Delivery Playbook and Bailout News (Cont)
Originally Published : March 27, 2020
DOLLA DOLLA BILL Y’ALL!
Dear HL Clients,
Hey! Something to be legitimately excited about!! There will be money available for bars and restaurants. We don’t know exactly how long it will take to get it and there are lots of questions but we will learn more in the coming days as details emerge and we will keep you in the know. In the meantime, let’s get down to business and figure out how to get our hands on some of this government cheddar.
First, let’s review. We have the no-interest NYC Loan of $75K, the application of which published today and the SBA Disaster Loans which are low-interest loans and can be applied for now, and of course, the biggie, the SBA backed 7(a) Express Loans that are interest free for a period of time, some of which will be forgiven if used on payroll and overhead, and then will change to a low-interest loan.
We were thinking about how we could help our clients with the loan process and quickly realized that this is what we do every single day in our Licensing Department. We eat applications for breakfast. All day long, we organize and submit government applications on behalf of our clients and we are really good at putting them together and communicating with the bureaucrats to get them over the finish line.
So, starting Monday, HL will be assisting our clients in applying for both SBA loans and the NYC loans! In a wartime move, we have retrofitted our crack licensing team to be set up to lead your SBA loan application process. Only a portion of the guidance has been published thus far, and it’s already looking like a royal (Charles, we hope you feel better soon!) pain in the ass. We are teaming up with our accountants, bookkeepers, and other friends with green visors on the back-end, so we can put together winning applications, do so quickly, and most importantly, get that money into your bank accounts so you can fucking breathe.
Contact Joseph, Heather and our Licensing Group at: email@example.com for more information including the packages we are offering and our flat-fee pricing.
Now, here’s some general information about those programs:
CARES ACT: PART II by Andrew Fine
News about the coming availability of federal and forgivable loans has the entire country buzzing. And for good reason. This is the federal bailout that hospitality so desperately needs. The act has been officially named the Coronavirus, Aid, Relief, and Economic Security” (CARES) Act. Thank goodness for us, because the previous working title, “Keeping American Workers Paid and Employed Act,” or KAWPAEA, was a nightmare to type.
We’re thankful to everyone who has reached out to us yesterday and today with questions about the CARES Act, as you have helped us focus our analysis on the issues that really matter to us here in the hospitality industry. Unsurprisingly, the vast majority of questions fielded today revolve around how to qualify for loan forgiveness under the CARES Act. We’re writing to offer some clarity on the questions that were asked today, with the caveat that the specifics here are subject to change, since we don’t yet know all the details.
Though we covered this in yesterday’s newsletter, in case you missed it, here’s a very brief recap of the CARES Act as it pertains to forgivable loans.
Under the CARES Act, the Small Business Administration (SBA), through qualified bank lenders, will offer federally-backed loans (known by unimaginative lawyers as Section 7(a) loans) to eligible small businesses with up to 500 employees in amounts up to $10MM. Congress’s goal is to prevent the economy from continuing to tank. Specifically, Congress intends small businesses to use these funds to keep employees on payroll (and to rehire laid-off employees), and to pay their rent and utilities.
If you’re just tuning in, you might be wondering what makes these loans so special. Isn’t the SBA already offering disaster relief loans? The answer is yes, but Section 7(a) loans are special because they are forgivable. Provided that you use 7(a) loans to cover approved costs accruing during the “Covered Period” (February 15, 2020 through June 30, 2020), the entire loan amount can be written off. Approved costs include payroll (inclusive of insurance premiums, paid time off, retirement contributions), rent, utility payments, and interest on mortgage payments.
Needless to say, this is a very big deal.
However, there’s a catch. The amount of loan forgiveness will be reduced on a sliding-scale basis for any employee cuts or wages during the “Covered Period” (February 15, 2020 through June 30, 2020). Conceptually speaking, this makes sense given that the purpose of this bill is to rescue our economy by motivating companies to rehire staff and keep them on payroll, regardless of whether their business is operating normally. But legally and practically speaking, this raises more than a few questions!
How is the forgiveness deduction calculated?
There will be a specific reduction formula based on the number of employee layoffs. The formula will be different for full-time versus part-time employees, but essentially works as follows: you take the ratio of the reduced number of employees during the Covered Period and divide it by the average number of employees on payroll between February 15, 2019 through June 30, 2019 (or, for new businesses, between January 1, 2020 through February of 2020).
There will be an additional reduction formula corresponding to any reduction in employee salaries. This reduction is straight-forward, equal to the amount of any reduction in total salary or wages of any employee during the Covered Period that is in excess of 25% of the employee’s salary/wages during the employee’s most recent full quarter of employment prior to the COVID-19 crisis. There are exceptions to salary reductions for employees who earned more than $100k in 2019.
The CARES Act currently provides that in order to be eligible for loan forgiveness, borrowers must maintain payroll as it existed prior to the COVID-19 crisis for the entirety of the loan term (which will be unique to each loan), “to the extent practicable” (meaning that exceptions may be made on a case by case basis). Additionally, lenders cannot reduce their employment levels by more than 10%during the lifetime of the loan.
The forgiveness amount may also be reduced by any other SBA disaster relief loans that the borrower has already secured. So, if you’re planning to apply for a forgivable loan, talk to us first about loan strategy.
What if I already laid off employees or reduced their salaries?
This is the question of the day, because, let’s be honest, what bar or restaurant hasn’t laid off or furloughed employees at this point? Fortunately, Congress appears to recognize this, and is offering a solution in the proposed bill.
