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COVID-19 (CORONAVIRUS) LEGAL RESOURCE CENTER

The Carrington Coleman COVID-19 Legal Resource Center is the collection of coronavirus related alerts to keep our clients apprised of potential legal issues that arise from the pandemic. If you would like to receive our alerts via email, please email us.

During this challenging and unsettling time, Carrington Coleman is here to help you and ready to respond to any legal needs you might have. Our attorneys are monitoring legislation, executive orders, and court orders that impact our clients and their legal matters. If there is a topic of interest or you have questions regarding our coronavirus related alerts, please contact one of COVID-19 response team:

   
David Heidenreich   Bonnie Barksdale   Lance Currie
dheidenreich@ccsb.com   bbarksdale@ccsb.com   lcurrie@ccsb.com
214.855.3031   214.855.3119   214.855.3122

The SBA Releases Paycheck Protection Program Loan Forgiveness Application (SBA Form 3508). (Last updated May 18, 2020)
Contact Attorney: David Heidenreich

SBA Issues New Rule Allowing Increased PPP Loan Amounts for Certain Partnerships and Seasonal Employers Previously Caught in Gaps of Changing Rules. (Last updated May 14, 2020)
Contact Attorney: David Heidenreich

SBA Provides Much Needed Guidance on “Necessity” Certification for PPP Loans and Impact on the Forgiveness Process. (Last updated May 13, 2020)
Contact Attorney: David Heidenreich

Federal Reserve Reworks Main Street Loan Program; SBA Promises to Audit PPP Loans in Excess of $2M Before Forgiveness is Approved. (Last updated April 30, 2020)
Contact Attorney: David Heidenreich

CARES Act 2.0 – Additional PPP and EIDL Funding and More. (Last updated April 23, 2020)
Contact Attorney: David Heidenreich

So You’ve Successfully Applied for a PPP Loan, Now What? What You Need to Know About the PPP Forgiveness Process. (Last updated April 17, 2020)
Contact Attorney: David Heidenreich

CARES Act Provides Subsidies for Loan Payment Relief on Certain SBA Loans. (Last updated April 10, 2020)
Contact Attorneys: Bonnie BarksdaleMichael Lin

“I Need a Hero” – The Fed Comes to the Rescue with an Array of Weapons Aimed at Combating Economic Impacts of COVID-19; PPP Support, Main Street Business Loans and More. (Last updated April 9, 2020)
Contact Attorney: David Heidenreich

U.S. Small Business Administration (SBA) Issues Supplemental Interim Final Rule for Affiliation Rules Applicable to Paycheck Protection Program. (Last updated April 5, 2020)
Contact Attorney: David Heidenreich

U.S. Small Business Administration (SBA) Finally Issues Much Anticipated Interim Final Rule for Paycheck Protection Program Loans. (Last updated April 3, 2020)
Contact Attorney: David Heidenreich

Department of Treasury Posts Application Form for Paycheck Protection Program Loan with More Specific Guidance on Program. (Last updated April 1, 2020)
Contact Attorney: David Heidenreich

Federal Government Rushes Through Legislation Designed to Help an Expanded Universe of Small Businesses. (Last updated March 27, 2020)
Contact Attorneys: David Heidenreich, Bonnie Barksdale, Ted Harrington

SBA Disaster Relief Loans Offer Lifeline to Small Businesses Amidst COVID-19 Uncertainty. (Last updated March 25, 2020)
Contact Attorneys: Bonnie Barksdale, Hayden Baker, Michael Lin

COVID-19: Cash Preservation Solutions. (Last updated March 19, 2020)
Contact Attorney: Bruce Hendrick

Your Contracts and COVID-19: Force Majeure and Impossibility. (Last updated March 20, 2020)
Contact Attorneys: Lance Currie, Bonnie Barksdale, Cathy Altman, Michael Lin, Joshua Kipp, David Drumm, Charles Jordan

COVID-19 Family Law Update No. 5 (Last updated April 1, 2020)
Contact Attorney: Carmen Eiker

COVID-19 Family Law Update No. 4 (Last updated March 25, 2020)
Contact Attorney: Carmen Eiker

COVID-19 Family Law Update No. 3 (Last updated March 23, 2020)
Contact Attorney: Carmen Eiker

COVID-19 Family Law Update No. 2 (Last updated March 19, 2020)
Contact Attorney: Carmen Eiker

COVID-19 Family Law Update (Last updated March 13, 2020)
Contact Attorney: Carmen Eiker

THE SBA RELEASES PAYCHECK PROTECTION PROGRAM LOAN FORGIVENESS APPLICATION (SBA FORM 3508)

(Last updated May 18, 2020)

With little to no fanfare, the SBA released the PPP Forgiveness Application late on Friday, May 15, 2020.  Known as SBA Form 3508, the Application can be found here.

