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CORONAVIRUS RESOURCE SITE

PROTECTING YOUR BUSINESS

Our Coronavirus Resource Site is designed to help businesses navigate the legal and business challenges of operating in this uncertain COVID-19 economic climate. Our goal is to help businesses assess vulnerability and develop pragmatic plans that minimize operational disruption while mitigating both known and unanticipated risks. 

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CARES Act

Employee Benefits Relief

Increased Distributions and Loans from Plans/Elimination of RMD Last updated 3.27.2020 The CARES Act increases available plan distributions and the amount of loans available from plans to participants. The Act also waives required minimum distribution requirements for 2020. Coronavirus-Related Distributions Plan sponsors may now offer participants the option to take coronavirus-related distributions (CV distributions) of up to $100,000 from their accounts in qualified retirement plans, 403(b) plans, and governmental 457(b) plans.

  • CV distributions will be available to participants who become ill (or whose spouses or dependents become ill) from COVID-19 or who experience adverse financial consequences from being furloughed, laid off, or quarantined; losing childcare; losing work hours; or other impacts identified by the U.S. Department of Treasury. Participants will be able to self-certify their eligibility for a distribution.
  • CV distributions are available effective immediately and may be taken up until December 30, 2020.
  • CV distributions are not subject to the 10% early withdrawal penalty for distributions to made participants under age 59.5. While the distributions otherwise remain taxable (unless repaid, as discussed below), participants may include the income from the distribution ratably over a 3-year period.
  • Participants are permitted to repay CV distributions within 3 years of the distribution. If the distribution is repaid within the 3-year period, it will be treated as a rollover.
Changes to Plan Loan Rules The Internal Revenue Code was amended to increase the maximum plan loan amount available to participants from $50,000 to $100,000 (or 100% of a participant’s vested account if less than $100,000) for loans taken within the 180-day period following the enactment of the CARES Act. Additionally, effective for both existing loans made prior to the CARES Act and new loans taken prior to December 31, 2020, loan repayment dates are permitted to be delayed for 1 year if a participant with a loan becomes ill (or the participant’s spouse or dependents become ill) from COVID-19 or experiences adverse financial consequences as a result of being furloughed, laid off, or quarantined; losing childcare; losing work hours; or other impacts identified by the U.S. Department of Treasury in connection with COVID-19. Waiver of Required Minimum Distributions The CARES Act eliminates required minimum distributions (RMDs) for 2020. Participants who are required to take RMDs from their retirement plans (generally those over age 72) are not required to take RMDs for 2020 or 2019 RMDs that were to be made by April 1, 2020. The RMD waiver applies to all qualified defined contributions plans, 403(b) plans, governmental 457(b) plans, and individual retirement accounts (IRAs). Further, the year 2020 will be disregarded for purposes of determining the 5-year period for the required depletion of inherited retirement plan accounts and IRAs. Finally, distributions of amounts that would have otherwise been subject to RMDs in 2020 may be rolled over. BENJAMIN GIBBONS T. 208.383.3981 Send Email



FFCRA Clarification

Emergency FMLA/Sick Leave/Payroll Tax Credits Last updated 3.27.2020 The proposed language in the CARES Act includes important revisions and/or clarifications to the Families First Coronavirus Response Act (“FFCRA”) passed by Congress on March 18, 2020. Modification of the Emergency FMLA Expansion Act The CARES Act clarifies that an employer’s liability under the Emergency FMLA Expansion Act is limited to $200 per day and $10,000 in the aggregate for each employee. The CARES Act also expands the definition of “eligible employees” in the Emergency FMLA Expansion Act to include rehired employees if all the following conditions apply:

  • the employee was laid off no earlier than March 1, 2020
  • had worked for the employer no less than 30 of the last 60 calendar days prior to the employee's layoff, and,
  • was rehired by the employer.
Modification of the Emergency Paid Sick Leave Act Similarly, the CARES Act clarifies that an employer’s liability under the Emergency Paid Sick Leave Act is limited to $511 per day and $5,110 in the aggregate for each employee for their own care, and $200 per day and $2,000 in the aggregate for each employee for the care of others or because the employee is experiencing any other substantially similar condition as described in the Act. Modification of Emergency Employer Payroll Tax Credits Mechanism To address some of the cash flow concerns arising under FFCRA, the CARES Act provides a mechanism for employers to receive an advance of the payroll tax credits (including any refundable credits). It also provides penalty relief to employers who do not make a deposit of payroll taxes if anticipation of the payroll tax credits being available. TYSON HORROCKS T. 801.799.5923 Send Email



Healthcare

Health Provisions/Medicare & Medicare Extenders/OTC Drugs Last updated 3.27.2020 The CARES Act adopts several measures to help stabilize the healthcare system, address health care issues directly and indirectly related to the current pandemic and ensure future preparedness. It also allocates $100 billion of direct funding to help hospitals keep their doors open. Many of the provisions are only tangentially related to the current pandemic, such as re-appropriations for a variety of health programs. Subtitle A – Health Provisions The CARES Act requires health plans and health insurance issuers to cover qualifying coronavirus preventative services and diagnostic tests. The Act requires the Department of Health and Human Services (HHS) and private sector manufacturers to reduce the possibility of future supply shortages for drugs, ingredients, and certain devices critical to public health during a public health emergency. Under a similar objective, the Act amends and loosens certain restrictions on telehealth services, and establishes and reauthorizes certain programs to address current and future concerns. To address immediate needs, the Act appropriates approximately $140 billion in funding to the HHS, with $100 billion of that total amount specifically designated to “eligible health care providers” for health care expenses in their efforts to prevent, prepare for, and respond to the coronavirus, and lost revenue directly attributable to the coronavirus. Subtitle E – Health and Human Services Extenders The Medicare and Medicaid programs have been amended to increase the timing and funding of certain activities, including funding for state health insurance programs, aging services, benefits and outreach enrollment programs, spousal impoverishment protections programs, community mental health services demonstration programs, sexual risk avoidance education programs, and personal responsibility education programs. Subtitle F – Over-The-Counter Drugs The Act amends the FD&C Act to include regulation of certain nonprescription drugs that are marketed without an approved drug application. Amendments under this section provide the FDA flexibility through administrative means to make quick and efficient changes in lieu of the normal notice and comment rulemaking processes. The Act also provides certain market-share incentives to pharmaceutical companies that research and manufacture innovative drugs. KARINA SARGSIAN T. 801.799.5741 Send Email KIM STANGER T. 208.383.3913 Send Email



Relief for Small Businesses

SBA Clarifies Treatment of Foreign Affiliates for 500-Employee Calculation Last update 5.20.20 The Paycheck Protection Program (PPP) requires borrowers to certify that “[t]he applicant (1) is an independent contractor, eligible self-employed individual, or sole proprietor; or (2) employs no more than the greater of 500 employees or, if applicable, the size standard in number of employees established by the SBA in 13 C.F.R. 121.201 for the applicant’s industry. There has been confusion among some borrowers as to whether employees of foreign affiliates should be included in the 500-employee calculation. On May 18, 2020, the SBA issued an Interim Final Rule clarifying the treatment of foreign affiliates for a borrower’s 500-employee calculation: Question: Are employees of foreign affiliates included for purposes of determining whether a PPP borrower has more than 500 employees? Answer: Yes. The CARES Act specifies that an entity is eligible for a PPP loan only if it is (1) a small business concern, or (2) a business concern, nonprofit organization described in section 501(c)(3) of the Internal Revenue Code, veterans organization described in section 501(c)(19) of the Internal Revenue Code, or Tribal business concern described in section 31(b)(2)(C) of the Small Business Act that employs not more than the greater of 500 employees, or, if applicable, SBA’s employee-based size standard for the industry in which the entity operates. SBA’s affiliation regulations provide that to determine a concern’s size, employees of the concern “and all of its domestic and foreign affiliates” are included. 13 C.F.R. 121.301(f). Therefore, to calculate the number of employees of an entity for purposes of determining eligibility for the PPP, an entity must include all employees of its domestic and foreign affiliates, except in those limited circumstances where the affiliation rules expressly do not apply to the entity. (Emphasis added) Any entity that, together with its domestic and foreign affiliates, does not meet the 500-employee or other applicable PPP size standard is therefore ineligible for a PPP loan. However, as an exercise of enforcement discretion due to reasonable borrower confusion based on SBA guidance (which was later resolved through a clarifying FAQ on May 5, 2020), SBA will not find any borrower that applied for a PPP loan prior to May 5, 2020 to be ineligible based on the borrower’s exclusion of non-U.S employees from the borrower’s calculation of its employee headcount if the borrower (together with its affiliates) had no more than 500 employees whose principal place of residence is in the United States. (Emphasis added) Such borrowers shall not be deemed to have made an inaccurate certification of eligibility solely on that basis. Under no circumstances may PPP funds be used to support non-U.S. workers or operations. This Interim Final Rule makes clear that, to calculate the number of employees for purposes of determining a borrower’s eligibility for the PPP, the borrower must include all employees of BOTH its domestic and its foreign affiliates. As a result, borrowers who applied for a PPP loan prior to May 5, 2020 and based their employee headcount eligibility only on employees employed by their domestic affiliates, not their foreign affiliates, this new guidance provides assurance that the borrower will not be found to have made an inaccurate certification of eligibility solely on that basis. Finally, this Interim Final Rule reminds borrowers that PPP loan proceeds may only be used for U.S. workers and operations. THOMAS BALMAT T. 303.295.8357 Send Email SBA Extends Safe Harbor Period to Repay Paycheck Protection Program Loans Without Certification Risk Last updated 5.6.2020 As we have previously observed, on April 23, 2020, the U.S. Small Business Administration (SBA) issued guidance—and a warning—to Paycheck Protection Program (PPP) loan applicants and borrowers related to the certification of need required by the CARES Act in what has been known as FAQ 31: 31.Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan? Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. (Emphasis added.) Within days, the SBA issued further guidance in FAQ 37 that “businesses owned by private companies with adequate sources of liquidity to support the business’s ongoing operations” may not qualify for a PPP loan and may need to repay the loan by the expiration of the “safe harbor” period on May 7, 2020 or may need to refuse an approved loan which has not yet been disbursed. Late on May 5—only two days before the deadline—the SBA extended the safe harbor period until May 14, and promised additional guidance: 43. Question: FAQ #31 reminded borrowers to review carefully the required certification on the Borrower Application Form that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA guidance and regulations provide that any borrower who applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. Is it possible for a borrower to obtain an extension of the May 7, 2020 repayment date?

