On November 18, the Department of Treasury and IRS released long-anticipated guidance regarding the tax treatment of expenses used to support Paycheck Protection Program (PPP) loan forgiveness. IRS Notice 2020-32, released earlier this year, stated that expenses are not deductible if the payment of that expense results in forgiveness. While some Congressional leaders have proposed that the IRS notice was not consistent with legislators’ intent, no Congressional action has been taken to date that would overturn the IRS notice. Further, little additional guidance was released for borrowers and taxpayers. This week’s guidance now offers some clarity. The revenue ruling (2020-27) and revenue procedure (2020-51) explain that businesses “may not deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year.” The guidance means that PPP loan borrowers expecting forgiveness cannot deduct the expenses generating forgiveness in the taxable year the expenses occurred. The deductibility of these expenses is not dependent on the borrower submitting a forgiveness application nor on the borrower receiving forgiveness. It is only dependent on whether the borrower “reasonably expects to receive forgiveness.” If a borrower reasonably expects forgiveness and does not deduct the expenses, and it is later determined that their loan is not forgiven, the expenses may be deducted on their original or amended 2020 tax return or their original 2021 return. PPP loan guidance continues to evolve. For questions about your PPP loan, forgiveness, or the newest IRS and Treasury guidance, please reach out to your HBK Advisor.

Borrowers of Paycheck Protection Program (PPP) loans have begun working through their forgiveness applications and are learning that the process is quite complex. While applying for forgiveness is different for each borrower, here are five issues that have surfaced as common concerns and that may affect the amount of forgiveness you receive:

1. Different inputs can equal different outputs.

Application instructions include a variety of options, including several eligible costs, different reference periods, several safe harbor options, and different methods of calculations. Your amount of forgiveness will vary depending on the options you use.

• If you complete the application and are not pleased with your projected level of forgiveness, make sure you have considered all your options. For example, did you consider the different reference periods used to determine the FTE Reduction Quotient? Have you compared both the standard and the simplified methods in calculating the FTE count? Have you considered all safe harbor options for the FTE reduction and average annual salary/hourly wage reduction?

2. Coordination with the EIDL advance.

If you received an Economic Injury Disaster Loan (EIDL) Emergency Advance or Emergency Grant (EIDLG), your PPP loan forgiveness will be reduced by the amount of your advance or grant. You must include the advance or grant amount as well as the EIDL application number on your PPP loan forgiveness application.

• Be sure that you include only the EIDL advance or grant amount on the EIDL advance amount line, not the entire EIDL amount. Note that EIDL Advance amounts will not exceed $10,000.
• Do not reduce your projected forgiveness amounts listed on the forgiveness application by your advance or grant amounts. The SBA will reduce the forgiveness amount provided to your lender.

3. Eligible payroll costs.

Payroll costs eligible for forgiveness include employer contributions for employee health insurance.

• Include only the employer portion of the contribution as an eligible payroll cost. Employee contributions are already included in the employee’s gross payroll or cash compensation. As such, employers cannot rely on the totals indicated on your health insurance bills. Additional limitations apply if you are an owner of 2 percent or more of an S corporation as well as to those owners’ family members. For those individuals, employer contributions for health insurance are considered cash compensation.

4. Ratio of forgivable payroll and non-payroll costs.

The Paycheck Protection Program Flexibility Act of 2020 (PPPFA), passed by Congress on June 5, provides that no more than 40 percent of forgiveness can be attributed to non-payroll costs. You are required to certify this on the S application and show it as a calculation on line 10 of the Standard application or line 7 of the EZ application.

• Calculation: On line 10 of the Standard application and line 7 of the EZ application, follow the instruction to divide line 1 (eligible payroll costs) by .6. The calculation determines a potential amount of forgiveness if the payroll costs are reported equal to 60 percent of that forgiveness. This potential forgiveness amount will be compared with the PPP loan amount and the calculation including your FTE and annual salary/hourly wage reductions, where the lowest of the three will be used as the application’s forgiveness amount.

5. Ensure your data is easy to understand by the lender and the SBA.

Business owners understand their businesses better than anyone else. Even payroll reports can have quirks or customizations that they, their managers and employees find it easy to understand but that might not be clear to those reviewing your reports for loan forgiveness.

