Federal Small Business Loan Fund Replenished

President Donald Trump on April 24 signed the Paycheck Protection Program and Health Care Enhancement Act, providing an additional $484 billion as of April 27 to the CARES Act’s payment protection program, when the initial $349 billion was tapped out in less than a month. Additional funds will again be disbursed through banks affiliated with the Small Business Administration loan programs, but with some exemptions added for loan forgiveness, according to Keith Zimmet, partner at the firm Lewitt Hackman in Encino. In particular, if an employer were to rehire an employee but that worker declines the offer, that wouldn’t count against a business that borrowed money through the program. Borrowed money used for certain expenses from Feb. 15 to June 30 or Jan. 1 to Feb. 29 will be forgiven under the CARES Act, according to the SBA’s website. An employer’s loan forgiveness amount directly correlates with the number of full-time employees per month during an 8-week period, Zimmet added. The Lewitt Hackman partner gave an example of how loan forgiveness is calculated based on employee percentage: “If Company A had 100 full-time equivalent employees during the period from February 15, 2019, through June 30, 2019, but only has 75 full-time equivalent employees during the eight-week period following the PPP Loan funding, then the expected forgiveness amount will be reduced by 25 percent.” The purpose of the law, Zimmet said, is to keep as many people employed as possible in the hopes that by June 30 the economic starts to pick up. “The SBA has now issued guidance that if a borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer, the same shall be deemed an exemption from the CARES Act’s general limits on loan forgiveness,” Zimmet said in a statement. “The amount of loan forgiveness shall not be reduced because of such employee.” The exemption is only valid if the employer is offering the same salary or wages as before, and same number of hours, as well as ensured proof a written offer to rehire was made. The employee’s rejection of that offer must be documented too, Zimmet said. “Employers are starting to plan their reopening after a potential lifting of the state and local stay-at-home orders. One frequent question is about employees who decline to be reinstated — often because they can make more money on unemployment with the federal supplement,” added Sue Bendavid, also a partner at Lewitt Hackman, in a May 4 newsletter. “Apart from the employment law issues that this raises, this creates a question on the impact on the PPP loan forgiveness.” The program allows businesses with less than 500 employees, or more than 500 while still meeting SBA criteria, to take out a loan from the SBA and have a portion of it forgiven for a certain period of time, Zimmet said. Local businesses that nabbed first round funding include MannKind Corp. in Westlake Village, a biotech company currently collaborating with another Los Angeles business for a COVID-19 vaccine, with $4.9 million; and Van Nuys microturbine manufacturer Capstone Turbine Corp., with $2.6 million. “During these times of uncertainty that the COVID-19 pandemic has created for nearly every business, having the additional liquidity provided by the (program) enhances our ability to continue manufacturing products and providing aftermarket services for our customers, which includes our global distribution network which is largely comprised of 62 small businesses across 73 countries,” Darren Jamison, chief executive of Capstone, said in a statement. Allotments of the program’s first round of funds came under scrutiny when well-capitalized companies such as the Los Angeles Lakers basketball franchise and Shake Shack restaurant chain obtained funding over small mom-and-pop shops; many of these larger companies gave back funds when the well dried up. Businesses can borrow up to 2.5 times their average monthly payroll in 2019, but there is a cap at $100,000 per individual worker. MannKind, a publicly traded company, on April 15 announced that it would enact payroll reductions in order to meet program criteria, including executives. “MannKind expects to maintain this reduction for at least 10 weeks. The company does not intend to reduce pay for employees whose payroll costs are below $100,000,” the company said in a statement.