Answer: SBA is extending the repayment date for this safe harbor to May 14, 2020. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor. SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020. In light of the extended safe harbor period and the promised additional guidance, applicants and borrowers may wish to consider deferring any final decision to repay, or not accept, a PPP loan until the SBA’s position becomes clear in the coming days. TIM CRISP T. 505.954.7285 Send Email Paycheck Protection Program Loan Forgiveness Requirements Last updated 5.4.2020 Now that many small businesses (and independent contractors) have applied for and received loan proceeds under the Paycheck Protection Program (PPP), loan recipients need to ensure that proceeds are used for allowable purposes specified in the CARES Act and comply with guidelines that maximize the potential for loan forgiveness. The Treasury Department and the Small Business Administration (SBA) have stated that additional loan forgiveness guidance will be announced. Because the rules and instructions for forgiveness are likely to evolve in the coming weeks, the information below should be used as tentative guidance for planning to optimize your loan forgiveness. Basics of PPP loans PPP loans are a forgivable loan for small businesses designed to incentivize businesses to retain their workers. The loan is administered and guaranteed by the SBA). Loan proceeds must be used to cover payroll costs, mortgage interest, rent, and utility costs over the 8-week period after the loan is made. Allocate your loan proceeds appropriately over the 8-week period

  • At least 75% of loan proceeds must be used for payroll costs and the remaining 25% of loan proceeds can be used for other allowable uses (i.e., mortgage interest, rent, utility costs).
  • Remember, payrolls costs consist of compensation to employees (whose principal place of residence is in the U.S.) in the form of
    • salary, wages, commissions, or similar compensation;
    • cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips);
    • payment for vacation, parental, family, medical, or sick leave;
    • allowance for separation or dismissal;
    • payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees;
    • payment of state and local taxes assessed on compensation of employees; and
    • for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.
Maintain your full-time employees If the average number of full-time employees per month during the 8-week period is lower than the average monthly full-time employees during February 15, 2019 to June 30, 2019, or the average number of full-time employees per month during the period from January 1, 2020 to February 29, 2020, then the loan forgiveness amount will be reduced by the ratio of full-time employees during the 8-week period to the number of full-time employees during the 2019 or 2020 comparison periods. Note: You can choose either time period to calculate the average, but you will be better served by using the period with fewer full-time employees. Maintain salaries and wages paid to specific employees
  • Loan forgiveness will also be reduced if the reduction of wages paid to any employee during the 8-week period is in excess of 25% of the wages paid during the most recent full quarter during which the employee was employed before the 8-week period.
  • Employees who during any single pay period in 2019 received wages at an annualized rate in excess of $100,000 can be excluded from this reduction calculation.
Avoid a reduction in loan forgiveness.
  • The reductions described above can be avoided by:
    • eliminating the full-time employee reduction by no later than June 30, 2020; or
    • eliminating the wage reduction for the specified employee by no later than June 30, 2020.
  • The SBA has further specified in FAQ #40 that a business’s loan forgiveness amount will not be reduced if the business laid off a full-time employee and offered to rehire the same employee (for the same salary/wages and same number of hours), but the employee declined the offer for rehire.
THOMAS BALMAT T. 303.295.8357 Send Email PPP Loan Eligibility and Repayment Considerations Last updated 5.4.2020 On April 23, 2020, the SBA by way of FAQ #31, provided meaningful direction concerning the PPP loan certification as to "necessity." The SBA clarified that PPP "borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business" (emphasis added). FAQ #31 goes on to state that "it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification [as to necessity] in good faith." Businesses have until May 7, 2020 to return the loan proceeds without penalty. Not mentioned is how private companies or family run businesses should assess their access to capital and resulting eligibility for PPP loans. So, how should private businesses respond to FAQ #31? First, a business should confirm that the loan proceeds can and will be used for the allowable uses. There is general agreement that protection of jobs is a key principle of the PPP loan program. Directing the proceeds towards payroll costs as a way to maintain employee headcount and salaries/wages should be the driving force for obtaining the loan. Second, a business should determine whether it has alternative sources of funding. FAQ #31 makes clear that public companies with access to capital markets probably don’t qualify for a PPP loan. For private companies, the “alternative funding” analysis is less clear and requires assessing the following:
  1. the current financial stability of the business including cash on hand, revenue projections, and the potential for payroll shortfall over the next several months;
  2. the timing to obtain alternative funding compared to immediate cash needs and the potential in the interim for employee and/or salary cutbacks;
  3. the repayment terms or dilutive effect of alternative sources of funding and how this might affect the business going forward; and
  4. whether the industry sector or the geographic location of the business is likely to rebound sooner or much later than others.
The above information should be collected and readily available should the business need to support its application decision. Third, the business should assess its sensitivity to public scrutiny. Is the client base of the business largely consumers, private companies, or government contracts? How would a government audit impact the business going forward? Secretary Mnuchin announced that the SBA will conduct audits of all loans over $2 million before loan forgiveness is confirmed. Random audits of smaller loan amounts should also be expected. Finally, the business should determine whether to return the PPP loan proceeds by May 7. The SBA has created an amnesty period whereby any business that repays the loan in full by May 7, 2020, will be deemed to have made its "necessity" certification in good faith. Since PPP loans are being administered by individual lenders, the bank or credit union responsible for the loan should have a process in place for returning the proceeds. THOMAS BALMAT T. 303.295.8357 Send Email Tax Consequences of PPP Loan Forgiveness Last updated 5.1.2020 The CARES Act expressly provides that the amount of any PPP loan forgiveness is excluded from the PPP recipient’s gross income. However, the CARES Act had been silent on the issue of tax deductions for the expenses associated with the loan forgiveness. In Notice 2020-32, issued April 30, 2020, the IRS addressed the tax deductibility of certain expenses. Specifically, small businesses whose PPP loans are forgiven may not deduct the payroll costs, rents, and other expenses that resulted in the loan forgiveness. This tax treatment is designed to prevent a double tax benefit because the amount of the loan forgiveness is not taxable to the PPP recipient. As a result, the PPP program is a wash for tax purposes. However, it also diminishes the potential value of the PPP program. Given that the program is designed to maximize liquidity for small businesses, it is likely that Congress will step in to expressly permit the tax deductions. Senator Grassley, the Chair of the Senate Finance Committee, has stated that the Notice is contrary to legislative intent and Representative Neal, the House Ways and Means Committee Chairman, has indicated that the next round of relief legislation will address the issue. Additional Funding for Paycheck Protection Program and Economic Injury Disaster Relief Loans Last updated 4.27.2020 On Friday, April 24, 2020, President Trump signed the Paycheck Protection Program and Health Care Enhancement Act (the “PPP & HCE Act”), which includes provisions for $310 billion of additional funding to replenish the Paycheck Protection Program first introduced under the CARES Act and $60 billion in additional funding for emergency disaster loans and grants. Under the PPP & HCE Act, $60 billion of the additional $310 billion to replenish the Paycheck Protection Program is required to be set aside for loans by smaller financial