The Application reads a bit like a simplified tax return and is comprised of the following sections:  (i) Application Instructions (pages 1-2); (ii) the PPP Loan Forgiveness Form (pages 3-4); (iii) PPP Schedule A Instructions (page 5); (iv) PPP Schedule A (page 6); (v) PPP Schedule A Worksheet (pages 7-9); (vi) List of Required Documents (page 10); and (vii) PPP Borrower Demographic Information Form (Optional) (page 11).

The Application makes clear that each borrower seeking forgiveness must submit both the PPP Loan Forgiveness Form (the “Forgiveness Form”) and the PPP Schedule A (“Schedule A”), together with all required supporting documentation, to the lender who issued the applicable PPP loan.

Here are some highlights for the (i) Forgiveness Form, (ii) Schedule A and (iii) List of Required Documents:

FORGIVENESS FORM

(1) Covered Period – Confirmed to be 8 weeks (56 days). The first day of the Covered Period for a borrower is the date on which the borrower received its loan proceeds.

(2) Alternative Payroll Covered Period – Borrowers with a biweekly or more frequent payroll schedule may elect to start their 56 day covered period on the first day of their first pay period following the disbursement of their loan.

(3) Loans over $2M – Borrowers who, in the aggregate with their affiliates (to the extent affiliate aggregation is required under the SBA’s interim final rule on affiliates found here), have PPP loans in excess of $2M must check the indicated box. This will clearly signal which Applications need further review by the SBA to confirm appropriateness of the “necessity” certification.

(4) Eligible Payroll Costs – The Forgiveness Form clarifies that a borrower must have either “incurred” or “paid” the eligible payroll costs during the applicable of the Covered Period or the Alternative Payroll Covered Period (See the instructions for Line 1 of the Forgiveness Form). So, for example, if your loan was disbursed on April 15 and your first payroll date after loan disbursement was on the same date (for wages owed for the immediately prior period), you can include that payroll in your forgiveness calculations even though that payroll amount was “incurred” by the borrower (earned by the employees) prior to the loan disbursement date.  This helps to clarify the uncertainty that was created on account of loan disbursements occurring out of cycle with employer payroll periods.  Furthermore, payroll costs “incurred” but not paid towards the end of the Covered Period (or Alternative Payroll Covered Period, as applicable) are eligible for forgiveness if paid on or before the next occurring regular payroll date after the completion of the Covered Period (or Alternative Payroll Covered Period, as applicable).  This provides comfort to employers that they won’t have to run a special payroll to “sneak it in” just before the 8 week period expires.

(5) 75% Requirement – The SBA is sticking with the requirement that 75% of the amount forgiven must be for payroll costs and that “eligible nonpayroll costs” cannot exceed 25% of the total forgiveness amount.

(6) Additional Certifications – As expected, additional certifications are included in the Forgiveness Form, including certifications on (i) the details on the forgiveness amount requested; (ii) understanding of penalties for knowingly using PPP funds for unauthorized purposes; (iii) verification by the borrower of payments for eligible payroll and non-payroll costs; (iv) submittal of required documentation; (v) submittal being true and correct; (vi) tax documents submitted are consistent with IRS submissions; and (vii) understanding that the SBA may request additional information.

SCHEDULE A

(1) Cash Compensation – The amount of forgiveness requested for each employee may not include cash compensation of more than $15,385 for the Covered Period (or Alternative Payroll Covered Period, as applicable). This is simply the application of the $100,000 annualized cap per employee applied to the applicable 8 week (56 day) period.  Please note that other non-cash payroll amounts (such as payments for qualifying benefits) are allowed to cause the total forgiveness requested for an individual employee to be over this amount.

(2) Full-Time Equivalent (FTE) Reduction in Forgiveness – The SBA confirmed that – as we suspected in a previous Client Alert – full-time equivalency should be calculated based on the traditional 40-hour workweek (not the 30-hour workweek introduced by the Affordable Care Act (a.k.a. Obamacare)). The comparison of FTE before the PPP loan and during the Covered Period (or Alternative Payroll Covered Period, as applicable) will be used to determine whether a reduction in forgiveness is warranted due to a decline in FTE employees.  There is an exception to the FTE reduction standard if an employer offered – in writing – to rehire an employee in good faith and the applicable employee either rejects such offer of re-employment or such employee (i) was fired for cause, (ii) voluntarily resigned, or (iii) voluntarily requested and received a reduction of their hours, in each case during the Covered Period (or Alternative Payroll Covered Period, as applicable).

