New Paycheck Protection Program Guidance Eases Concerns About Repayments

The SBA provided positive feedback this week to every small business that applied for a loan through the $670 billion Paycheck Protection Program. Under PPP, borrowers are required to certify that they need funding to keep their respective businesses operational during the current coronavirus pandemic. Business owners were initially concerned about this requirement after the government indicated there might be criminal implications if it were determined a borrower didn’t actually need the cash inflow to survive.

This week the SBA eased those concerns through much-needed guidance. The SBA stated it would trust borrowers of less than $2 million if they stated that they needed the funding as a result of the “current economic uncertainty.” The specifics of the SBAs guidance can be found in question 46 on the SBA’s FAQs.  “Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”

Good news for ACI clients

While we believe every one of our clients applied for SBA funding in good faith, ACI views the recent updates from SBA as a great relief.  Effectively all of our clients who applied for a PPP loan were below the $2 million threshold, so this should mitigate the immediate concern about the potential for an SBA audit on the horizon. 

We are also proud to report that every ACI client who formally submitted a loan request to the SBA was successful in both obtaining approval and receiving the funds by early May.

It should be noted that the new guidance doesn’t change the requirements for the PPP’s main benefit: Borrowers don’t have to repay the portion of the loan used for specific qualifying expenses, including payroll costs, employee benefits, rent and utilities, provided they meet the SBA criteria. We are working diligently with our clients to ensure they are able to maximize their PPP loan forgiveness in the coming weeks.

ACI working closely with FINRA and our clients

ACI Managing Partner, Jay Gettenberg, as a member of the FINRA Small Firm Advisory Committee (SFAC), is working with FINRA to address the regulatory implications for SBA loan forgiveness and how this will affect different types of broker dealers and their ability to comply with net capital requirements.       

It was reported this week that about $120 billion remains available for PPP loans . If you are considering applying for the PPP program ACI is ready to help you with the process. These are the program details:
 

Paycheck Protection Program loans explained  

The CARES Act’s Paycheck Protection Program (PPP) allows qualified businesses with fewer than 500 workers to apply for a Small Business Loan to meet payroll costs. The loan is limited to the lesser of $10 million or the company’s average total monthly “payroll costs” for the 1-year period ending on the date the loan is made, multiplied by 2.5, plus any refinanced loan under the Economic Injury Disaster Loans (EIDL) program obtained after June 30, 2020.

Proceeds from a PPP loan may be used for payroll costs (as defined), employee benefits and commissions, interest payments on mortgages, rent, utilities, and interest on debt incurred before February 15.

A business can apply for loan forgiveness in an amount equal to the cumulative amount of payroll costs, rent, utilities, and interest paid on mortgages during the eight weeks after the loan is made. The amount forgiven is limited to the extent compensation and headcount are reduced relative to a base period, and any amount forgiven will not be taxable to the borrower.

ACI will continue to provide updates on our Resources page as we manage together through this challenging time. We hope everyone is taking proactive and precautionary measures to remain safe.

Paycheck Protection Program Reopens; ACI Clients Receive Loan Approvals

The SBA-backed Paycheck Protection Program (PPP) reopened on April 27, 2020 with $320 billion in additional funding. From what ACI has seen, the additional funds seem to have been successful in getting funding to the small firms that need it most to maintain their business operations.

More than 75% of ACI’s clients who have applied under PPP have obtained official SBA loan numbers this past week, which should confirm the receipt of funds in coming days.  It has been evident that banks were able to use the time between the first and second funding round to organize their processes to get applications submitted more efficiently. They also utilized the pause to get more comfortable with the program from a compliance and risk perspective.

The PPP program also appears to have been helped by the return of loans several large companies – including Shake Shack, Ruth’s Chris Steak House and the Los Angeles Lakers – received in the first round but decided to pay back after a public backlash. Not only did this result in additional money for firms that really need the funding, but it may also have had a chilling effect on other big companies that were considering seeking funding in this round.

Ensuring clients will obtain loan forgiveness

At ACI we have seen the FinOp role continue to evolve as the economy emerges from the crisis. We are not only helping our clients successfully apply for PPP loans, we are also ensuring our clients meet the criteria for loan forgiveness in the eight weeks after the loans are received. This is critical economically, so firms do not have to repay their loans.

We are also helping clients manage the timing of incurring qualifying expenses to maximize the impact to each respective FINRA member firm’s net capital and their ability to comply with the regulatory obligations.

 Getting SBA funds into firms’ accounts, however, is taking longer than expected due to the enormous volume of loans SBA is processing. While we were under the initial impression that fund disbursement would happen 24 to 48 hours after receiving an SBA loan number, in reality it is has been more like 5 to 10 business days before the funds are posted to a recipient’s bank account.

ACI working closely with FINRA and our clients

ACI Managing Partner, Jay Gettenberg, as a member of the FINRA Small Firm Advisory Committee (SFAC), has been working closely with FinOp policy at FINRA to address the regulatory implications for SBA loan forgiveness and how this will affect different types of broker dealers and their ability to comply with net capital requirements.       