institutions. Specifically, $30 billion of this funding is set aside for loans made by federal and state-chartered banks and credit unions with consolidated assets between $10 billion and $50 billion, and $30 billion is set aside for loans made by community financial institutions, insured depository institutions and credit unions with consolidated assets under $10 billion. This $60 billion specifically set aside for small and mid-sized financial institutions should allow these lenders to better participate in the Paycheck Protection Program, which in turn should help small businesses most likely to rely on their relationships with local lenders. The PPP & HCE Act also includes $60 billion for the SBA’s economic injury disaster loans (“EIDL”) program. Of this amount, $10 billion is for emergency grants of up to $10,000, and $50 billion is to fund loans under the EIDL. The PPP & HCE Act creates new eligibility under the EIDL for agricultural enterprises (as defined in section 18(b) of the Small Business Act (15 U.S.C. 647(b)) with not more than 500 employees. The PPP & HCE Act does not alter the application requirements for either the Paycheck Protection Program or the EIDL. The SBA is expected to resume accepting applications for these loans from participating lenders on Monday, April 27. As before, these loans and the funding being made available will be on a first-come, first served basis, meaning the time to apply is limited. Shifting Sands: SBA Issues New Guidance on Paycheck Protection Program Loans Last updated 4.24.2020 Many businesses have followed with interest the news of public companies like Shake Shack and Ruth’s Chris Steak House taking out multi-million-dollar Paycheck Protection Program (PPP) loans guaranteed by the U.S. Small Business Administration (SBA), and Shake Shack’s later promise to promptly return the loan proceeds. In the aftermath of this news, smaller, privately held businesses may now be in a much more untenable position as PPP borrowers. On April 23, 2020—a week after the first tranche of $349 billion in PPP loans were fully allocated—the SBA issued additional guidance on a vague certification required by the CARES Act to be made by borrowers: Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan? Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. For borrowers with good current liquidity and who are owned or controlled by large public companies, such as Shake Shack and Ruth’s Chris Steak House, this provides meaningful direction: they are not eligible, but will face no consequences for false claims if the loans are repaid by May 7. However, the SBA’s guidance is much less clear for many other companies, such as privately held companies who have not yet suffered significant losses of liquidity, and portfolio companies of private equity sponsors and venture capital funds. In fact, the latest guidance may make these borrowers significantly more uneasy about continuing as borrowers under the program or accepting their allocations. The SBA is now requiring applicants and borrowers, after the fact, to reconsider whether the certification in their application is correct; and for the first time explicitly requires them to take into account not only their current business activities, but other sources of liquidity from revenues and lines of credit. Risk averse companies may now view the PPP loans as loans of last resort. The CARES Act suspended the previous requirement for Section 7(a) loans that credit cannot be obtained elsewhere. By effectively requiring businesses to demonstrate they are unable to obtain needed liquidity elsewhere, the Guidance creates the perverse effect of weakening that intended relief. This Guidance will likely lead many companies whose condition and prospects have worsened (but are not yet dire) to reluctantly consider repaying the loans in the next two weeks, frustrating the goals set by Congress, and possibly putting more jobs and paychecks at risk. These businesses may not be in Shake Shacks’ position, but their brightened short-term prospects (and those of their current, laid off and furloughed employees) may now have been inadvertently shaken. TIM CRISP T. 505.954.7285 Send Email Paycheck Protection Program Affiliate Rules Last updated 4.9.2020 On the heels of the Paycheck Protection Program (PPP) Interim Final Rule issued on April 2, 2020, the Treasury Department and the Small Business Administration (SBA) released additional PPP guidelines in the form of FAQs on April 6, 2020. The additional guidance helps clarify key provisions of the CARES Act surrounding eligibility requirements for a PPP loan and the applicable SBA affiliation rules. Three Methods of Eligibility
  • 500 or fewer employees, including employees of affiliates.
  • Meeting the SBA size standard corresponding to a business’s primary industry. A size standard is stated in number of employees or average annual receipts (depending on the business’s industry) and represents the largest size that a business (including subsidiaries and affiliates) may be to remain classified as a small business for the PPP loan.
  • Meeting both tests in the SBA’s “Alternative Size Standard” as of March 27, 2020.
    • Maximum tangible net worth of the business is not more than $15 million; and
    • Average net income after federal income taxes (excluding carry-over losses) for the two fiscal years before the date of the application is not more than $5 million.
SBA Affiliation Rules To determine a business’s eligibility for a PPP loan using the employee headcount or average annual revenue tests, a business must count both its average annual receipts or employees (as the case may be) and those of all of its domestic and foreign affiliates. Generally, affiliation exists when one business controls or has the power to control another business or when a third-party business controls or has the power to control both businesses. Control arises through ownership, management, or other relationships between the businesses. Some examples of affiliation include:
  • Affiliation through ownership. A business is an affiliate of an entity that owns or has the power to control more than 50 percent of the concern’s voting equity. In general, options and warrants exercisable for, and debt instruments convertible into, voting equity will be counted as though they were exercised or converted. Control can occur through outright ownership or the right to vote the equity, such as through a voting trust. Affiliation can also arise from negative controls, including where a minority shareholder or LLC member has the ability to prevent a quorum or block action by the board of directors, shareholders, managers or members. If a minority shareholder or member gives up those rights, the minority shareholder/member would not be an affiliate.
  • Affiliation based on management. Affiliation arises where the CEO, President, senior officers, partners, or managing members of the business also control the management of one or more other concerns. It also arises where an individual or business controls the board of the borrower and the board of another business.
  • Affiliation based on identity of interest. Two or more individuals or businesses with an identity of interest may be affiliates. Individuals or businesses with substantially identical business or economic interests may be affiliates. Examples include close relatives who operate businesses in similar industries in the same area, common investments, and economic dependence. The SBA has previously held such identity of interest often exists between a business owner and their spouse, children, parents and in-laws.
  • Other affiliation rules apply, including exceptions to affiliation coverage.
If your company is a parent or a subsidiary of another company, or if its management controls other entities, then your company likely has affiliates. This means that in addition to counting the number of employees or annual receipts in your business, you also need to count the employees or annual receipts of each affiliate. PPP eligibility and affiliation rules can be complex. Paycheck Protection Program: Critical Changes Last updated 4.7.2020

On April 2, 2020, the Treasury Department and Small Business Administration (SBA) unveiled an interim final rule for the Paycheck Protection Program (PPP) and a revised application form. 

The terms of the loans have changed to 1% per annum (from 0.5%) and the amortization of the loans changed to two years (from up to 10 years in the CARES Act). Additionally, payments to independent contractors are not permitted within “payroll costs” for purposes of loan sizing, permitted use of loan proceeds, and measurement of loan forgiveness. 
 
Most importantly, in the revised application, the SBA is now requiring applicants to certify under penalties of perjury that they qualify for the loans, and have fewer than 501 employees after application of the SBA’s existing affiliation rules, unless otherwise exempted from the requirement or subject to a different requirement.
 