(3) FTE Reduction Safe Harbor – The SBA reiterated the “safe harbor” for borrowers who reduced FTE levels in the period beginning February 15, 2020 and ending April 26, 2020, but who, not later than June 30, 2020, restored their FTE levels to the same level as existed during the pay period that included February 15, 2020.

(4) Reduction in Forgiveness for Decline in an Employee’s Salary or Hourly Wage – As the CARES Act and subsequent guidance confirmed, there will be a reduction in allowed forgiveness where an employee’s salary/hourly wage was reduced by more than 25% during the Covered Period (or Alternative Payroll Covered Period, as applicable).

LIST OF REQUIRED DOCUMENTS

(1) Payroll Records – Required payroll records include:

a. Bank account statements or 3rd party payroll service provider reports;

b. Tax forms (or equivalent 3rd party payroll service provide reports) confirming: (i) payroll tax filings reported (or that will be reported) to the IRS, and (ii) State quarterly business and individual employee wage reporting and unemployment insurance tax filings;

c. Payment receipts, cancelled checks, or account statements documenting employer contributions to employee health insurance and retirement plans included in the forgiveness amount.

(2) FTE – Required FTE records include documentation showing, as applicable:

a. Average FTE employees on payroll per month between February 15, 2019 and June 30, 2019; or

b. Average FTE employees on payroll per month between January 1, 2020 and February 29, 2020; or

c. If elected by seasonal employers, the average FTE on payroll per month for any consecutive 12-week period between May 1, 2019 and September 15, 2019.

(3) Non-payroll Records – To the extent that forgiveness is requested for eligible non-payroll amounts, required non-payroll records include documentation verifying the existence (prior to February 15, 2020) of: (i) business mortgage interest payments; (ii) business rent or lease payments; and (iii) business utility payments.

(4) Documents Required to be Maintained, but not Submitted with the Application –

a. PPP Schedule A Worksheet (or its equivalent) and supporting documentation including: (i) listing of each individual employee, including the salary/hourly wage reduction calculations if applicable; (ii) listing of each individual employee that received annualized compensation of more than $100K; (iii) documentation identifying any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by employees for a reduction in work schedule; and (iv) documentation supporting the details of the FTE Reduction Safe Harbor claim by the borrower.

b. All records relating to the borrower’s PPP loan, including documentation submitted with the loan application, documentation supporting certifications as to the necessity of the loan request and eligibility for a PPP loan, documentation supporting the forgiveness application, and documentation supporting the borrower’s material compliance with PPP requirements.

The documentation listed under this item (4) must be retained by the borrower for 6 years after the date the loan is forgiven or repaid in full, and the borrower must permit authorized representatives of the SBA to access such files upon request.

Final Recommendation:  As recommended in previous Client Alerts, as we expect that lenders will quickly be overwhelmed with forgiveness applications, we strongly recommend that each borrower commence now to prepare the information necessary to submit its application for forgiveness and that such application be filed with the applicable lender promptly following completion of the applicable 8 week “Covered Period.”

David Heidenreich
dheidenreich@ccsb.com
214.855.3031
SBA ISSUES NEW RULE ALLOWING INCREASED PPP LOAN AMOUNTS FOR CERTAIN PARTNERSHIPS AND SEASONAL EMPLOYERS PREVIOUSLY CAUGHT IN GAPS OF CHANGING RULES

(Last updated May 14, 2020)

Late on Wednesday, May 13, 2020, the SBA released its ninth Interim Final Rule on the Paycheck Protection Program titled “Business Loan Program Temporary Changes; Paycheck Protection Program – Loan Increases.” The latest IFR is linked here.

Section 1102 of the CARES Act initially seemed to provide that businesses could include individuals with self-employment income from the business in the PPP loan size calculations. Then, on the eve of the opening of the PPP floodgates, the SBA issued additional guidance which provided that self-employed individuals could not be included in those calculations, which caused many companies to rush to reduce their PPP loans to comply. One enormous gap created by that guidance related to the treatment of partners in a business who often are technically self-employed as they are not W-2 employees. After many applications were submitted and accepted, the SBA (on April 14, 2020) changed course and said that partners in a partnership could be included in the PPP loan application for the business.

Similarly, the SBA was late in providing guidance to seasonal employers with respect to how their loan amounts should be calculated – only providing different rules for them on April 28.

These two issues resulted in a number of businesses applying for PPP loans that were less than the appropriate maximum amount. Given that the second tranche of PPP funding still has (as of May 8th) over $120B left to fund, it seems that the SBA is again feeling generous.

The new IFR authorizes lenders to increase PPP loan amounts for previously issued loans to two groups of borrowers:

(1) Partnerships. If a partnership received a PPP loan that excluded compensation for partners from the calculation, its PPP lender may submit an electronic request through the SBA’s E-Tran Servicing site to increase the PPP loan amount to include appropriate partner compensation, even if the loan has been fully disbursed.