The forgiveness deductions described above do not apply if a borrower normalizes payroll by June 30th, 2020. In other words, loan forgiveness deductions will not apply to you if, by June 30th, 2020, you:
(i) rehire the same number of employees laid off between February 15, 2020 and 30 days after the enactment of the CARES Act (note that you do not necessarily need to rehire the same people); and
(ii) restore any salaries/wages reduced between February 15, 2020, and 30 days after the enactment of the CARES Act back to what they were as of February 14, 2020 (so that total payroll goes back to what it was).
What does this mean in plain English? Basically, that once this legislation is passed, you will have until June 30th, 2020 to get your employees back on the books! If you do so, you will be eligible for full loan forgiveness.
What should I be doing now?
Contact our Licensing Group firstname.lastname@example.org so they can help you put together a loan application strategy.
How do I secure loan forgiveness?
In short, by papering everything. You’ll need to submit the following documentation to your lender in connection with any loan forgiveness application:
- Documentation verifying employees on payroll and their pay rates;
- Documentation on covered costs/payments (e.g., rent and utility payments, etc,); and
- A certification from a representative of your business that the documentation is true and correct, and that forgiveness amounts requested were used to retain employees and make other forgive-ness eligible payments (e.g., rent and utility payments, etc.).
Our advice at this stage is to ensure that all of your books and records are clean, and that you are maintaining careful written records of any and all costs and expenses moving forward. With loan forgiveness on the line, we advise all clients to get in touch with their accountants to ensure that you’ll have everything you need to submit for this loan application, including for the separate loan forgiveness application.
What happens with unforgiven amounts?It’s important to remember that, the possibility of forgiveness aside, this money is still a loan. To the extent that any portion of the loan is not forgiven, the remainder would be treated as such, with 4% interest that must be repaid over the course of a term not to exceed 10 years. This loan will come with a personal guarantee. Principal, interest, and fee payments can be deferred from 6 months to 1 year.
Will there be bank fees?
Yes, almost certainly. As discussed in last night’s newsletter, these loans would be offered by banks, and guaranteed by the SBA. In other words, you’d be dealing with private banks, and the private banks would be knocking on the fed’s door for reimbursement. That said, the private banks may charge fees in consideration of their handling of the loan. Those fees would not be reimbursable.
Different banks may impose different fees, but it’s quite likely that the market will quickly establish a uniform range of fees for these loan applications.
Update: NYC LOAN
Applications for the NYC SBS Small Business Continuity Loan Program are now open. These are interest free loans of up to $75,000
To Apply, businesses must:
– Be located within the 5 boroughs of NYC
– Have fewer than 100 employees across all locations
– Demonstrate at least a 25% decrease in revenue as a result of Coronavirus
– Have been in operation for at least 2 years
– Demonstrate ability to repay the loan
– Have no outstanding tax liens or legal judgements
Even if you have already submitted the pre-application form, you must still complete the application here: https://www1.nyc.gov/nycbusiness/article/nyc-small-business-continuity-loan-program
*** I reached out to enquire about the revenue decrease requirement as they are asking for proof of two months of revenue decline of 25% or more compared to sales in 2019. Most businesses in NYC didn’t see a major decline until March 12th or so when the shutdown order came in. Here is the response from Steven Picker, Executive Director – Food & Beverage Industry Partnership, NYC Department of Small Business Services and all-around really great guy (and former chef/owner of Good in the West Village):
“SBS wanted to make a product available to businesses as quickly as they could, which meant that asking for a 2-month comparison had to include February. The assumption was that most businesses that had either closed or pivoted to delivery/pickup-only, even in March 2020, would inevitably show a 25% loss compared to 2019 numbers.
The 2-month period can be “to-date” and not full calendar months; so January 27-March 27 will, in many cases, show sufficient loss to qualify.”
Update: Cannabis Legalization: by Joseph (Joey Regs) Levey
Let’s take a break from COVID-19 for a moment and talk about something positive: The possible legalization of marijuana in New York State. The budget deadline is right around the corner (mid-next week). And now more than ever, the State could use the money; our economy could use the boost, and adding a brand new commodity to the marketplace might just be a perfect solution.
There are two separate and distinct camps in Albany right now. One group is looking to pass a bare-bones, simple budget, just to keep us operating, and then scurry off into an emergency early recess, only to re-emerge this summer, when we’re [hopefully] clear of this health crisis; and then there’s another that is looking to take this opportunity to cut the BS and pass a budget with some rather significant and helpful legislation (including cannabis legalization).
Our Governor, who’s actually doing a heck of a job, by the way, and the Assembly Majority Leader have both been on record in the last few days, calling for legalization. Getting that ball rolling now would go a long way in terms of providing us with the boost that we’re going to desperately need, moving forward.
As always, we’re rooting for New York Cannabis legalization; and we’re rooting for New York!
Update: Delivery Playbook by Lee and Megan: We sent out over 100 copies of “DELIVERY & TAKEOUT PLAYBOOK: Mitigating Risk in the Time of Coronavirus” to HL clients and friends at no cost. We will be revising this playbook with necessary updates and changes as they become available and will keep you posted. As a reminder, you can register for your copy by filing out the form, linked here. We encourage you to share this link with your peers, colleagues and friends.
The full sign-up link is listed below
That’s it for us this week family and friends. We will be back on Monday unless anything major breaks.
In the words of the great David Hockney – “They can’t cancel spring.”