• Make the data as transparent as possible. While the SBA provides specific documentation requirements, maintaining and in some cases submitting clarifications, reconciliations and other data may make it easier for the lender and SBA to review their documentation—especially where prorations or limitations apply. Appeals processes are available but not guaranteed, so it is important to ensure your data and justification are clear in your initial submission.

Contact your HBK advisor with your PPP loan forgiveness application questions or concerns.

Borrowers, together with their affiliates, who have loans over $2 million may be required to provide additional information to support the certifications made on their Paycheck Protection Program (PPP) loan application via two new SBA questionnaires.

When applying for the PPP loan, borrowers certified that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The certification drew attention in May when some borrowers were alleged to have taken loans without it being “necessary,” and some large companies returned borrowed funds. The SBA also released an FAQ indicating that “to further ensure PPP loans are limited to eligible borrowers in need, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans over $2 million, in addition to other loans as appropriate.” While subsequent guidance indicated the SBA could review the borrower’s eligibility, including for this certification, no guidance has been provided to indicate how the SBA would evaluate how borrowers determined they had the need required to make this certification.

Now, SBA Form 3509 and SBA Form 3510 have begun circulating (although they have not been released directly by the SBA or Treasury). Instructions on the forms indicate that borrowers and their affiliates (per SBA affiliation rules) that received loans over $2 million would be required to complete and submit both forms, which address the borrowers’ business activities and liquidity. Accordingly, lenders would request the forms from borrowers, and borrowers would be required to complete them within 10 days of lenders’ requests.

These forms, or questionnaires, have not been confirmed as official by the SBA or Department of the Treasury, and no corresponding guidance has been issued. However, borrowers with loans greater than $2 million should review the forms with the understanding that they are likely to be used by the SBA to confirm eligibility. Borrowers concerned about their eligibility should contact their legal counsel.

If you have questions about your PPP loan, forgiveness, or the Loan Necessity questionnaires, please contact your HBK Advisor.

On October 2, the Small Business Administration (SBA) released a Procedural Notice regarding PPP borrowers’ change of ownership.

SBA defines a change of ownership as occurring when:

• “… at least 20 percent of the common stock or other ownership interest of a PPP borrower (including a publicly traded entity) is sold or otherwise transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity,
• the PPP borrower sells or otherwise transfers at least 50 percent of its assets (measured by fair market value), whether in one or more transactions, or
• a PPP borrower is merged with or into another entity.”

Borrowers undergoing a change of ownership must notify their lender in writing and provide the proposed agreement or other relevant documents before the change of ownership occurs. There are no restrictions if the loan has been paid in full or the forgiveness process has been completed, meaning SBA has remitted funds to the lender or the borrower has repaid any remaining balance.

Other considerations relating to change of ownership include:

No SBA approval will be required when:

• The sale or transfer is of common stock or other ownership interest or a merger where:
• The sale or transfer of common stock or other ownership transfer is less than 50 percent of the PPP borrower’s interest, where all sales and transfers occurring from the date the PPP loan is approved are considered, or
• The borrower submits a forgiveness application supporting use of all PPP loan proceeds and creates an interest-bearing escrow account controlled by the PPP lender with funds equal to the balance of the PPP loan. The funds may be disbursed to pay any loan balance plus interest after the forgiveness process and any appeals are completed.


• A sale of 50 percent or more of its assets if the borrower submits a forgiveness application supporting use of all PPP loan proceeds and creates an interest-bearing escrow account controlled by the PPP lender with funds equal to the balance of the PPP loan. The funds may be disbursed to pay any loan balance plus interest after the forgiveness process and any appeals are completed.

If the ownership change does not meet these criteria, borrowers will need SBA approval. Borrowers should work with their PPP lenders, who will be required to submit the following information to the SBA:

• The reason the borrower cannot fully satisfy the PPP note or escrow the funds
• Details of the ownership change transaction
• A copy of the PPP loan documents
• Any agreements or letters of intent
• SBA loan number
• A list of all individuals with a 20 percent or greater ownership stake in the purchasing entity

For sales of 50 percent or more of the assets, SBA approval will be based on the buyer assuming all PPP obligations, which must be reflected in the sale documents.

Whether or not SBA approval of the transfer of ownership is required, the PPP borrower will remain subject to all terms of the program. If the buyers or successor has a separate PPP loan, they will be responsible for segregating PPP funds and providing documentation supporting compliance of the use of funds by each borrower.

To read the Procedural Notice, visit https://home.treasury.gov/system/files/136/5000-20057.pdf. For questions or to discuss your PPP loan or its forgiveness, please contact your HBK advisor.