Below is the exact language each applicant is required to certify when applying: 
  • The Applicant is eligible to receive a loan under the rules in effect at the time this application is submitted that have been issued by the Small Business Administration (SBA) implementing the Paycheck Protection Program under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (the Paycheck Protection Program Rule).
  • The Applicant (1) is an independent contractor, eligible self-employed individual, or sole proprietor or (2) employs no more than the greater of 500 or employees or, if applicable, the size standard in number of employees established by the SBA in 13 C.F.R. 121.201 for the Applicant’s industry.
  • I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000. 
These updates significantly change the risk calculus for some businesses who have affiliated businesses through ownership, management, or negative control rights. The rules also make clear that funds will be disbursed on a first come, first served basis until the appropriated funds are depleted. Businesses should factor in this guidance in determining whether and when to apply for the programs. Also, as demonstrated over the past week, the guidance is somewhat fluid. Businesses should monitor developments as they move forward. THOMAS BALMAT T. 303.295.8357 Send Email Paycheck Protection Program Loan Last updated 4.9.2020 The Paycheck Protection Program loan is a forgivable loan for small businesses designed to incentivize businesses to retain their workers. The loan is administered by the Small Business Administration (SBA) and guaranteed by the SBA. Loan Forgiveness Criteria
  • Loan proceeds must be used to cover payroll costs, mortgage interest, rent, and utility costs over the 8-week period after the loan is made.
  • Loan forgiveness is be reduced if you decrease the number of full-time employees.
  • Employee salary and wages must be maintained. Loan forgiveness will also be reduced if salaries and wages are decreased by more than 25% for any employee that made less than $100,000 annualized in 2019.
  • By June 30, 2020 the full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020 must be restored.
Maximum Loan Amount
  • The lesser of $10 million or 2.5 times the average monthly payroll in the 12 months preceding the loan. For seasonal employers, the 12-week period beginning February 15, 2019, or from March 1, 2019 to June 30, 2019. For new employers, January 1, 2020 to February 29, 2020.
Eligibility Any business concern, nonprofit organization, veterans organization or Tribal business that employ less than 500 employees (including employees of affiliates), or the size standard set by the SBA, as well as sole proprietorships, independent contractors and eligible self-employed individuals. For purposes of determining the number of employees, the term “employee” includes those employed on a full-time, part-time, or other basis. Also applies to accommodation and food services businesses with 500 or fewer employees per physical location. All businesses must have been operational on February 15, 2020. Covered Loan Period February 15, 2020 to June 30, 2020. Use of Loan Proceeds Loan proceeds may be used to pay for payroll costs, costs related to the continuation of group health care benefits, mortgage payments, rent, utilities, and interest on any other debt obligations that were incurred before February 15, 2020. Payroll costs include:
  • Salary, wages, commissions, or tips (capped at $100,000 on annualized basis for each employee)
  • Benefits costs including, vacation, parental, family, medical, or sick leave; group health care, including insurance premiums; retirement benefit payments, and separation or dismissal allowances
  • State and local taxes assessed on compensation
  • Excludes payments to independent contractors and qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act. FFCRA tax credit information can be found here.
Certification
  • When applying, the applicant must certify:
  • The Applicant is eligible to receive a loan under the rules in effect at the time this application is submitted that have been issued by the SBA and at the time the loan is funded.
  • The Applicant (1) is an independent contractor, eligible self-employed individual, or sole proprietor or (2) employs no more than the greater of 500 or employees or, if applicable, the size standard in number of employees established by the SBA in 13 C.F.R. 121.201 for the Applicant’s industry.
  • That the information provided in the application and the information provided in all supporting documents and forms is true and accurate in all material respects.
  • To an understanding that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.
Loan Particulars (for that portion of the loan not forgiven)
  • Payment of principal, interest, and fees deferred for 6 months - 1 year.
  • Loan is amortized over 2 years at a 1.00% fixed rate.
  • No prepayment penalty, personal guaranty or collateral required.
  • Unless the loan proceeds are used for a non-authorized purpose, the SBA has no recourse to the shareholders, members or partners of the business for nonpayment of the loan.
Applying for a PPP Loan Eligible businesses can apply for the PPP loan at any lending institution that is approved to participate in the program through the existing U.S. Small Business Administration SBA 7(a) lending program. Applicants are eligible to apply for the loan until June 30, 2020. SBA Express Loan An SBA Express Loan is a financing option that was available to small and medium size business owners prior to enactment of the CARES Act. The CARES Act simply revises the loan terms so that through December 31, 2020, the maximum amount that may be borrowed is increased from $350,000 to $1,000,000. Economic Injury Disaster Loan The Economic Injury Disaster Loan (EIDL) expands the existing EIDL loan program under the SBA. Maximum Loan Amount Capped at $2 million. Eligibility “Small business concerns” who are currently eligible under original EIDL program, any business, cooperative, Employee Stock Ownership Plan (ESOP) or tribal business concern with fewer than 500 employees, private nonprofit organizations, small agricultural cooperatives, and individuals who operate as a sole proprietorship or an independent contractor with or without employees. Covered Loan Period January 31, 2020 to December 31, 2020 Use of Loan Proceeds Loan proceeds can be used to provide sick leave to employees unable to work due to COVID-19, payroll, increased material costs due to interrupted supply chains, rent or mortgage payments, repaying obligations that cannot be met due to revenue losses. Emergency Advance Borrowers who need an immediate influx of funds may request an emergency advance up to $10,000 within three days after the SBA receives the application. If the application is denied, the borrower is not required to repay the $10,000 advance. Loan Particulars
  • No personal guarantee required on advances and loans of not more than $200,000.
  • No requirement that the applicant be in business for the one-year period before the disaster, so long as the business was in operation on January 31, 2020.
  • No requirement that the applicant be unable to obtain credit elsewhere.
  • Applicants may be approved based solely on credit score, and no tax return required.
Applying for EIDL Loan Apply here. Frequently Asked Questions May businesses borrow under both loan programs? Yes. Borrowers may apply for an EIDL loan in addition to a loan under the Paycheck Protection Program, provided the loans are not used for the same purpose. What if I have an existing SBA loan? Will it be impacted by the CARES Act? Yes. For any SBA-guaranteed Section 7(a) loans (other than PPP Loans) in regular servicing status made before the CARES Act was enacted, or during the six-month period after enactment, the SBA will pay all scheduled principal, interest and fees due during such period. Your payments will resume after the six- month period ends, but you will not be responsible to the lender or the SBA for the principal, interest or fees scheduled to be paid during the subsidy period and paid by the SBA. I own a large or medium-sized business such that I don’t qualify for the stimulus loans described above. Does the CARES Act provide assistance for me? As the owner of a large business (a business with greater than 10,000 employees) or a medium-sized business (501-10,000 employees), your business could qualify for Economic Stabilization and Assistance Loans or loan guarantees. These are loans or loan guarantees made or facilitated, or debt securities purchased by the Department of the Treasury to support passenger and cargo air carriers as well as other United States businesses that have not otherwise received adequate economic relief through loans and loan guarantees under the CARES Act. For a large business, qualifying for this type of loan requires a determination by the Treasury Department that, among other things: (a) credit from other sources is not reasonably available to the applicant; (b) the loan or loan guaranty is sufficiently secured or is made at risk-appropriate, market rates; (c) the duration of the loan or loan guarantee is as short as practicable and in no event longer than five (5) years; (d) the applicant will not use the funds to repurchase equity investment while the loan or loan guaranty is outstanding; and (e) the business maintains its existing employment levels as of March 13, 2020. For mid-sized businesses, the CARES Act sets up a program for the Department of the Treasury to provide financing to banks and other lenders to then make direct loans to eligible mid-sized businesses and nonprofit organizations. The interest rate is capped at 2% per annum. For the first six months after disbursement (or longer if determined by the Treasury Department), no principal or interest is due and payable. A medium-sized business applicant must make good faith certifications that:
  1. uncertain economic conditions make the loan necessary to support the recipient’s ongoing operations;
  2. loan proceeds will be used to retain at least 90% of the recipient’s workforce, at full compensation and benefits, through September 30, 2020;
  3. the recipient intends to restore at least 90% of its workforce that existed as of February 1, 2020, and to restore all compensation and benefits to its workers no later than four months after the termination of the COVID-19 emergency declared by the Department of Health and Human Services;
  4. the recipient is domiciled in the United States with significant operations and employees in the United States;
  5. the recipient is not a debtor in a bankruptcy proceeding;
  6. the recipient is incorporated or organized within the United States and has significant operations in and a majority of its employees in the United States;
  7. the recipient will not pay dividends to its stockholders (or, presumably, distributions to members or partners) or repurchase any equity security of the recipient or its parent that is listed on a securities exchange while the loan is outstanding, except to the extent required under a contractual obligation in effect before the CARES Act is enacted;
  8. the recipient will not outsource or offshore jobs for the term of the loan and for two years after completing repayment of the loan;
  9. the recipient will not abrogate existing collective bargaining agreements for the term of the loan and for two years after completing repayment; and the recipient will remain neutral in any union organizing effort for the term of the loan.
SUSIE BRANCACCIO TIMOTHY CRISP T. 505.954.7285 Send Email LAURIE ROGERS T. 307.778.4235 Send Email



Relief for Large Businesses

Economic Stabilization Loans/Troubled Debt/Transportation Industry Last updated 3.27.2020 Large to medium sized businesses that do not qualify for SBA or EIDL loans may qualify for Economic Stabilization and Assistance Loans or loan guarantees, subject to certain terms and restrictions. Large businesses also may also be eligible for debt restructuring through their bank. Economic Stabilization and Assistance Loans Title IV of the CARES Act authorizes $500 billion in liquidity loans for eligible businesses who have not otherwise received funding under the Act, with specific funding allocated for air carriers. Recipients of liquidity loans are required to maintain employment levels as of March 24, 2020 until September 30, 2020 “to the extent practicable,” cannot engage in stock buybacks or pay dividends during the pendency of the loan, and are subject to compensation limitations, among other things. In contrast to the payroll support loans, loan forgiveness is not available for liquidity loans under Title IV. Troubled Debt Restructurings Allows banks to renegotiate loan terms with coronavirus impacted borrowers (companies and individuals) without having to hold extra capital as long as the new terms are needed as a result of coronavirus impacts. Transportation The Act includes funding and financing for airlines and aviation businesses as well as grants for airports, public transit and Amtrak. The bill specifically authorizes $25 billion in loans and loan guarantees for passenger airlines, repair stations and ticket agents and $4 billion to cargo airlines. The bill also provides $32 billion in grants to pay wages, salaries and benefits of employees with $25 billion available for passenger airlines, $4 billion for cargo airlines and $3 billion for airline contractors. Grants are based on the wages, salaries and benefits that employees received from April 1 to September 30, 2019. A recipient also must agree to certain restrictions on compensation and must agree that before September 30, 2020, they will not conduct furloughs, reduce pay rates, buy back stock or pay dividends. The carriers are also required to continue service to any point served before March 1, 2020 to the extent practicable. JOANNA DEWALD T. 307.778.4232 Send Email