(2) Seasonal Employers. If a seasonal employer received a PPP loan before the alternative loan calculation formula for seasonal employers was released on April 28, and the application of the updated formula would result in an increased PPP loan amount for such employer, the lender may submit an electronic request through the SBA’s E-Tran Servicing site to increase the PPP loan amount, even if the loan has been fully disbursed.

In both cases, the loan amount may only be increased if the lender’s first SBA Form 1502 report to the SBA on the applicable PPP loan has not been submitted. Once Form 1502 (a form submitted by a lender to the SBA providing payment and loan information) has been submitted, the PPP loan size cannot be increased. The SBA deadline for the submission by lenders of the Form 1502 for issued loans is currently May 22, 2020. Of course, if the increase is available to a qualifying business, the applicable borrower must provide its lender with required documentation to support the calculation of the increase.

If either of these scenarios applies to your business, our recommendation is that you reach out immediately to your PPP lender to see if the Form 1502 has been submitted for your loan. If not, then you have a small window to increase your loan amount to the maximum size available to you.

David Heidenreich
dheidenreich@ccsb.com
214.855.3031
SBA PROVIDES MUCH NEEDED GUIDANCE ON THE “NECESSITY” CERTIFICATION FOR PPP LOANS AND THE IMPACT ON THE FORGIVENESS PROCESS

(Last updated May 13, 2020)

Today (May 13, 2020), the SBA released an update to its PPP FAQs in which it added a single – but critically important – Q&A. Question 46 of the FAQs deals with the “necessity” certification that has been the subject of much discussion – and angst – for many businesses in recent weeks.

Two things stand out:

(1) Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be automatically deemed to have made the required “necessity” certification in good faith as it is unlikely that they would have adequate access to sources of liquidity.

(2) For those borrowers who received a loan in excess of $2 million, an opportunity will be provided to explain their justification (think “necessity”) in pursuing their PPP loan and, if they are determined to not have been an appropriate recipient, they will have the opportunity to pay the loan back promptly in which case “SBA will not pursue administrative enforcement or referrals to other agencies . . . .”

Question 46 and its answer can be found in the PPP FAQs here.

This development is expected to bring quite a bit of peace to many business owners as smaller borrowers will have the benefit of the “safe harbor” as to the necessity certification and larger borrowers will have the opportunity to pay back their loans should they be determined to not have been an eligible recipient – and thereby avoid the specter of the previously threatened administrative or criminal enforcement actions.

To be clear, all PPP borrowers will still be required to demonstrate appropriate and timely uses of PPP funds as part of the forgiveness process. To that end, we reiterate our previous recommendation each PPP borrower begin now (to the extent not already underway) to build its case for forgiveness by documenting company decisions made leading to the PPP application and by tracking and compiling records on PPP loan fund usage. Additionally, we recommend that each borrower submit its application for forgiveness as soon as the 8-week period for PPP fund utilization is complete. We expect that lenders will quickly be overwhelmed by the volume of forgiveness applications.

David Heidenreich
dheidenreich@ccsb.com
214.855.3031
MONICA LATIN BECOMES MANAGING PARTNER OF CARRINGTON COLEMAN

Carrington, Coleman, Sloman & Blumenthal has named trial lawyer Monica W. Latin as Managing Partner, effective May 1.

Ms. Latin, who has been practicing at the firm for more than half of Carrington Coleman’s 50-year history, succeeds Bruce Collins who has held the position since 2013. She was named Managing Partner-elect in May 2019, is a member of the firm’s executive committee, and has served for many years as chair of the firm’s Business Litigation Practice Group.

“This is both a tremendous honor and a great responsibility, and I welcome it,” Ms. Latin says. “To have the opportunity to continue the rich tradition and high standard of ethics and client service this firm has established over 50 years is something I look forward to doing.”

In her long tenure at the firm, Ms. Latin has worked closely with some of its most storied figures, including founding partner Jim Coleman, who died in February 2020, and Chief U.S. District Court Judge Barbara M.G. Lynn of the Northern District of Texas, who was Ms. Latin’s first supervising partner.

“Monica is a natural to take the reins of this firm,” says outgoing Managing Partner Bruce Collins. “She knows the firm inside and out, knows what it stands for, and understands our challenges and opportunities.”

Ms. Latin intends to maintain her active trial and appellate practice and will continue representing clients on a regular basis. As the first woman in Carrington Coleman’s top leadership role, she credits the firm’s namesake for the opportunity.

“Jim Coleman and our other founders created an inclusive culture where success is measured by dedication to excellence, client service, and professionalism,” she says. “Carrington Coleman lawyers have always worked in and are deeply devoted to upholding that tradition and the diversity it ensures.”