Many manufacturers are completing their Paycheck Protection Program (PPP) covered periods and seeing their lenders launch their PPP forgiveness portals. Much like the rush to apply for loan funding this spring, borrowers are now rushing to apply for forgiveness. Before joining the rush, consider the following:

1. The right time to apply for forgiveness:
   
   According to the Paycheck Protection Program Flexibility Act (PPPFA) passed on June 5, 2020, a borrower has ten months after the last day of their covered period to apply for forgiveness.
   
   Some manufacturers may find it advantageous to apply before the end of the ten months, for example, if they have a business situation that calls for it, such as a transition of ownership. Others may decide that waiting for additional guidance provides them with the highest level of confidence that their loan can be forgiven.
   
   Manufacturers who have spent all their funds also might be inclined to apply before the end of their 24-week covered period. But they should be sure they have all the necessary documentation. In addition, guidance remains cloudy on certain mechanics of the calculation when applying early, so consider waiting until you are sure all aspects of your forgiveness application will comply with SBA guidance.
   
   
2. Eligible costs for forgiveness:
   
   Some manufacturers prefer to reduce the burden of documenting their expenditures by using only payroll costs for their PPP loan forgiveness application. But think about your PPP loan as a part of your business strategy, not as a standalone tool. Will applying for forgiveness using only certain expenses reduce your access to benefits from other programs?
   
   For example, a tax credit is available to certain businesses that conduct R&D (research and development) activities. Given current guidance, it might be advisable to exclude costs from your PPP loan forgiveness application that you could use for the tax credit, thereby maximizing both PPP loan forgiveness and the tax credit. Other tax credits may interact with your PPP loan in a similar fashion.
   
   It is important to discuss your PPP loan forgiveness with your tax preparer and other key advisors to ensure you are considering all programs available to you.
   
   
3. Full-time equivalent (FTE) restoration:
   
   FTE Safe Harbor #2 indicates that if you had a reduction in full-time equivalents (or FTEs) between February 15 and April 26, 2020, you have until the earlier of the date of your forgiveness application or December 31, 2020 to restore your FTE level so that the reduction will not affect your forgiveness amount. Some manufacturers, however, have regularly scheduled layoffs at the end of the year for maintenance, physical inventory or other operational requirements. If you are applying for forgiveness after the end of the calendar year, remember that your reduction elimination will be evaluated based on your FTEs as of December 31, 2020. Think carefully about employees who will be on your active payroll at that time, regardless of whether you intend to rehire them. Based on the mechanics of the calculation and FTE Safe Harbor #2 guidance, if you cannot prove those FTEs have been restored (based on your December 31 active payroll), you might not qualify for the safe harbor option.
   
   
4. PPE eligibility for forgiveness:
   
   Currently, expenses eligible for forgiveness are payroll costs (including certain employer paid health insurance, retirement contributions, and state and local taxes), and rent, mortgage interest and utilities as defined by the program. Neither general manufacturing personal protective equipment (PPE) nor COVID-19-specific PPE and supplies are eligible for forgiveness.
   
   Like all program guidelines, the rule on PPE is subject to change. Proposals in Congress include allowing certain PPE costs as expenses eligible for forgiveness. However, because a borrower must follow all guidance available at the time of application, it is important to stay abreast of changes and understand what is current guidance versus what is only a proposal.
   
   
5. Forgiveness applications do not guarantee forgiveness:
   
   Economic Injury Disaster Loan (EIDL) emergency advances (or grants), issued by the SBA will reduce PPP loan forgiveness by the amount of the advance (or grant), even if the forgiveness application indicates full forgiveness of the PPP loan. Manufacturers who participated in both programs should understand their obligations under each program.
   
   In addition, the SBA reserves the right to review all PPP loan applications for eligibility and loan amounts, as well as the PPP forgiveness applications for the forgiveness amounts. If the SBA determines you were not eligible for the loan, or if they determine that your loan or forgiveness amount was improperly calculated, you might not be granted full forgiveness. Manufacturers should discuss their concerns as they arise with their legal advisors or CPAs.
   
   

To discuss your PPP loan, its interaction with other programs, or other concerns regarding your manufacturing business, contact a member of HBK Manufacturing Solutions at manufacturing@hbkcpa.com or 330-758-8613.

