In tranches of up to $10 million, the federal government is doling out $900 billion of forgivable loans to borrowers other than “plant touching” marijuana-related businesses (MRBs).
Pursuant to the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), supplementing the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), on Jan. 6, the U.S. Small Business Administration (SBA) and Department of Treasury issued Paycheck Protection Program (PPP) guidances for forgivable loans to new and previous borrowers, expanded the parameters of how the monies may be spent, and provided “set asides” for “minority, underserved, veteran and women-owned” businesses.
While closed to those growing, processing, transporting or selling marijuana, a business not directly “aiding marijuana’s use, growth, enhancement or development” is eligible for Economic Aid Act benefits including $284 billion in forgivable Paycheck Protection Program loans.
SBA Loans and Economic Aid Act
SBA loans are commercial loans structured pursuant to SBA requirements through an SBA authorized lender that the SBA guarantees to repay if the borrower defaults.
Prior to the CARES Act, SBA programs included: “7(a)” (up to $5 million for eligible small businesses); “Express” (up to $350,000 for up to seven years); “Community Advantage” (targeting mission-based lenders assisting underserved markets); “504” (economic development and job creation/retention through fixed assets acquisition/refinance); and “Microloan” (through nonprofit lending organizations to underserved markets).
The $900 billion Economic Aid Act provides small businesses and individuals economically impacted by the pandemic with:
- $600/person direct payment checks and $300/week in enhanced unemployment insurance benefits;
- $284 billion in forgivable Paycheck Protection Program loans;
- $25 billion for rental assistance;
- $82 billion for education providers and $10 billion for childcare assistance;
- $13 billion in Supplemental Nutrition Assistance Program and child nutrition benefits;
- $7 billion to bolster broadband access;
- $45 billion to support transportation services; and
- A tax credit “to support employers offering paid sick leave.”
The Economic Aid Act also reboots the PPP loan program via the following guidances (collectively referred to as Economic Impact Act Guidances):
- “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended” interim final rule consolidating first-time borrower PPP forgivable loan rules and outlining Economic Aid Act changes;
- “Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans” interim final rule providing guidelines for new PPP loans to businesses that previously receiving a PPP loan; and
- SBA’s “Guidance on Accessing Capital for Minority, Underserved, Veteran and Women-Owned Business Concerns.”
PPP Loans, Maximum Loan Amounts and Loan Forgiveness
The PPP provides up to $2 million of additional funding to businesses that had previously received a PPP loan (second-draw PPP loans) having 300 or fewer employees, using the first PPP loan’s proceeds on “eligible expenses” prior to second PPP loan’s disbursal (i.e., payroll, rent, covered mortgage interest and utilities), and experiencing 25% or more revenue reduction.
The Economic Aid Act also makes initial loans available to “SBA 7(a) loan eligible” borrowers (first-draw PPP loans) in operation on Feb. 15, 2020, having 500 or fewer employees which are: sole proprietors, independent contractors, and eligible self-employed individuals; not-for-profits; food services operations; or news organizations or not-for-profit public broadcasting entities.
The maximum first-draw PPP loan amount is $10 million, first-time PPP borrowers may receive up to 2.5 times of their prior year’s average monthly payroll (excluding employees earning over $100,000/year), and hotels and restaurants PPP borrowers can receive up to 3.5 times of their average monthly payroll costs.
All PPP loans of $150,000 or less are forgiven if the borrower submits a one-page certification to the lender describing the total loan amount, amount spent on payroll costs and the number of employees able to be retained because of the loan.
First-draw and second-draw loans may be forgiven if funds are used on “eligible costs,” defined in the first PPP round as “payroll, rent, covered mortgage interest and utilities” and expanded by the Economic Aid Act Guidances to encompass:
- worker protection and facility modification expenditures to comply with COVID-19 federal health and safety guidelines (including personal protective equipment);
- property damage costs related to vandalism or looting due to 2020 public disturbances that were not covered by insurance or other compensation; and
- payments for business software or cloud computing service facilitating: business operations; product or service delivery; payroll expenses processing, payment, or tracking; human resources; sales and billing functions; or accounting or tracking of supplies, inventory, records and expenses.