Tax Relief

Payroll Tax and Corporate Tax Last updated 5.6.2020 The CARES Act provides additional payroll tax credits, suspends certain excise taxes, and modifies certain provisions of the 2017 Tax Cuts and Jobs Act (“TCJA”). Each of the provisions provides relief designed to increase cash flow and liquidity to help businesses weather the pandemic. Payroll Tax Relief In addition to providing for an advance of the FFCRA payroll tax credit for emergency paid leave, the CARES Act also creates an employee retention credit for employers who have been forced to close or suspend their operations. Employee Retention Credit The employee retention credit is available to qualified employers for 50% of qualified wages paid between March 31, 2020 and December 31, 2020 (up to $10,000 in wages) per employee. An employer is eligible for the credit if the employer:

  • Closes or partially suspends its operations because of COVID-19 related orders
  • Experiences a 50% decline in gross receipts as compared to the same quarter last year
Employers who have received a Payroll Protection Loan are not eligible for the ERC. For employers with more than 100 full-time employees, eligible wages are those wages paid to employees who are not providing services for COVID-19 related reasons. For employers with 100 or fewer full-time employees, all wages paid will qualify for the credit whether the employer remains open for business or subject to a COVID-19 order. The IRS has released FAQs addressing general items as well as providing specific guidance on several hot topics, including: Payment Deferral for Employer Payroll Taxes The Act permits employers to delay payment of the employer payroll tax due for the periods between March 27 and December 31, 2020. Any amount due after taking into account credits available under FFCRA and the CARES Act, will now be due 50% on December 31, 2021 with the remaining amounts due on December 31, 2022. Employers who receive loan forgiveness under the CARES Act are not eligible for the payment deferral – however, a PPP recipient may defer deposit and payment of the employer payroll tax through the date the lender issues a loan forgiveness decision. The IRS has issued FAQs providing additional guidance for the deferral. Corporate Income Tax Relief The CARES Act lifts some of the restrictions that had been imposed by the TCJA. These measures are designed for businesses to seek refunds for losses and prior credits, thereby increasing cash flow. Eligible taxpayers should review the impact of these provisions and consider filing amended returns and/or refund claims. The IRS has released guidance with procedures for filing refund claims arising from the CARES Act provisions, discussed below. Temporary Lift of Corporate NOL Limitations & 5-year Carryback The Act rolls back the limitations on net operating loss carryovers for losses earned prior to 2021 and permits a 5-year carryback period of NOLs earned in 2018, 2019, or 2020. Taxpayers that had losses in 2018 and 2019 should consider filing carryback claims quickly and be prepared to file carryback claims in Q1 2021 for any losses for the 2020 tax period. How to File a Carryback Claim To facilitate refunds resulting from the CARES Act carryback provisions, Notice 2020-26, issued on April 9, 2020, provides grants a six-month extension to file a tentative claim for carryback refund for taxable years arising during calendar year 2018 and ending on or before June 30, 2019. Absent this guidance, the deadline for filing such claim had expired December 31, 2019. Taxpayers now have until June 30, 2020 to file a Form 1139 (corporations) or a Form 1045 (individuals, trusts, or estates). The IRS has issued guidance that a carryback claims should be submitted via fax: Form 1139 should faxed to 844-249-6236 and Form 1045 should be faxed to 844-249-6237. Note that the fax filing is only for claims for refund related to the CARES Act NOL carryback or AMT credit provisions. For example, quick refund claims for overpayments of estimated tax (Form 4466) should be filed under existing procedures. Elections to Waive or Limit Carryback Rev. Proc. 2020-24, issued April 9, 2020, provides procedures for taxpayers who prefer to elect to waive or limit the new five-year carryback provisions for losses arising in the 2018-2020 tax years. An election to waive a carryback for NOLs arising in the tax years beginning in 2018 or 2019 must be made no later than the (extended) due date for filing the taxpayers first income tax return for the first tax year ending March 27, 2020. For NOLs arising in tax years beginning after December 31, 2019 but before January 1, 2021, the election must be made by the due date for the income tax return for the tax year in which the NOL arises. A similar procedure applies to elections to exclude from the carryback period a year with a Section 965 inclusion. The election must be made by the due date for the income tax return for the tax year in which the NOL arises. However, the statement making the election must be included on the earlier filed of the tax return for the year in which the NOL arises, a Form 1139 or Form 1045 (as applicable), or an amended return applying the NOL to the earliest tax year in the carryback period. Immediate Refund of AMT Credits The TCJA eliminated the corporate alternative minimum tax (“AMT”) but permitted a credit to be taken on a taxpayer’s 2018-2021 returns. The AMT credits are now fully refundable in the 2018 tax year. Taxpayers may file a tentative claim for refund for these amounts. Treasury has been directed to process any such refund claims within 90 days. Like the NOL carryback claims, quick refund claims for AMT credits submitted on a Form 1139 should be faxed to 844-249-6236. Other Income Tax Relief Losses for Non-Corporate Businesses The Act repeals excess loss limitation rules with respect to business losses arising in 2018, 2019, and 2020. Specifically, pass-through businesses and sole proprietors, including farms, will now be able to take losses for these tax years even if their losses exceed $250,000. Temporary Lift of Interest Limitations The limitations on interest deductibility have been increased for the 2019 and 2020 tax years from 30% to 50% of EBITDA. In addition, a taxpayer may choose to use 2019 adjusted taxable income instead of 2020 when computing its limitation for the 2020 taxable year. (For partnerships, the increased limitation applies only to taxable years beginning in 2020, although special rules apply for taxable years beginning in 2019.) The IRS has addressed situations where taxpayers would like to make a late “electing real property trade or business” (ERPTB) election or electing farming business (EFB) election or would like to withdraw a previously made election. Specifically, Rev. Proc. 2020-22, issued April 10, 2020, allows a taxpayer to make a late election or withdraw a prior election by filing an amended tax return or, for a taxpayer classified as a partnership, an administrative adjustment request (AAR) or amended IRS Form 1065. Rev. Proc. 2020-22 also explains how to make various elections regarding the application of the new business interest limitations. Expensing for Qualified Improvement Property The TCJA unintentionally classified certain “qualified improvement property” as nonresidential real property, which does not qualify for bonus depreciation. The CARES Act includes a long-awaited fix to the TCJA by classifying “qualified improvement property” as 15-year property. As a result, qualified improvement property placed in service any time between September 27, 2017 and December 31, 2022 now is eligible for 100% bonus depreciation. Qualified improvement property includes interior improvements to nonresidential real property (but does not include enlargements of the building, any elevator or escalator, or improvements to the internal structural framework of the building). In Rev. Proc. 2020-25, issued April 17, 2020, the IRS outlined the procedures for to take advantage of the new QIP rules by changing their method of depreciation under Section 168(e). Taxpayers may elect to take 100% bonus depreciation on QIP placed in service after December 31, 2017 by filing an amended return, an administrative adjustment request (AAR) under Sec. 6227, or a Form 3115, Application for Change in Accounting Method. In addition, the guidance tells taxpayers how to make various late elections, or revoke or withdraw existing elections, with respect to bonus depreciation and the alternative depreciation system. Note that the procedures outlined in Rev. Proc. 2020-25 are not permitted for taxpayers that make a late ERTB or EFB election, or withdraw an election, for the taxable year in which the QIP is placed in service. These taxpayers will follow the procedures outlined in Rev. Proc. 2020-22, described above. KAREN DEAN T. 303.295.8550 Send Email DIANA MYERS T. 307.734.3526 Send Email



Unemployment Insurance Relief

Last updated 3.27.2020 The CARES Act establishes a temporary pandemic unemployment program for individuals who are ineligible for regular compensation or extended benefits. The Act significantly expands the number of individuals who are eligible for unemployment benefits, including those who are not currently eligible for such benefits under state programs. The new benefits will be available from January 27, 2020 to December 31, 2020 and the CARES Act provides funding to pay for the cost of the first week of unemployment for those states that waive the one week waiting period. Under the Act, unemployment insurance benefits for all covered individuals will increase by an additional $600 per week, this additional amount is fully covered by the federal government and is available from the date that the state enters into an agreement with the Secretary of Labor until July 31, 2020. A qualified individual will receive the additional $600 weekly payment regardless of whether the amount provides the individual more than he or she was earning while employed. The Act also extends the duration of state unemployment insurance benefits. The Act provides 13 additional weeks (in addition to the usual 26 weeks), thus extending the duration of benefits to 39 weeks. The Act also creates a Short Time Compensation Program that provides compensation to employees who are not laid off but have suffered a reduction in pay. This program is available in states that already have this program in place. The Short Time Compensation Program will allow eligible employees to receive partial unemployment compensation benefits for lost hours. KARINA SARGSIAN T. 801.799.5741 Send Email