On August 24, the Small Business Administration (SBA) released a new Interim Final Rule pertaining to owner compensation and non-payroll costs eligible for Paycheck Protection Program forgiveness. Highlights of the rule include:

• C-Corp or S-Corp owners with less than a 5 percent ownership stake are not subject to the owner-employee compensation rule. The SBA has made this rule because these owner-employees “have no meaningful ability to influence decisions over how loan proceeds are allocated”
• Non-payroll costs attributable to the business operations of a tenant or sub-tenant of a PPP loan borrower are not eligible for forgiveness. The SBA example: If a borrower leases its building for $10,000 per month and subleases a portion of its physical space to another business for $2,500 per month, only $7,500 per month is eligible for loan forgiveness—assuming other eligible rent criteria are met. The same applies to mortgage interest and utility payments.
• For home-based businesses, eligible non-payroll costs do not include household expenses. The SBA explains: “the borrower may include only the share of covered expenses that were deductible on the borrowers’ 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.”
• Related party rent is eligible for loan forgiveness as long as:
  • “The amount of loan forgiveness for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the Covered Period that is attributable to the space being rented by the business, and
  • The lease and mortgage were entered into prior to February 15, 2020.”
  Note that any common ownership between the business and the property owner is considered related party.
• Mortgage interest payments to a related party are not eligible for loan forgiveness.

To read the full Interim Final Rule, visit https://home.treasury.gov/system/files/136/PPP–IFR–Treatment-Owners-Forgiveness-Certain-Nonpayroll-Costs.pdf.

For questions regarding your PPP loan forgiveness, please contact your HBK Advisor.

As businesses look for ways to weather the COVID-19 pandemic, many firms in the plastics industry have had a unique role as essential businesses, providers of personal protection equipment, or suppliers of single use products. Despite this, industry firms find themselves battling many of the same concerns affecting the general business community. Discover some of the ways the plastics industry is navigating the COVID-19 crisis.

Following Guidelines
Like all businesses, plastics companies must follow the evolving health and safety guidelines set by government entities and health departments, including enforcing social distancing, wearing masks, and monitoring employee health status then taking specific actions if an employee is diagnosed with COVID-19. There are other safety, health and business guidelines to comply with as well, such as those from OSHA, the EEOC, and Department of Labor. More information can be found at state and federal websites including:

• Ohio Coronavirus Resources for Businesses
• Pennsylvania Coronavirus Resources for Businesses
• New Jersey Coronavirus Resources for Businesses
• Florida Coronavirus Resources for Businesses
• OSHA Coronavirus Resources
• EEOC Coronavirus Resources
• DOL Coronavirus Resources

Evolving safety guidelines have led to changes not only in the workplace but to industry events. Trade shows and conferences, including MD&M East, the Society of Plastics Engineer’s ABC 2020 Conference and the Plastics Industry Associations’ Equipment and Moldmakers Leadership Summit are among many events that have been postponed or cancelled. Events that have occurred as scheduled have generally been staged virtually.

Using Economic Relief Options
Plastics News reported that plastics firms have received over $1.6 billion dollars of Paycheck Protection Program (PPP) funds. Funds are still available, and those that have not received a PPP loan but are interested should contact their advisors or lenders as soon as possible. The Small Business Administration (SBA) will no longer approve PPP loans after August 8.

Other key economic relief options available to plastics firms include:

• Economic Injury Disaster Loans (EIDL) available through the SBA. For more information, visit sba.gov/disaster.
• Main Street Lending Program (MSLP) loans available through lenders. Visit https://www. federalreserve.gov/monetarypolicy/mainstreetlending.htm for more information.
• Deferral of payment of the employer’s share of Social Security taxes.
• Employee Retention Credit available to operations that were partially or fully suspended due to a COVID-related shut down order, or that suffered a significant decline in revenue (available only to businesses that did not receive a PPP loan).
• Families First Coronavirus Response Act (FFCRA) tax credits available to offset the cost of employee leave programs.
• State and local relief programs, including grants and loans.

As well, Congress is negotiating additional stimulus funding, which is expected to include funds for some small businesses, though it is unknown what new relief options may be available for plastics businesses.

