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BUSINESS UPDATE: The New Stimulus + The Paycheck Protection Program 2.0

Posted on Jan 5, 2021 - News by

A couple of weeks ago, we issued a Business Update identifying concerns about the eligibility of bankrupt debtors to participate in the Paycheck Protection Program (“PPP”) based on a recent decision issued by the 11th Circuit Court of Appeals.  That issue appears to have been addressed, at least in part, by the new pandemic stimulus package made part of the Consolidated Appropriations Act of 2021, which, among other things provides another round of direct stimulus payments, enhanced unemployment benefits, rental assistance, food assistance, school funding, and a second round of Payment Protection Program loans.

Bankrupt Borrowers

The new PPP provides, under certain circumstances, bankrupt debtors with the ability to seek a bankruptcy court’s permission to obtain a PPP loan.  However, to the extent that the loan is not forgiven, it may be entitled to priority treatment and repaid ahead of typical unsecured creditors.  This is good news.  Unfortunately, the Act does not appear to address borrowers under the original PPP.  Additionally, PPP loans will become available in bankruptcy if the SBA Administrator sends a letter to the Director of the Executive Office for United States Trustee permitting it. When and if this happens is an open issue.  And if it happens, loans may only become available to certain types of debtors, namely Subchapter V small business debtors, Chapter 12 family farmer debtors, and self-employed Chapter 13 debtors. There will be more on this to come as we anticipate interim rules being issued going forward to address questions and make yet more changes to the program.

Other Bankruptcy Changes

The Act modifies certain provisions of the Bankruptcy Code.  For example, small business debtors experiencing financial hardships due to the COVID-19 pandemic are given an additional 60-days to perform all post-petition obligations arising under the terms of an unexpired non-residential real property lease. This basically provides small business debtors a four-month rent forbearance because it does not waive the obligation to pay post-petition rent. Small business debtors are also given an additional 90 days to assume or reject unexpired non-residential real property leases.

Another modification is designed to prevent termination of utility services during bankruptcy by waiving the requirement that small business debtors furnish a security deposit or other assurance of payment to utility companies.   

And last, certain deferred or postponed rent and supplier payments made by small business debtors on or after March 13, 2020, are excepted from the so-called “claw-back” provisions of the Bankruptcy Code, but only to the extent such payments do not include any fees, penalties, or interest in an amount greater than the fees, penalties, or interest the small business debtor would have owed the landlord or supplier had it not entered into the payment arrangement in the first place.

PPP Changes

In addition to the foregoing, there are some additional and important changes to the PPP including loan eligibility which now requires that a borrower:

  • Employs no more than 300 employees,
  • Has or will use the full amount of its original PPP loan, and
  • Had gross receipts during at least one quarter in 2020 that represent a 25 percent reduction in gross revenue compared to the same quarter in 2019.

Other notable changes include, but are not limited to, the following:

  • Forgiven PPP loans are deductible,
  • Prior PPP loans do not make borrowers ineligible for a second loan,
  • Increased loan amounts for certain businesses including those in the hospitality industry,
  • $2 million loan cap, and
  • Simplified applications for loans under $150,000.

If you have any questions concerning these matters or if we can provide you with any further assistance, please let us know.

Markowitz Ringel Trusty + Hartog concentrates on the representation of businesses, institutions, fiduciaries, and individuals across several practice groups, which include Restructuring + Insolvency, Litigation + Dispute Resolution, Real Estate + Business, Probate + Guardianship, and Trusts + Estates. Dedication to clients and service to the community are the principles upon which Markowitz Ringel Trusty + Hartog was founded in 1980, and upon which it still operates today.