Federal Reserve Loan Programs

Last updated 5.6.2020 Federal Reserve’s Main Street Lending Program offers Liquidity to Small and Medium-Sized Businesses The Board of Governors of the Federal Reserve System (the Fed) recently released terms for its Main Street Lending Program (MSLP), a program authorized under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and intended to facilitate lending by Eligible Lenders to small and medium-sized businesses, including small businesses which have received or will receive Paycheck Protection Program loans. The MSLP terms differ significantly from proposed terms circulated by the Fed for comment in April, and they include significant expansions in the scope of the program and eligibility of borrowers. The MSLP will consist of three different programs:

  • The Main Street New Loan Facility (New Loan Facility);
  • The Main Street Priority Loan Facility (Priority Loan Facility), for borrowers with higher leverage; and
  • The Main Street Expanded Loan Facility (Expanded Loan Facility), which will permit a borrower’s existing term loan or revolving credit facility to be “upsized” or increased (such upsized portion is referred to as the “upsize tranche”).
Who will be making and funding MSLP loans to businesses? Loans will be made by the following (Eligible Lenders): U.S. federally-insured banks, savings associations and credit unions; U.S. branches and agencies of foreign banks; U.S. bank holding companies; U.S. savings and loan holding companies; U.S. intermediate holding companies of foreign banking organizations; and U.S. subsidiaries of any of the foregoing. A special-purpose entity (SPE) funded by the Federal Reserve Bank of Boston will purchase participation interests of 95% of the face amount of New Loan Facility loans, 95% of the upsize tranche of Expanded Loan Facility Loan and 85% of the face amount of Priority Loan Facility loans. The remainder of the loans will be retained for the account of the lender. When will MSLP loans be made? As of this writing, MSLP loans are not yet being made, though banking industry sources expect that applications will be available and accepted and loans will be funded shortly. The SPE will cease purchasing participation interests in MSLP loans on September 30, 2020, so all MSLP loans must be made and funded by that date. What kinds of businesses are eligible to borrower MSLP loans? At least at the outset, the Fed is limiting MSLP loans to for-profit business entities, including corporations, limited liability companies, partnerships, associations, trusts, cooperatives, joint venture with no more than 49% participation by foreign business entities, and tribal business concerns. In the future, the Fed may, in its discretion, consider non-profit and other entities. In order to be eligible for a MSLP loan, a business entity must:
  • have been established before March 13, 2020;
  • either (i) have 15,000 or fewer employees or (ii) had 2019 annual revenues of $5 billion or less (the Fed has adopted the Small Business Administration’s affiliation rules for MSLP loan eligibility determinations, so employees or revenues of entities that control, are controlled by or are under common control with the business will be included in this calculation);
  • be created or organized in the United States or under U.S. law and have significant operations in, and a majority of its employees based in, the U.S.;
  • not participate in on of the other MSLP programs or the Fed’s Primary Market Corporate Credit Facility;
  • not have received specific support (other than Paycheck Protection Loans) pursuant to the Coronavirus Economic Stabilization Act of 2020, a subtitle of the CARES Act (including airline carriers, air cargo carriers, certain businesses supporting operations of airline and air cargo carriers, and businesses deemed critical to maintaining national security);
  • not be in a category of “ineligible businesses” (discussed in detail below);
  • have been in sound financial condition prior to the onset of the COVID-19 pandemic;
  • have had an internal risk rating assigned by its lender to any existing loan outstanding as of December 31, 2019, equivalent to a “pass” in the Federal Financial Institutions Examination Council’s (FFIEC) supervisory rating system.
At the current time, businesses with negative EBITDA in 2019 would be ineligible, although the Fed is considering modifying this restriction for borrowers with asset-based credit facilities. To be eligible for “upsizing” under the Expanded Loan Facility, the existing term loan or revolving credit facility must have been originated on or before April 24, 2020, and must have a remaining maturity of at least 18 months (including after giving effect to any extension of the maturity date at the time of upsizing). How are the MSLP loans structured? Maximum Loan Amount:
  • A New Loan Facility loan is limited to the lesser of (i) $25 million and (ii) an amount that, when added to the borrower’s existing outstanding and undrawn available debt, does not exceed four (4) times the borrower’s adjusted EBITDA for 2019.
  • A Priority Loan Facility loan is limited to the lesser of (i) $25 million and (ii) an amount that, when added to the borrower’s existing outstanding and undrawn available debt, does not exceed six (6) times the borrower’s adjusted EBITDA for 2019.
  • An Expanded Loan Facility loan is limited to the lesser of (i) $200 million, (ii) 35% of the borrower’s existing and undrawn available debt that is pari passu in priority with the Expanded Loan Facility loan and equivalent in secured status (i.e., secured or unsecured), or (iii) an amount that, when added to the borrower’s existing and undrawn available debt, does not exceed six (6) times the borrower’s adjusted EBITDA for 2019.
Minimum Loan Amount:
  • The minimum amount of a New Loan Facility loan or a Priority Loan Facility loan is $500,000.
  • The minimum amount of an Expanded Loan Facility loan is $10 million.
Interest Rate:
  • All MSLP loans accrue interest at an adjustable rate equal to the sum of one-month or three-month LIBOR plus 300 basis points. There is no difference in pricing based on the credit risk.
  • Interest payments are deferred for the first year after funding. Accrued interest will be capitalized at that point.
Fees:
  • At the lender’s discretion, an origination fee of up to 100 basis points of the principal amount of a New Loan Facility loan or a Priority Facility loan may be charged by the lender and is payable at the time of origination.
  • At the lender’s discretion, a fee of 75 basis points of the principal amount of an Expanded Loan Facility loan’s upsized tranche is payable at the time of upsizing. In addition, at the lender’s discretion, the lender may require the borrower to pass along the 75 basis points fee on the amount of the upsized tranche payable by the lender to the SPE at the time of upsizing.
Principal Repayments:
  • A New Loan Facility loan requires principal amortization of one-third at the end of the second year, one-third at the end of the third year, and one-third at the end of the fourth year.
  • A Priority Loan Facility loan or an Expanded Loan Facility loan requires principal amortization of 15% at the end of the second year, 15% at the end of the third year, and 70% at the end of the fourth year.
  • Prepayment of any MSLP loan is permitted at any time without penalty.
  • The loans’ maturity dates are four (4) years after funding.
  • Unlike the Small Business Administration’s Paycheck Protection Program loans, MSLP loans are with full recourse to the borrower and collateral (if any) and are not forgivable.
Collateral Security:
  • MSLP loans may be secured or unsecured, at the discretion of the lender.
Subordination:
  • A New Loan Facility loan must not at any time be contractually subordinated in priority (i.e., junior in priority in a borrower bankruptcy to other unsecured loans or debt) to any other loan or debt. However, a New Loan Facility loan can be a second lien loan, unsecured when the borrower has secured debt, or outstanding even while other secured or unsecured debt is incurred (so long as the new debt would not have higher contractual priority in bankruptcy).
  • A Priority Loan Facility loan and the upsized tranche portion of an Expanded Loan Facility loan must at all times be senior to or pari passu with, in terms of priority and security, the borrower’s other loans or debt, other than mortgage debt.
What certifications and covenants will my business be required to make?
  • The borrower must commit to refrain from making any optional payments or prepayments of the principal or interest on any other debt until the New Loan Facility loan or Priority Loan Facility loan, or the upsized tranche of the Expanded Loan Facility loan, is repaid in full. However, at the time of origination of a Priority Loan Facility Loan, a borrower may refinance existing debt owed to a lender who is not the MSLP lender.
  • The borrower must commit that it will not seek to cancel or reduce any of its committed lines of credit with any lender.
  • The borrower must certify that it has a reasonable basis to believe that, as of the date of origination of the MSLP loan and after giving effect to it, it has the ability to meet its financial obligations for at least the next ninety (90) days and does not expect to file for bankruptcy during that time period.
  • The borrower must certify that it is eligible to participate in the MSLP.
  • The borrower must commit to the following while the MSLP loan is outstanding and for twelve (12) months thereafter:
    • It will not repurchase an equity security that is listed on a national securities exchange of the business or any parent company of the business, except to the extent required under a contractual obligation that was in effect as of March 27, 2020.
    • It will not pay dividends (except distributions of a S-corporation or other tax pass-through entity that are reasonably required to cover its owners’ tax obligations in respect of the business’s earnings) or make other capital contributions with respect to the common stock of the business.
    • No officer or employee of the business whose total compensation exceeded $425,000 in calendar year 2019 (other than an employee whose compensation is determined through an existing collective bargaining agreement entered into before March 1, 2020) will receive from the business (A) total compensation which exceeds, during any 12 consecutive month period, the total compensation received by such officer or employee from the business in 2019, or (B) severance pay or other benefits upon termination of employment with the business which exceeds twice the maximum total compensation received by the officer or employee from the business in 2019.
    • No officer or employee of the business whose total compensation exceeded $3 million in calendar year 2019 may receive during any 12 consecutive month period total compensation in excess of the sum of (A) $3 million plus (B) 50% of the excess over $3 million of the total compensation received by such officer or employee from the business in calendar year 2019.
