Employment Law Bulletin | April 24, 2020

President Trump Signs New Act Authorizing Additional Funding for Paycheck Protection Program and Economic Injury Disaster Loans

Today President Trump signed the “Paycheck Protection Program and Health Care Enhancement Act” which is largely dedicated to replenishing funds for the Paycheck Protection Program (“PPP”) and the Economic Injury Disaster Loans (“EIDL”) program.

The new law adds $320 billion for the PPP, including $310 billion in new loan funds and approximately $10 billion for Small Business Administration administrative costs.  Of the $310 billion allocated to loans, $60 billion is earmarked for community-based lenders, credit unions and mid-sized banks.  This provision was included with the hope that smaller businesses and minority-owned firms, which are less likely to have an existing relationship with a larger bank and were more likely to get shut out in the first round of PPP loans, can be better served in the second round by smaller community lenders and banks.

The Act also adds $60 billion in new funding for the EIDL program.  Farms and other agricultural programs were excluded in the first round of EIDL funding, but the new law amends the definition of “eligible entities” so that agricultural enterprises can now obtain EIDL loans and grants.  Pursuant to an announcement made by the SBA in early April, grants under the EIDL program are subject to a cap of $1,000 per employee.

The new law includes $2.1 billion for increased SBA salaries and expenses.  It is hoped that these added funds will allow the SBA to retain sufficient staff and improve its systems so the chaos of round 1 can be avoided.

The Act does not address the loophole that allowed large companies to obtain hundreds of millions of dollars in PPP loans, while thousands of small businesses received no funding at all.  In response to a widespread negative reaction to news of those loans, the Treasury Department posted an updated FAQ on Thursday, April 23, 2020, regarding the requirement that PPP loan applicants must certify that: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  The FAQ states that in making this certification, borrowers must: “assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application,” and “make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”  As an example, the FAQ notes “it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to the SBA, upon request, the basis for its certification.”

Although the FAQ was posted in response to outrage regarding PPP loans obtained by large restaurant and hotel chains, and the example provided relates to public companies, the FAQ puts all applicants on notice that at some point, most likely when a borrower requests forgiveness of a loan, the SBA could require that a borrower provide documentation showing how the coronavirus pandemic impacted the borrower’s business.

The Act does not make any changes to the specific terms of the PPP, and there continues to be a lack of clarity regarding the rules for loan forgiveness.  The additional guidelines on forgiveness that are mentioned in the regulations issued on April 2 have not yet materialized.

It is expected that the new PPP and EIDL funds will run out quickly, so businesses seeking support from either program should be prepared to act quickly.  Businesses that submitted an application for a PPP loan in round 1 and did not receive funding should contact their banks to find out whether their old applications will automatically be considered, or if they have to submit new applications.  Businesses that did not submit an application should complete the application form and collect the required records right away.

If you need help or additional information regarding the PPP, the EIDL program and other financial relief relating to the COVID-19 pandemic, contact SMT.  We are working remotely to help you navigate this crisis and to advise you about the emergency relief programs available to your business and your employees.  In addition, all SMT attorneys are available to assist you with your legal needs, whether or not they relate to COVID-19.  You may email any attorney through our website at www.www.smlaw.com or contact us at 707-524-1900.  We are here to help.

Terry Sterling

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