Payroll Protection Process
By Larry Pinalto
President, Plaza Companies
As the Payroll Protection Program (the “PPP”) rolled out, Plaza Companies researched the process through our banker, Alliance Bank of Arizona. Due to the quick roll out, naturally, the Small Business Administration (“SBA”) was trying to figure out what forms it needed and how to make this process as painless as possible. There were three different versions of the required forms that were issued and ultimately, on Friday, April 3rd, they settled on version 3, dated with an Expiration Date of 9/30/2020. We have included a link to that blank form for your reference (click here). In addition, we have made available an overview of the program details from the SBA entitled “Borrower’s Information Fact Sheet” (click here).
The PPP Application itself is a very simple two-page form. Make sure you answer every question and fill in every blank on the application. The SBA is allowing a DocuSign version due to the added difficulties of obtaining wet signatures for the next few weeks. I would caution that after your form has been submitted and the SBA assigns you a loan number, you should gather wet signatures just in case.
Encountering the Unusual
Two unusual things that we encountered that I will share with you: 1) In the section under “Applicant Ownership”, the SBA wants “individuals” as opposed to “entities” listed as owners of 20% or more. In other words, even if one your shareholders happens to be a Trust, you will need to list the Trustees with their individual social security numbers as opposed to the Trust itself; and, 2) In question number three, you are required to disclose any entity affiliates of both the entity that is applying for the loan and any affiliates of the Owner Members or Shareholders. From our bank’s perspective, the reason for this disclosure is not so much to determine what other income sources may exist but is geared to disclose whether or not these affiliates have other or common employees. The SBA is obviously concerned about double dipping as the case may be. If you do have affiliates, you will need to prepare an Addendum to disclose them.
If you do choose to submit through your banker, you will also be required to complete some sort of Beneficial Ownership form for the bank’s internal use. Again, we were able to complete ours utilizing the DocuSign format.
The Funding Process
The funding process itself is much slower than what we are being told. As part of the program, the government has made it clear that there will be no negotiation of the loan documents themselves. That at least means you won’t need the assistance of attorneys, but it is another step and there is still the looming question about the timing of the funding itself.
All in all, its forgiveness provisions, the lack of any required collateral, and the simplicity of the application process represent an unexpected and unprecedented development for small businesses that qualify.
We have provided another link entitled 2020 Cares Act (created by the Greater Phoenix Economic Council) summarizing the various other lending possibilities and potential resources in the event that your business does not qualify for the PPP (click here). In addition, yesterday morning, the Federal Reserve expanded the CARES Act to accommodate non-profits and businesses with more than 500 employees but less than 10,000 (CARES Act, Sec. 4003(c)(3)(D)). Two new programs have come out of this, the “Main Street New Loan Facility” and the “Main Street Expanded Loan Facility”. The latter put in place to provide incremental liquidity for those businesses with existing assistance loans currently outstanding. As I read it, the new programs offer pretty good terms (no prepayment penalties and businesses can defer payments for one year) but they lack the debt forgiveness provisions available under the PPP. The loans can be as large as $25 million, depending on need, the businesses outstanding debt obligations and its earnings for 2019.
It should be noted that these programs do have strings attached. To qualify for the loan, businesses must accept certain stock repurchase prohibitions, dividend restrictions, and compensation limits. Click here for the Federal Reserve’s Press Release on the Main Street New Loan Facility.
In summary, there are many resources and alternatives to assist your businesses through this bizarre time. It’s just a matter finding the right solutions that fit your particular circumstance best.