Delivery Playbook and Bailout News
Originally Published : March 26, 2020
HL DELIVERY PLAYBOOK IS HERE!! and bailout news….
Dear HL Clients,
We have been working all day trying to figure out how the bailout is going to work and who will be able to take advantage of it. I’m calling it a bailout because that’s exactly what it is. It’s not a stimulus. It’s not meant to stimulate the economy, it’s meant to keep our ships from sinking. Hopefully it will get us to a point where we can get our businesses back up and running so we at least have a chance to try and make it work. I hope they don’t mess this up. Small businesses need a bailout in the worst way. We are the backbone of America and we deserve it.
We have a team of lawyers, accountants and voodoo doctors deciphering the law as it develops and will have a full breakdown for you on Monday so stay tuned. In the meantime, go ahead and send us your questions so we can put them together and attempt to answer them. Here’s what we know now:
Help on the way….
The relief bill pending in the Senate, if passed and signed into law, would amount to a whopping $2 trillion package. Trillion, gazillion, infinity, as long as there’s money for those of us who need it. There are many components to it, but we will be focusing on one of its most exciting aspects: forgivable loans for small businesses!
The legislation at issue is called “Keeping American Workers Paid and Employed Act” (‘KAWPAEA’). Really rolls off the tongue. How do you even pronounce it? Cowpow? Cowpee? Paellla? Who cares. The primary purpose of this bill is to keep Americans employed during the time of uncertainty, and aims to provide small businesses with access to enough cash to maintain their payrolls. Although this relief would come in the form of loans, unlike other loan options offered up until this point, these loans are eligible for forgiveness. That is, if the loan is used correctly, eligible applicants would not have to repay the principal of this loan.
That said, here is a summary of the proposed bill, subject to change at the whim of our legislators of course:
What kind of relief are we talking about?
Eligible applicants would be eligible to receive a loan equal to 250% of an employer’s average monthly payroll, up to a maximum of $10 million. These forgivable loans would have a maximum annual interest rate of 4%, with repayment terms (for any unforgivable amounts) of up to 10 years.
Who is eligible to apply for this loan?
Businesses or self-employed individuals with 500 or fewer employees are eligible to apply, provided that their business was operational as of February 15, 2020, and had employees on payroll as of such date. Qualified lenders will also be authorized to run credit checks on applicant borrowers.
There may be certain citizenship restrictions for applicant entities as well (e.g., at least 80% of the borrower must be owned by a U.S. citizen). Details here are currently unclear, but we will track this issue as the bill progresses.
An important item to note: as currently drafted, applicants will be disqualified from receiving forgivable loans under this bill if they have already successfully applied for a SBA disaster loan (or other SBA relief related to COVID-19. So, to the extent you wish to apply for a forgivable loan under this bill, do not accept any SBA disaster relief loans at this time. If you have a disaster loan application pending with the SBA, you’re likely fine, provided you do not accept that pending loan. The relationship between KAWPAEA loans and other SBA disaster-relief loans is currently unclear, and we hope that Congress and the SBA offer clarity on this in the coming days.
Is there a revenue test for eligibility?
No. As currently drafted, applicants would not be limited by the amount of money their businesses generate, and there is currently no restriction on the number of physical locations that applicants may operate. In other words, it doesn’t matter if you are a hospitality group with multiple venues earning tens of millions of dollars a year, or if you are a small, single-location mom-and-pop; you would be eligible to apply for this loan as long as the above requirements are satisfied.
How Does Loan Forgiveness Work?
This is the million-dollar question. The principal of these loans would be forgivable provided that the borrower used the funds for to cover any of the following expenses accruing within an 8 week period beginning on February 15, 2020 through June 30, 2020: payroll costs (including insurance premiums, paid time off, and retirement contributions), rent, utility payments, mortgage payments (covering interest, not principal), and interest on other pre-existing loans. Though it’s not entirely clear how an applicant would prove that funds received were used for this purpose, borrowers would be wise to carefully document any and all costs and expenses paid using proceeds from these loans.
The amount forgiven will be reduced by any reduction in payroll costs during the 8 week measuring period relative to the 2019 fiscal year, and will be further reduced by any reduction in salary of any employee beyond 25% of their compensation for the prior year. In other words, businesses will be penalized for laying people off, and for reducing salaries, as a result of this Pandemic.
What if I re-hire employees?
Fortunately, borrowers that re-hire workers who have been previously laid-off will not be penalized for having a reduced payroll, provided that the re-hiring occurs on or before the date on which the loan is granted. So, to the extent that you have laid-off staff and plan to apply for this loan, in order to receive your full loan forgiveness under the KAWPAEA, gear up to re-hire your employees!
Will the amount forgiven be taxable?
No. Cancelled indebtedness will not be included in the borrower’s taxable income.
Who would the lenders be?
Given the scale of this relief package, the federal government is relying on the participation of banks and commercial lenders to act as the primary loan lenders under this bill. To the extent a loan is forgiven, those third party lenders would be reimbursed by the government. Currently, there are 800 existing SBA-certified lenders, meaning that you could likely apply for this loan through your existing bank.
When would these loans go live?
Though there’s no clear answer yet, it is expected that loans under this program will begin to be processed by late April or early May of 2020.
What about amounts that are not forgiven?
If, for whatever reason, some or all of the loan amount did not qualify for forgiveness based on the KAWPAEA’s criteria, the unforgiven amount would be treated as a loan. The repayment terms of this loan would likely be determined on a case-by-case basis, though the proposed bill does contain some parameters: the maximum repayment term would be 10 years, and there would be a maximum interest rate of 4%. Applicants will be required to sign a personal guarantee to secure the repayment of any unforgiven amount.
Update: Lease Reset – we have been reviewing many leases over the past few days and have come to a general consensus that in most cases, after we review your lease rights, we are engaging with the landlord and sending them different types of notices. This serves to protect your rights while we see what shakes out with the bailout and other government programs. Sending the letter is basically an insurance policy so your landlord can’t play games with you. Then, once the dust settles, we will ask the landlord to meet us at the negotiating table.
And here it is. The most sought after legal document of the week..
DELIVERY & TAKEOUT PLAYBOOK: Mitigating Risk in the Time of Coronavirus is now available!
Megan and Lee have been working day and night to have this resource available for you.
While this document is free to use, and does not constitute legal advice, we ask that you sign up via this link here to obtain a PDF copy of this Playbook.
We prepared these materials to not only help you understand the existing legal and regulatory requirements of offering delivery/takeout services here in New York, but to help you mitigate the risks associated with continuing to operate during this period of time. Whether you have made the choice to remain open in some limited capacity – or you have decided to completely change your operations to offer delivery or takeout services – our playbook covers the ins and outs of continuing to operate throughout this period of uncertainty.
We ask for your information so that as the playbook continues to evolve with the changing circumstances, we can be sure to provide you with most up to date versions as they become available.
That link again, is here, for you to sign up. Please be sure to share the link with your friends and colleagues.
A quick thank you to HL clients and friends, Alicia and Daniel at Mekelburg’s for delivering us groceries and beer. Both have come in so very handy.
Tip of the day: Watch Miles Davis:Birth of the Cool on the Netflix. Miles was the coolest artist and so innovative and inspiring.