A Summer Potpourri (Part 1): Congress Legislates And The Fed Weighs In

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Amidst the continuing pandemic, summer brings faint hope that someday things might return to business as usual. For the franchise industry, recent events offer a hint of normality. In Part 1 of this early summer round-up, we take a look at the actions taken by Congress to legislate some flexibility into Payroll Protection Plan loans and how the Federal Reserve expanded its Main Street lending programs to reach small businesses.

Congress Legislates: The PPP Flexibility Act

            Facing abrupt revenue interruption due to the pandemic, Congress hurriedly passed the CARES Act and infused much needed liquidity into small businesses in two tranches. But, anticipating a short term requirement for relief, the PPP loans included restrictions on use and unclear forgiveness terms.

At the beginning of June, the bipartisan PPP Flexibility Act, addressing many of these concerns, became law. The Act included the following changes to the PPP loan program:

*          The loan facility sunsets at year end (extended from June 30th);

*          To qualify for forgiveness, only 60% of the PPP loan must be used for payroll (down from 75%);

*          The rehiring deadline for loan forgiveness is December 31st (extended from 8 weeks), with a safe harbor for employers who cannot restore operations to February 15th levels or cannot find qualified employees;

*          The PPP loan term is extended to 5 years (from 2 years); and

*          Payroll tax deferral for PPP loan funds was added.

In tandem with the Flexibility Act, the SBA issued PPP loan forgiveness forms, including an EZ form that many, if not most, small businesses should be able to use. Between the Flexibility Act and the SBA forms, PPP loan forgiveness is no longer the great unknown.

The Fed Participates: Main Street lending

Joining in the effort to keep businesses afloat in the shutdown, the Fed committed to a massive Main Street lending program almost immediately. However, the minimum loan was too large to be of much help to small businesses. In early June, the Fed cured that issue, reducing the minimum loan to $250,000, extending the loan term from 4 to 5 years, and deferring principal payments for 2 years (from one year).

In Part 2 of this series, we will look deeper into the legal actions taken by some states as well as guidance from NASAA

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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