Shifting Business Operations
To navigate the COVID-19 pandemic, plastics firms have shifted their operations in many ways, including:

• Supporting PPE Needs. While some plastics firms considered essential operations have seen little to no business downturn, others have shifted operations in order to maintain business levels or employee counts or to help with the country’s need for personal protective equipment. Where operations allowed, many plastics businesses used excess capacity and available machine or labor time to produce N95 masks, ventilators, medical tubing and protective face shields.
• Focusing on Cybersecurity. Many plastics firms have historically dedicated their technology budgets to operations, but risks of cybersecurity breaches have grown significantly, especially for those firms with employees working remotely. Ensuring proper training to prevent phishing attacks, reviewing the company’s IT infrastructure, and assessing security protocols for suppliers or customers where EDI or other connections exist have become critical projects for IT departments.
• Evaluating Supply Chains. The industry continues to rely substantially on foreign sources for plastic resins, specialty compounds, molds and tooling, and equipment. Supply chain concerns have escalated due not only to the pandemic but also to turbulence in international relations and the threat of trade wars. Some businesses are re-evaluating their supply chains, considering not only cost and quality, but their ability to get critical goods during the pandemic or other crises. Meanwhile, others have found opportunities to expand their product or service offerings due to increasing demand for domestically produced goods.
• Considering Diversity. Through the Great Recession a decade ago and now during the COVID-19 pandemic, plastics firms have watched some end-user industries thrive while others contracted. Many businesses in industries impacted by both global events are struggling to create sufficient cash or financial reserves to survive. Plastics firms limited to one industry and one or two customers are under increasing pressure to diversify to ensure their longevity.

Innovating to Improve Safety and Health
The pandemic has impacted many businesses’ views of public health, and plastics firms are among those considering how technology can improve the safety and health of employees, customers, and others who visit their facilities. While we are still uncertain whether the coronavirus can live on surfaces, some plastics firms have considered reducing their use of paper or other shared items. Similarly, they are considering touchless technologies established through automation. They are also increasingly using virtual meetings to maintain customer and vendor relationships, reduce travel, and ensure social distancing.

Moving forward, firms may consider using antimicrobial additives, especially if those additives can reduce the transmission of viruses, bacteria or other microbes. They might also consider continuous improvement opportunities, such as the use of additives or other redesigns, to make their products safer or easier to disinfect. Similarly, single-use plastics, including bags, bottles, utensils, straws and containers that have been outlawed in some areas due to environmental concerns have regained popularity due to their perceived safety over reusable products. It will be interesting to watch how human safety and health concerns are balanced with environmental concerns as the pandemic continues.

Planning Ahead
As plastics firms continue to navigate the COVID-19 pandemic, they can consider several actions:

1. Ensure safety protocols for employees, customers and other facility visitors are met. Continually evaluate changing protocols and compliance.
2. Determine what actions to take if an employee is diagnosed with the virus. This may include asking other employees to be tested or to quarantine, cleaning or disinfecting affected areas of their facility, and developing a backup plan for others to take over critical duties that cannot be performed by the affected employee.
3. Understand the availability of economic relief options. Review the programs carefully and consider using those that will best support the business’s needs.
4. Evaluate whether to make changes to product or service offerings. Are the firm’s offerings and customer base diverse enough to ensure the company’s longevity? Reevaluating strategic business plans, forecasts, and budgets may be necessary to ensure ongoing operations.
5. Consider whether cybersecurity measures are appropriate, especially if the firm has employees working remotely. Companies should also consider discussing cybersecurity insurance options with their business insurance providers or requesting external evaluations from professionals who specialize in cybersecurity insurance.
6. Assess supply chains. Does the firm have a backup plan to obtain critical goods or services if current vendors are unable to supply?
7. Consider innovations that improve the safety and health of employees, customers and other visitors to the facility, including reducing or eliminating paper and adding touchless technologies.
8. Consider innovations that can help customers use the firm’s products more safely, including changes to materials, surface finishes and product designs.

For support in navigating the ongoing pandemic, contact a member of the HBK Manufacturing Solutions Group at 330-758-8613 or manufacturing@hbkcpa.com

July 21, 2020 UPDATE: The Federal Reserve announced that the Main Street Lending Program has been modified to allow participation from eligible nonprofit organizations including educational institutions, hospitals, and social service organizations. Eligible organizations must meet the following eligibility criteria:

• In operation at least 5 years
• Have at least 10 employees
• Have total non-donation revenues equal to or greater than 60% of expenses from 2017 through 2019
• Have 2% or more operating margin in 2019
• Have at least 60 days cash on hand
• Have a current debt repayment capacity of at least 55% measured by a ratio of cash, investments, and other resources to outstanding debt and certain other liabilities