Other covenants and certifications may be required by the lender. What categories of businesses are ineligible to receive MSLP loans? The following are not eligible to receive MSLP loans:
  • financial businesses primarily engaged in the business of lending (such as banks, finance companies and factors);
  • most passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or used with loan proceeds;
  • life insurance companies;
  • businesses located in a foreign country;
  • pyramid sale distribution plans;
  • businesses engaged in any illegal activity;
  • private clubs and businesses which limit the number of memberships for reasons other than capacity;
  • government-owned entities (except businesses owned or controlled by a Native American tribe);
  • loan packagers earning more than one-third of their gross annual revenue from packaging SBA loans;
  • businesses with an officer, director, key employee or holder of more than 20% of the stock or debt of the business if any such person is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude;
  • businesses in which the lender, or any of the lender’s officers, directors, key employees or holders of more than 20% of its stock or debt, owns an equity interest;
  • businesses which (1) present live performances of a prurient sexual nature, or (2) derive directly or indirectly more than de minimis gross revenue through the sale of products or services, or the presentation of any depictions or displays of a prurient sexual nature;
  • businesses which have, or which are owned or controlled by a business which has, previously defaulted on a federal government loan or federal government-assisted financing which resulted in the government or any agency or department suffering a loss;
  • businesses primarily engaged in political or lobbying activities;
  • speculative businesses; or
  • businesses in which the President, the Vice President, the head of an executive branch department, or a member of Congress, or the spouse, child, son-in-law or daughter-in-law of any such person, directly or indirectly owns, controls or holds more that 20% (by vote or value) of the outstanding amount of any class of equity interest in the business.
How can my business apply for a MSLP loan? A business must submit to an Eligible Lender an application and any other documentation required by the Eligible Lender. Please contact an Eligible Lender to obtain information on whether it plans to participate in the MSLP, to request application materials and instructions, and to determine when it will commence accepting applications and funding loans. A lender will conduct an assessment of each potential borrower’s financial condition at the time of application. TIM CRISP T. 505.954.7285 Send Email The Main Street New Loan Facility and Main Street Expanded Loan Facility The Federal Reserve Board recently unveiled several programs under the CARES Act. The two primary programs, the Main Street New Loan Facility and Main Street Expanded Loan Facility, are available to privately held mid-sized and large businesses. We have highlighted the key differences between the two programs in bold. Main Street New Loan Facility (MSNLF) Appropriated Amount: $75 billion. Federal Reserve may expand appropriations in the MSNLF and MSELF to a combined balance of up to $600 billion. Availability Period: Through September 30, 2020. Eligible Borrowers: US-domiciled businesses with significant operations in and a majority of employees based in the US. Maximum employees: 10,000. Maximum 2019 revenues: $2.5 billion. Cannot participate in MSELF or Primary Market Corporate Credit Facility. Lenders: All FDIC-insured banks, savings banks, S&Ls (whether national or state charter), bank holding companies and S&L holding companies. A special purpose vehicle (SPV) created and funded by the Federal Reserve will purchase 95% participation interests in each loan. Type of Credit Facility: Term loan Maximum Loan Amount: Lesser of (i) $25 million or (ii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 EBITDA. Minimum loan amount: $1 million. Interest: SOFR plus 250-400 basis points (variable rate). Fees: Origination fee payable by borrower of 100 basis points of the loan amount. In addition, the lender may require the borrower to pay the lender’s facility fee to the SPV of 100 basis points of the principal amount of the SPV’s 95% participation in the loan. Amortization: Payments are deferred for the first year. Thereafter, payments of principal and interest are required over the next three years. Maturity Date: Four years from funding. Prepayment: Permitted without penalty Collateral: None. Strings attached:
  • Loan proceeds can’t be used to repay or refinance existing loans or lines of credit.
  • Borrower must commit to refrain from repaying debt with pari passu or junior priority, except mandatory principal payments, until the loan is paid in full.
  • Lender cannot cancel or reduce any existing lines of credit.
  • Borrower cannot seek to cancel or reduce any outstanding lines of credit with any lender.
  • Borrower must attest that it requires financing due to the exigent circumstances presented by the COVID-19 pandemic.
  • Borrower must attest that it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.
  • Borrower must attest that it meets the EBITDA leverage test (see above).
  • Borrower must attest that it will use loan proceeds to retain at least 90% of its workforce, at full compensation and benefits, until September 30, 2020.
  • Borrower must attest that it intends to restore not less than 90% of its workforce that existed as of February 1, 2020, and to restore all compensation and benefits to its employees no later than four months after the termination of the COVID-19 public health emergency declared by the Secretary of the Department of Health and Human Services.
  • While the loan is outstanding, Borrower cannot pay dividends with respect to its common stock or repurchase an equity security of itself or its parent company that is listed on a national securities exchange, except to the extent that it is required under a contractual obligation in effect on March 27, 2020.
  • During the term of the loan and for two years thereafter, Borrower must not outsource or offshore jobs or abrogate existing collective bargaining agreements.
  • During the term of the loan, Borrower must remain neutral in any union organizing efforts.
  • Loan is not available to entities in which the President, Vice President, any head of an executive branch department, member of Congress, or the spouse, child, son-in-law or daughter-in-law of any such person directly or indirectly holds a 20% or greater stake, by vote or value, of the outstanding amount of any class or series of equity in the business.
Main Street Expanded Loan Facility (MSELF) Appropriated Amount: $75 billion. Federal Reserve may expand appropriations in the MSNLF and MSELF to a combined balance of up to $600 billion. Availability Period: Through September 30, 2020. Eligible Borrowers: US-domiciled businesses with significant operations in and a majority of employees based in the US. Max. employees: 10,000. Max 2019 revenues: $2.5 billion. Cannot participate in MSNLF or Primary Market Corporate Credit Facility. Lenders: All FDIC-insured banks, savings banks, S&Ls (whether national or state charter), bank holding companies and S&L holding companies. A special purpose vehicle (SPV) created and funded by the Federal Reserve will purchase 95% participation interests in the upsized tranche of each loan. Type of Credit Facility: Term loan Maximum Loan Amount: Lesser of (i) $150 million, (ii) 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 EBITDA. Minimum loan amount: $1 million. Interest: SOFR plus 250-400 basis points (variable rate). Fees: Origination fee payable by borrower of 100 basis points of the upsized tranche amount. Amortization: Payments are deferred for the first year. Thereafter, payments of principal and interest are required over the next three years. Maturity Date: Four years from funding. Prepayment: Permitted without penalty Collateral: Loan may or may not be secured by collateral. Strings attached:
  • Loan proceeds can’t be used to repay or refinance existing loans or lines of credit.
  • Borrower must commit to refrain from repaying debt with pari passu or junior priority, except mandatory principal payments, until the loan is paid in full.
  • Lender cannot cancel or reduce any existing lines of credit.
  • Borrower cannot seek to cancel or reduce any outstanding lines of credit with any lender.
  • Borrower must attest that it requires financing due to the exigent circumstances presented by the COVID-19 pandemic.
  • Borrower must attest that it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.
  • Borrower must attest that it meets the EBITDA leverage test (see above).
  • Borrower must attest that it will use loan proceeds to retain at least 90% of its workforce, at full compensation and benefits, until September 30, 2020.
  • Borrower must attest that it intends to restore not less than 90% of its workforce that existed as of February 1, 2020, and to restore all compensation and benefits to its employees no later than four months after the termination of the COVID-19 public health emergency declared by the Secretary of the Department of Health and Human Services.
  • While the loan is outstanding, Borrower cannot pay dividends with respect to its common stock or repurchase an equity security of itself or its parent company that is listed on a national securities exchange, except to the extent that it is required under a contractual obligation in effect on March 27, 2020.
  • During the term of the loan and for two years thereafter, Borrower must not outsource or offshore jobs or abrogate existing collective bargaining agreements.
  • During the term of the loan, Borrower must remain neutral in any union organizing efforts.
  • Loan is not available to entities in which the President, Vice President, any head of an executive branch department, member of Congress, or the spouse, child, son-in-law or daughter-in-law of any such person directly or indirectly holds a 20% or greater stake, by vote or value, of the outstanding amount of any class or series of equity in the business.
TIM CRISP T. 505.954.7285 Send Email



Compliance/Risk Management

Force Majeure

Last updated 3.14.2020 What’s the Problem? With everything from travel bans and event cancellations, to disrupted supply chains – our lawyers are routinely being asked to weigh in on the legal consequences of non-performance under otherwise enforceable contracts. Whether parties are excused from performing contract obligations that have been impacted by Coronavirus will typically be a question of “force majeure.” Force majeure clauses typically provide that where no party is at fault – i.e. where the event or condition is beyond a party’s control (typically events like an act of war, natural disaster, or an “act of God” are enumerated) and interrupts that party’s performance – the failure to perform under the contract is excused without liability to either party. What to Consider? The critical facts to consider are:

