripps at pcripps@sgrvlaw.com or 215-241-8884

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