To be eligible for full loan forgiveness, PPP borrowers have to spend at least 60% of the proceeds on payroll over an eight- to 24-week covered period.
Minority, Underserved, Veteran and Women-Owned Businesses Program Set Asides
The Economic Aid Act provides set-asides for new and smaller borrowers, borrowers in low- to moderate-income communities, and community and smaller lenders including:
- $15 billion of first-draw and second-draw PPP loans by community banks;
- $15 billion first-draw and second-draw PPP loans by insured depository institutions, credit unions, and Farm Credit System institutions with less than $10 billion in assets;
- $35 billion for new first-draw borrowers; and
- $15 and $25 billion for first-draw and second-draw PPP loans, respectively, to borrowers with a maximum of 10 employees or for loans of less than $250,000 to borrowers in low or moderate income neighborhoods.
To ensure increased PPP access for minority, underserved, veteran and women-owned businesses, the SBA will:
- soley accept community financial institutions’ PPP loan applications during the first two days of the PPP loan portal’s reopening;
- direct lender match borrower inquiries to small lenders capable of aiding traditionally underserved communities;
- match small businesses through lender match with certified development companies, farm credit system lenders, microloan intermediaries and traditional smaller asset size lenders; and
- work with Federal Reserve System Board of Governors on the PPP liquidity facility to enable PPP lenders, including nonbank lenders, to pledge PPP loans to the Federal Reserve as collateral for Federal Reserve borrowings to enhance lender liquidity and enable PPP lenders to expand their lending capacity; and
Plant-Touching MRB Loan Exclusion
Although “plant touching MRBs” are disqualified for any Economic Aid Act loan, “nonplant touching MRBs” may receive relief.
Licensed and regulated by the state, plant touching MRBs include those planting, cultivating, harvesting, processing/extracting, testing, packaging, disposing, transporting and dispensing marijuana and any entity having a financial or controlling interest in them. See “FIN-2014-G001: BSA Expectations Regarding Marijuana-Related Businesses,” FinCEN, Feb. 14, 2014. Businesses providing products and services to plant touching MRB’s, but not directly manufacturing, processing, transporting, distributing, or dispensing marijuana, are “nonplant touching” MRBs.
Barred from all SBA loan eligibility are specific industries (including gambling, nonprofits, lenders, life insurance, pyramid sales, private clubs and prurient sexual nature) and those engaged in any “illegal activity.” For “7(a) program” eligibility, “legality” hinges on “nature of the business’s specific operations” disqualifying “direct marijuana business,” i.e., a plant touching MRB, and an “indirect marijuana business” deriving any gross revenue from “products or services” sales to direct marijuana businesses “reasonably determined to aid in marijuana “use, growth, enhancement or other development.” See, “Lender and Development Company Loan Programs’ Small Business Administration Standard Operating Procedures,” April 1, 2019.
Indirect marijuana businesses comprise those providing “testing services,” “grow lights, hydroponic or other specialized equipment,” or “advise or counsel” on “specific legal, financial/accounting, policy, regulatory or other issues associated with establishing, promoting, or operating a direct marijuana business.” Conversely, the SBA expressly excludes a “plumber who fixes a sink” or “tech support company repairing a laptop” from aiding in marijuana’s “use, growth, enhancement or other development.”
Thus, while closed to plant touching MRBs, a nonplant touching MRB not “aiding marijuana’s use, growth, enhancement or development” is eligible for Economic Aid Act benefits including $284 billion in forgivable Paycheck Protection Program loans.
Reprinted with permission from the January 15, 2021 edition of the The Legal Intelligencer © 2021 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or [email protected].