  Learn more regarding the Main Street Lending Programs available to nonprofit organizations   Nonprofit organizations are among the organizations affected by the COVID-19 pandemic. While several relief programs are available through the federal government, determining when your organization is eligible for each program can be confusing, due to differing criteria. Here, we explore three loan programs offered through federal government programs or federal legislation due to the COVID-19 crisis and the eligibility of nonprofit organizations to apply. Economic Injury Disaster Loans The Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL) is a program, administered through the SBA, that is available to eligible organizations suffering economic injury due to a declared disaster. Because COVID-19 is considered a declared disaster, these loans are available in all 50 states as well as Washington D.C., Guam, the Virgin Islands, Puerto Rico, the Northern Mariana Islands, and American Samoa. Loans awarded to nonprofit organizations are up to $2 million, carry a 2.75 percent interest rate, and are amortized over a period of up to 30 years. Payments are deferred for the first year. The following nonprofit organizations are eligible to apply:

• Private nonprofit organizations that are non-governmental agencies or entities that currently have an effective ruling letter from the IRS granting tax exemption under sections 501(c), (d), or (e) of the Internal Revenue Code of 1954,
• Private nonprofit organizations that have satisfactory evidence from the State that the non-revenue producing organization or entity is a non-profit one organized or doing business under State law, or
• Faith-based organizations. (For more information regarding faith-based organizations, please visit the SBA’s Faith-Based Organizations FAQs page).

  In addition to the loan, applicants may apply for an emergency advance (or emergency grant) of up to $10,000, based on the organization’s employee headcount. While this advance or grant awarded does not need to be repaid (even if the applicant declines the loan), it will reduce forgiveness on the Paycheck Protection Program loan, which is discussed further below. Currently, the EIDL program is only accepting new applications from agricultural enterprises due to funding limitations. It is unknown whether additional applications from other organizations, including nonprofit organizations, will be accepted in the future. Organizations who already applied for this program may check on the status of their application by contacting the SBA’s Customer Service Center at 1-800-659-2955 (TTY: 1-800-877-8339) or DisasterCustomerService@sba.gov. June 15, 2020 UPDATE: The SBA is once again accepting applications from all eligible organizations. It is unknown how much funding is still available, but applicants are awarded funds on a first-come, first-served basis. Interested organizations should visit sba.gov/disaster. Paycheck Protection Program The Paycheck Protection Program (PPP) is a loan program created through the CARES Act which was passed by Congress and signed into law on March 27, 2020. Unlike the EIDL program, the PPP is administered by lenders such as banks. The program offers eligible organizations loans equal to roughly 2.5 months of 2019 payroll costs (up to $10 million in total loan proceeds), to be used on specified payroll costs, rent, mortgage interest, and utilities. If borrowers spend the funds in accordance with the guidelines and maintain employee headcount and salaries and wages, the loan may be forgiven up to 100 percent. Loan proceeds not forgiven will be subject to a 1 percent interest rate and 2-year amortization period. Some nonprofit organizations are eligible to apply for PPP loans. Specifically, CARES allows 501(c)(3) nonprofit organizations, 501(c)(19) veterans organizations, and certain tribal business concerns to apply. Note that the organization must have under 500 employees (or otherwise meet the SBA Size Standard for its NAICS code), as well as agree to certifications that can be found on the PPP application and PPP forgiveness application. Funding is still available for this program and nonprofit organizations can still apply. Interested organizations should contact their lender to begin the application process. Note that guidance on this program continues to evolve, and the latest updates on both the loan process and the forgiveness process can be found at https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses. In addition, as Congress continues to negotiate changes to the program applicants and borrowers should watch for changes or stay in touch with their advisors to ensure they are complying with the latest program guidelines. June 15, 2020 UPDATE: While funds remain, loans will only be issued through June 30, 2020. Interested organizations should contact their lender to begin the application process. Main Street Lending Program The Main Street Lending Program (MSLP) offers loans to eligible small and medium-size businesses affected by COVID-19. The program offers loans, starting at $500,000 based on the business’s debt structure and 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA). According to the program’s Frequently Asked Questions, nonprofit organizations are currently not eligible for this program. The document states: “While non-profit organizations are not currently eligible under the Program, the Federal Reserve acknowledges the unique needs of non-profit organizations, many of which are on the front lines providing critical services and research to fight the pandemic. EBITDA is the key underwriting metric required for the [loan program]. The Federal Reserve recognizes that the credit risk of non-profit organizations, as a matter of practice, is generally not evaluated on the basis of EBITDA. The Federal Reserve and the Treasury Department will be evaluating the feasibility of adjusting the borrower eligibility criteria and loan eligibility metrics of the Program for such organizations.” For more information on this program, visit https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm. June 15, 2020 UPDATE: The Federal Reserve announced that it is seeking feedback through June 22 on its proposal to expand this program to small and medium-sized nonprofit organizations. If approved, eligible nonprofits may include organizations that:

• are considered a tax-exempt organization under section 501(c)(3) or 501(c)(19) of the Internal Revenue Code
• were in sound financial condition before the coronavirus pandemic and could benefit from additional liquidity to manage through this challenging period
• employee a minimum of 50 and maximum of 15,000 employees
• have operational history of at least five years
• have endowments of no more than $3 billion.

  Additional financial thresholds based on operating performance, liquidity, and ability to repay debt may apply. In addition, the Main Street Lending Program has also been expanded for all organizations with a new minimum loan size of $250,000. To learn more regarding the proposal to expand the program to nonprofits, visit the Federal Reserve’s press release at https://www.federalreserve.gov/newsevents/pressreleases/monetary20200615b.htm. For additional information about general program changes, visit https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.   For more information about relief options available to nonprofit organizations, contact your HBK Advisor.

On June 8, the Small Business Administration and U.S. Treasury issued a joint statement indicating that guidance and a new PPP Loan Forgiveness Application would be released “promptly.” While we wait, borrowers are confused and anxious. Some of their most frequent asked questions:

Should I choose the eight-week period or the 24-week period?
We believe this will be an individual business decision. No clarity has been forthcoming on the Paycheck Protection Program Flexibility Act (PPPFA) provision, including when or how a borrower must make this election. Similarly, because the revised PPP Loan Forgiveness Application has not been released, questions remain as to how the application and related guidance may affect a borrower’s decision to select the eight-week or 24-week period.

Will my loan be on my books at the end of the year?
It’s possible. While we expect guidance on when borrowers can apply for forgiveness, we know forgiveness will need to be approved. Borrowers may find their balance sheets reflect their PPP liability at the end of the calendar year.

Have any definitions been clarified?
Unfortunately, there has been no guidance that provides clarity on definitions such as “owner-employee,” “transportation” as an approved utility, or for other terminology that has not been defined. Further, there is no indication of which definitions might be clarified in the coming weeks.

Are borrowers previously charged with certain crimes eligible for PPP loans?
On June 12, a new Interim Final Rule was released to loosen the eligibility criteria for these borrowers. It states that borrowers are ineligible if “an owner of 20 percent or more of the equity of the applicant is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years or any other felony within the last year.”

While we wait for more guidance, or with any of your questions or concerns about the Paycheck Protection Program, the Paycheck Protection Program Flexibility Act, or your business’s loan, please contact your HBK Advisor.

On June 15, the Small Business Administration announced it was again accepting applications from small businesses for its Economic Injury Disaster Loan (EIDL) and EIDL Advance. The program was closed to new applications in mid-April due to a lack of funding, but the Paycheck Protection Program and Health Care Enhancement Act passed on April 24 appropriated an additional $60 billion to the program. In late April, the SBA began accepting applications again, but only from agricultural businesses, which had been excluded from eligibility in the initial round of funding.

The program provides loans of up to $2 million for recovery from economic injury resulting from COVID-19. The loans support working capital and may be used to pay fixed debts, payroll, accounts payable, and other bills that would otherwise have been paid if the COVID-19 crisis had not occurred. Loans are awarded on a first-come, first-served basis.

The loans come with an amortization period of up to 30 years. Loans to small businesses carry a 3.75 percent interest rate; for non-profit organizations, the rate is 2.75 percent. An emergency advance or grant of up to $10,000 will be provided to borrowers who request it. While the advance does not need to be repaid, it will reduce forgiveness on the borrower’s Paycheck Protection Program loan if the borrower is using both programs. Loans over $25,000 may require collateral, and loans over $200,000 may require personal guarantees.

To apply for an EIDL or learn more about eligibility criteria and program terms, visit sba.gov/disaster. To discuss relief options for your business, please contact your HBK Advisor.