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$10 Million Forgivable Loan Program

By NYC Hospitality Alliance

This morning, the Senate GOP released the latest version of its Phase 3 stimulus bill, which includes feedback from Senate Democrats as well as some priorities of Speaker Nancy Pelosi and House Democrats.

While this version is still subject to change, the Senate is expected to vote on a substantially similar bill as soon as today, with a House vote taking place later this week.

The $350 billion business loan forgiveness program has survived multiple rounds of negotiations between Senate Republicans and Democrats. It has become more favorable for eligible employers. If you haven't heard of this program until now, it provides up to $10 million in a forgivable loan to cover payroll and other expenses.

Below, we've summarized key points regarding the program's operation and benefits. This legislation also includes significant direct payments to employees, as well as an expansion of the unemployment insurance program--adding $600 to the maximum weekly benefit and extending the time an employee can receive it. Employers will have to make their own determination on whether the benefits of the loan program below outweigh other potential business responses to the current crisis including layoffs of employees.
You can read the current draft of the legislation here; a one-pager from Sen. Rubio's office on the business loan program is available here.

Business Loan Interruption Program -- Overview 
 
Key Points
  • You can obtain these forgivable loans through existing lenders for the Small Business Administration's 7(a) program: This legislation creates a Paycheck Protection Program with loans originated through existing SBA 7(a) lenders. This includes Wells Fargo, Citi, Bank of America, and numerous other major lenders/banks. The loans are 100% guaranteed by the government through Dec 31st, 2020; no personal guarantee or collateral is required for the loan. We would advise consulting your own preferred lender now to confirm that they originate 7(a) loans and to let the lender know you plan to apply for one under the Paycheck Protection Program. Note that the Secretary is given authority to authorize additional lenders to participate.
  • These loans are available to most multi-unit restaurants and hotels: As written, the loans are generally available to businesses with not more than 500 employees, but the language includes an important exception for industries classified by NAICS code 72 (restaurants and hotels). For businesses in this industry category, they're eligible so long as they don't have "more than 500 employees per physical location."
  • The maximum loan amount is $10 million: The bill text defines the maximum loan amount as the lesser of $10 million or the average total monthly payments for payroll costs (salaries, leave, insurance, state/local tax, payments to certain contractors -- excluding compensation per employee of more than $100k) multiplied by 2.5. (See pages 17-18 of the bill.) We would advise estimating your relevant loan amount now so you're able to provide the necessary paperwork to your bank.
  • The loan process is designed to be simple and doesn't require you to extensively prove specific hardship. The bill text requires only a "good faith" certification that the economic conditions make the loan necessary, and that you will use the funds to "retain workers and maintain payroll or make mortgage payments, lease payments and utility payments;"
  • The loans can be used broadly for business expenses. The loan can be used for payroll costs, benefit costs, salaries and commissions, mortgage interest (but not principal), rent, utilities, and interest on debt incurred before reference period (beginning Feb 15th).
  •  Subject to certain limitations, payments made under the loan during the 8-week period after origination are forgivable. Forgivable costs include money spent on eligible payroll costs (not including comp above $100k in wages), mortgage interest, rent, or utilities. The among forgiven cannot exceed the principal of the loan. (The documentation required for forgiveness is described on pages 49-50 of the bill.)
  •  The amount of loan forgiveness is reduced based on reductions in staffing or employee compensation. Employers have the option of comparing full-time equivalent staffing to a reference period (Feb 15- Jun 30) last year, or the period Jan 1-Feb 29 of this year, as a comparison point for any staffing reduction. A reduction in total salary/wages of more than 25 percent (amount those earning $100,000 or less) would also be subtracted from the forgiveness amount.
  • There is an exemption in the 'forgiveness" section for re-hiring employees you recently laid off. The legislation includes a provision such that employers are not penalized for compensation or staffing reductions that occurred between February 1st, 2020, and 30 days from the bill's enactment, so long as these reductions are reversed by June 30th, 2020.
A special thank you to Michael Saltsman for preparing this memo.

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