Pub. 11 2020 Issue 4

www.wvbankers.org 22 West Virginia Banker Strategic Transactions With Outstanding PPP Loan and EIDL Obligations By Matthew Kingery, Lewis Glasser PLLC A s readers of this article are well aware, borrowers will sometimes engage in strategic transactions (e.g., mergers, asset sales, membership or stock redemptions, etc.). The Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan program (EIDL) require special attention when borrowers engage in strategic transactions. This article con- siders the role of the lender and the role of borrowers in strategic transactions involving these loan programs. PPP PPP provided short term financial assis- tance to small businesses dealing with the impact of the COVID-19 pandemic. The program originated in Congress in March 2020 as part of the Coronavi- rus Aid, Relief, and Economic Security Act (CARES Act) and was intended to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. PPP restarted on April 24, 2020, following the appropriation of new funding, and the PPP Flexibility Act of 2020 relaxed many PPP loan guide- lines. The original deadline to apply for a PPP loan was June 30, 2020, but was extended through Aug. 8, 2020, by legislation signed on July 4, 2020. The PPP loan forgiveness process has begun. Important changes to PPP loan forgiveness came with the PPP Flexibility Act of June 5, 2020. All or part of a PPP loan could be forgiven provided the borrower kept all full-time equivalent employees on the payroll or rehired them within 24 weeks of receiving the loan or by Dec. 31, 2020, whichever comes first. To be eligible for forgiveness, payroll costs must be 60% or more of the amount forgiven. Eligible non-payroll expenses may only consti- tute 40% of the amount forgiven, and forgiveness will not occur until the end of the 24-week period of employment following receipt of the loan. EIDL PPP is one of two programs designed to help small businesses during the COV- ID-19 pandemic. In addition to PPP, the Economic Injury Disaster Loan program (EIDL) is also intended to help struggling businesses weather the COVID-19 pan- demic. As opposed to being designed to help companies retain workers, EIDL helps small businesses overcome the loss of revenue during a declared disas- ter such as an extreme weather event, a fire, or recently become the case of the COVID-19 pandemic. The program was initially open only to agricultural busi- nesses. The EIDL program reopened to eligible borrowers on June 15, 2020. Many small businesses were eligible for both loan programs subject to specific rules about the use of loan proceeds. The impact of strategic transac- tions on PPP and EIDL loans In addition to spending many long days entering application data into the portal, interpreting rules and regulations, and beginning the forgiveness process, many of the readers of this article have been