  1. Review your critical contracts. Do they contain force majeure provisions? If so, review the contents carefully for breadth and scope. Beware of notice requirements and other predicates, for example, if a declared state of emergency is required. Also check for governing law – is it US law or a substantively equivalent common law system – or a civil code country?
  2. Formulate a prevention, mitigation, and response plan. Consider having a designated “force majeure” czar to keep your messaging consistent. If invoking force majeure, make sure your other statements and representations to your counterparties are not seen as admissions or a waiver of rights.
  3. Don’t assume that force majeure applies – take care that you are not repudiating a contract that does not have force majeure provisions or where performance is not causally connected to Coronavirus. Remember force majeure is not a cure-all (no pun intended). Parties are still required to use best efforts and mitigate losses.
Does Coronavirus automatically trigger force majeure? This is a question specific to the contract itself – for example, does the contract’s clause expressly refer to a pandemic, epidemic, disease, or public health emergency? If so, Coronavirus could very well qualify. Does the clause refer to “acts of Government,” "government regulations," or other actions that make it "illegal" or "impossible" to act pursuant to the contract? Then perhaps a travel ban that frustrates performance qualifies. That said, force majeure clauses vary greatly, and many force majeure provisions are, unfortunately, not very specific about particular events and only contain generalized categories. Typically, courts have read force majeure provisions narrowly. For example, courts have rejected as a force majeure event a foreign government flooding the US market with cheap imports, sudden changes in market conditions, union strikes and unseasonable weather. That said, the Coronavirus, and the efforts taken by governments to contain its spread (travel bans, forced quarantines, etc.), are novel and unprecedented enough that in some cases Coronavirus may be interpreted as a force majeure event. Bear in mind that contract clauses are not read in isolation to the other provisions of the contract, and this applies also to a force majeure provision. Other clauses may also address the party’s obligations in the event of unexpected circumstances – i.e. a "take or pay" supply contract – which is itself devised to allocate risk for unforeseen events. Such a contract may be interpreted differently than, for example, a mere output contract. Also bear in mind, this analysis applies to common law countries. In civil law countries (where force majeure in fact originates), the respective civil codes set out the requirements of invoking force majeure. Hence when reviewing your contract, pay specific attention to any governing law provision. Reportedly, the China Council for the Promotion of International Trade (CCPIT) has issued thousands of "force majeure certificates" to Chinese companies that have claimed that their ability to perform contracts has been prevented by the Coronavirus, which may prove determinative in litigation under Chinese law. If a contract does not have a specific force majeure clause, is one implied? The answer is likely no. In common law countries, force majeure is a creature of contract and failure to include such a provision will likely be implied as an intentional exclusion of the provision. There are background concepts in the law, such as the “impossibility” or “frustration” doctrines, but these are narrowly construed and difficult to invoke – i.e. the event typically must (1) be not reasonably foreseeable and (2) radically change the contract terms from what the parties agreed to. Merely escaping a bargain that has turned bad because it is harder to perform is not enough. As for implied terms, in civil law countries, the opposite is often true. For example, in China, under Article 180 of the General Rules on the Civil Law and Articles 117 and 118 of Chinese Contract Law, force majeure applies automatically to commercial contracts governed by Chinese laws. What sort of contract obligations are covered by force majeure? The two key concepts to keep in mind are causation and mitigation. First, did the Coronavirus epidemic in fact cause a delay or non-performance? The fact that a supplier is located in China, for example, should not be enough. Rather, it would need to be shown that the supplier had shut down, which caused a delay in manufacturing of [x] days, which led to a delay in delivery of [x] days, which will result in delayed performance of [x] days. Second, were there commercially reasonable steps that the party could have taken to avoid or overcome the event, such as by seeking parts and materials from unaffected areas or unaffected manufacturers? More expensive or more difficult is not enough – and a failure to perform only tenuously connected to Coronavirus will also not be enough. Do not overlook the other conditions that are part of the application of the force majeure in the contract: contracts will often specify that, if an event of force majeure has occurred, it will only apply to excuse a party’s performance if the affected party provides adequate notice to the other party (which often has a time limit and requires specificity as to the impact and duration of the event). Even without an express requirement, delay in providing notice could give rise to equitable principles such as waiver or laches. In addition, there is often limiting language (performance will be excused “on a day-for-day basis,” or “only to the extent reasonably necessary”) around the excused performance itself. Suspend or terminate the contract? In some cases, the relevant contract will specify what the remedy is – suspension or termination. Some contracts may have a continuation provision, stating that a force majeure event that continues for a certain period of time gives rise to a right of termination. In other cases, force majeure may give rise only to a suspension of the required performance. Carefully review the relevant language – particularly for unintended consequences – if your intent is not to terminate the entire contract. Will insurance cover force majeure? The losses arising out of a party’s inability to fulfill its contractual obligations because of Coronavirus could give rise to an insurance claim (for example Business Interruption Coverage) – depending on your policy's specific terms and conditions. Refer to our insurance related content for more specific questions concerning coverage. NATHAN ARCHIBALD T. 801.799.5844 Send Email MATTHEW HIPPLER T. 775.327.3049 Send Email ASHLEY WALD T. 303.295.8092 Send Email



Price Gouging

Last updated 4.2.2020 What’s the Problem: Retailers risk violating “price gouging” laws by inflating prices due to high demand on Coronavirus products (toilet paper, hand sanitizer, face masks etc.). Most states have specific laws prohibiting price spikes in times of disaster of emergency, as do many cities. In the absence of, or in addition to, specific statutes on pricing, the practice may also violate general unfair business practice and consumer protections laws. As an example, under Utah Code Ann. § 13-41-201 during a declared “State of Emergency,” a retailer may not charge a consumer an “excessive price” unless the retailer’s cost to obtain the product has similarly increased. On March 6, 2020, Utah’s Governor issued an executive order declaring a state of emergency in response to the evolving outbreak of Coronavirus and excessive price violators are now subject to fines up to $1,000 for each violation. Similarly, California’s anti-price gouging statute, Cal. Penal Code § 396, prohibits raising the price of consumer goods and services by more than 10% after an emergency has been declared. Since Governor Gavin Newsom officially declared a state of emergency in California on March 5, 2020, violations of the statute are subject to criminal prosecution that can result in one-year imprisonment in county jail and/or a fine of up to $10,000. 34 States and the District of Columbia (Alabama, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia and Wisconsin) have similar laws, and many of these states have triggered these laws by officially declaring a state of emergency. As for manufactures and wholesalers, while concerns over price gouging typically fall outside of federal law, on March 9, 2020, the Antitrust Division of the Department of Justice announced that it would use its enforcement powers under federal antitrust laws to “hold accountable anyone who violates the antitrust laws of the United States in connection with the manufacturing, distribution, or sale of public health products such as face masks, respirators, and diagnostics.” While the DOJ did not specify what conduct will be considered an “anti-trust” violation, pricing of these products at the wholesale level will be under scrutiny. While concerns over price gouging typically fall outside of federal law, under the Defense Production Act of 1950 (the DPA) it is prohibited to hoard or price gouge designated “scarce materials.” 50 U.S.C.A. § 4512. On March 23, 2020, President Trump signed Executive Order 13910, triggering the DPA and empowered the Secretary of Health and Human Services to designate health and medical resources needed to respond to the spread of COVID-19 under the DPA. See 85 FR 17001. On March 25, 2020 HHS did so, publishing its designated list of “scarce materials” subject to the DPA, including: N-95 Filtering Facepiece Respirators; personal protective equipment (PPE) coveralls, facemasks, surgical masks, face shields, gloves or surgical gloves, and ventilators, sterilizers and disinfectants. See 85 FR 17592-01. Willful hoarding or price gouging of these products can be punished with a $10,000 fine and imprisonment for a year. 50 U.S.C.A. § 4513. What to Consider:

  1. Monitor price increases and look for unnatural spikes. Most states peg an unlawful increase as 10–15 % above normal pricing. Particularly monitor products in high demand due to Coronavirus.
  2. Clearly and unambiguously communicate your gouging policy to regional/local branches. The most likely cause of a price gouging incident will be branches that are unaware and operating independently in response to a run on certain products. Educate branches that any short-term gain from inflated sale prices will be outweighed, not only by negative public relations or reputational harm, but in revenue hits if regulators are alerted or class action lawsuits on behalf of affected consumers are filed.
  3. Plan to audit stores for compliance. In the social media age, any particular incident runs the risks of viral exposure. Retailers need to proactively review compliance to get ahead of any incidents.
NATHAN ARCHIBALD T. 801.799.5844 Send Email



Insurance/Risk Management