We expect the next eight weeks to be a critical time to ensure all firms are able to maximize their PPP loan forgiveness. We will be working diligently with FINRA and our clients in these efforts.

If you are still considering applying for the PPP program ACI is ready to help you with the process. These are the program details:

Paycheck Protection Program loans explained  

The CARES Act’s Paycheck Protection Program (PPP) allows qualified businesses with fewer than 500 workers to apply for a Small Business Loan to meet payroll costs. The loan is limited to the lesser of $10 million or the company’s average total monthly “payroll costs” for the 1-year period ending on the date the loan is made, multiplied by 2.5, plus any refinanced loan under the Economic Injury Disaster Loans (EIDL) program obtained after June 30, 2020.

Proceeds from a PPP loan may be used for payroll costs (as defined), employee benefits and commissions, interest payments on mortgages, rent, utilities, and interest on debt incurred before February 15.

A business can apply for loan forgiveness in an amount equal to the cumulative amount of payroll costs, rent, utilities, and interest paid on mortgages during the eight weeks after the loan is made. The amount forgiven is limited to the extent compensation and headcount are reduced relative to a base period, and any amount forgiven will not be taxable to the borrower.

ACI will continue to provide updates on our Resources page as we manage together through this challenging time. We hope everyone is taking proactive and precautionary measures to remain safe.

Paycheck Protection Program Update

The SBA-backed Paycheck Protection Program (PPP) is on hold right now after more than 1.6 million loans were approved since initial launch on April 3, 2020.  Over the past two weeks companies and their respective banks have been working diligently to apply for and obtain these forgivable loans, exhausting all of the $349 billion earmarked for the program. The SBA has stopped taking applications until more funding for PPP is approved by Congress.

ACI strongly supports an extension of the program and believes that the PPP will be vital in helping the country recover from the coronavirus pandemic. While the Democratic and Republican parties are not aligned on the full scope of beneficiaries, should financial relief be expanded by the federal government, there has been bipartisan support for the additional $250 billion in PPP funding specifically designated for small businesses.

Banks struggling with loan volume

Over the past few weeks, ACI has been assisting clients with accumulating data for their PPP applications and coordinating the form submissions to our client’s respective banks.  Fortunately, many ACI clients have elected not to apply, as they have been able to maintain operations and profitability in spite of COVID-19.  In some instances the broker dealers have failed to qualify, primarily due to their payroll costs being allocated through Expense Sharing Agreements, whereby the affiliate of the broker dealer would be submitting the application on behalf of the consolidated entities.  ACI has submitted applications on behalf of approximately 40 broker dealers to date.   

While we have been extremely diligent in our efforts to get applications filed as accurately and efficiently as possible, we have experienced difficulties with the participating banks, as they are struggling with the sheer volume of applications.  The banks are required to aggregate, review, and submit these applications to the SBA under extremely short time constraints, with no precedent as to what the outcome would be if the loans do not meet forgiveness criteria and the applicants then file for bankruptcy.  Both the logistics and the risk have led to a lower success rate on approvals than we had initially hoped.

The SBA announced on April 16, 2020 that it would not accept any more applications until additional funding is authorized by Congress.  It is unclear at this time what will be required for companies who are still seeking SBA loans as part of the potential second wave of PPP funding.  We are hopeful that the already submitted applications will remain in queue and will be processed but there have been indications those who have previously submitted applications without success may need to re-apply, as stated by SBA spokesman Christopher Chavez.

While every firm’s situation is unique, we believe any business that applied and is still waiting for approval should be prepared to resubmit, if necessary, when the program is renewed. If you haven’t applied yet but are considering doing so, it would be prudent to have everything ready for when the admission process opens again.  ACI is prepared to re-submit applications on behalf of our clients so we can maximize the likelihood of success for everyone who is searching for financial relief in these difficult times.

For your information, here are the program details:

Paycheck Protection Program loans explained

The CARES Act’s Paycheck Protection Program (PPP) allows qualified businesses with fewer than 500 workers to apply for a Small Business Loan to meet payroll costs. The loan is limited to the lesser of $10 million or the company’s average total monthly “payroll costs” for the 1-year period ending on the date the loan is made, multiplied by 2.5, plus any refinanced loan under the Economic Injury Disaster Loans (EIDL) program obtained after June 30, 2020.

Proceeds from a PPP loan may be used for payroll costs (as defined), employee benefits and commissions, interest payments on mortgages, rent, utilities, and interest on debt incurred before February 15.

A business can apply for loan forgiveness in an amount equal to the cumulative amount of payroll costs, rent, utilities, and interest paid on mortgages during the eight weeks after the loan is made. The amount forgiven is limited to the extent compensation and headcount are reduced relative to a base period, and any amount forgiven will not be taxable to the borrower.

ACI will continue to provide updates on our Resources page as we manage together through this challenging time. We hope everyone is taking proactive and precautionary measures to remain safe.

Relief Is in Sight

The $2.2 trillion CARES Act contains key provisions, which may directly assist small broker-dealer firms in weathering the COVID-19 pandemic crisis.

While the provisions of the CARES Act are still being reviewed, we want to share with you some points that may assist you with retaining your employees and keeping your operations running as smoothly as possible.