Weathering the Storm: CARES Act Relief and Cash Management Strategies for Small Businesses

Weathering the Storm:
CARES Act Relief and
Cash Management
Strategies for Small
Businesses
© 2020 Albin, Randall & Bennett
© 2020 Murray Plumb & Murray

Panelists
2
David V. Jean
Albin Randall & Bennett
djean@arbcpa.com
(207) 518-6832
Katie Krakowka
Murray, Plumb &
Krakowka
kkrakowka@mpmlaw.com
(207) 523-8215
Andrew C. Helman
Murray, Plumb & Murray
ahelman@mpmlaw.com
(207) 523-8290

3
Goals For The Program
•Provide tools for short- and medium-term planning
• Budgeting Tools
• Operational Changes
• Funding Sources
• Tax Credits
•Provide a framework to develop long-term plans

Short-term Actions
• Reduce discretionary expenses
• Accelerate billings and manage cash collections
• Supply-chain alternatives
• Vendor payment arrangements
• Loan deferments
• Increase or establish line of credit
• Waiver of default on loan covenants
• Inventory reduction
• Review business interruption insurance
• Manage cash flow tightly
4

13-Week Rolling Cash Flow
Forecast•Cash receipts
• Conservative
•Cash disbursements
• Necessary
• Discretionary
•Identify cash shortfalls
•Make a plan
•Cash Flow Worksheet
•Available at arbcpa.com
5

Government Financial Relief
Programs
•EID loan program
•Paycheck Protection Program (PPP)
•FAME loan program
6

EID Loans
• SBA EID Loans
• Originates with SBA
• 500 or fewer employees
• Maximum Loan Amount = $2,000,000
• Term loan
• 30 year amortization period
• 3.75% interest rate
• Deferred payments
• All principal and interest is deferred for 12 months
• $10,000 grant (tax-free) delivered within a few days
• Loan not approved, then keep $10,000
• No longer processing applications – submitted
applications first-come, first serve
7

PPP Loans
•Originate with authorized SBA Bank
•No personal guarantees or collateral
•Interest rate is 1% per annum for 2 years
•Pressure on Congress to expand
•Eligibility – 500 or fewer employees as of date of
loan
•SBA not currently accepting new applications
• Unknown status of pending applications
8

PPP Loans
•PPP Maximum Loan Calculation
• Average monthly payroll costs for the 12 month period
ending on the day the PPP loan is originated or 2019
calendar year
• X 2.5
• Not to exceed $10,000,000
• Add EID loans related to COVID-19 between January 31,
2020 and April 3, 2020. The grant award of up to
$10,000 is not added to the loan
9

PPP Loans
•Allowable uses of loan proceeds
• Payroll costs as previously defined
• Payments of interest on any mortgage obligation
• Rent (including rent under a lease agreement)
• Utilities
• Interest on any other debt obligations that were
incurred before February 15, 2020
• At least 75% of the loan proceeds must be used for
payroll costs
10

PPP Loans
•Loan Forgiveness
• Amounts expended on the following items during the
8-week period following loan origination are eligible for
forgiveness (not to exceed the original principal balance
and accrued interest on the loan):
• Payroll costs as previously defined
• Interest on mortgages that existed as of February 15, 2020
• Rent for leases that existed as of February 15, 2020
• Utilities that existed as of February 15, 2020
• Accrued interest on PPP loan
• No more than 25% of the loan forgiveness can be attributable
to non-payroll costs
• Planning opportunities
11

PPP Loans
•Reductions to amounts forgiven
• Headcount
• Salary reduction
•Re-hire provisions
• No reduction in debt forgiveness if re-hired and
compensation is restored before June 30, 2020
• Certain conditions required
•Complicated and poorly written law. We’re hoping
for clarification in the Regulations
•Detailed debt forgiveness worksheet at arbcpa.com
12

PPP LOANS
•Taxation of amounts forgiven
TAX-FREE
•States ?
13

PPP Loans
•Remaining balances on loan
• Continues to be guaranteed
• Maximum amortization period of 2 years
• Interest not to exceed 1%
•Deferral of payments
• Principal and interest
• Deferral 6 months
• Interest accrues
14

FAME Loan
•Relief Business Direct Loan Program
• Up to $50K, WSJ minus 1%
• Program capped at $5M
• 12 month term with extension if necessary
• Security and guarantees required
• As of April 16th
, requests have exceed $5M, but not all
approved
15

Legal Considerations With
Short-Term Planning
•How to determine which disbursements are
necessary and which can be deferred?
•What to say to people you can’t pay?
•What documents are needed when requesting
different payment terms or forbearance
agreements?
16

Intermediate Actions
• Sale-leaseback of equipment to finance company
• Debt restructuring
• Terms and conditions
• Refinancing
• Interest rate savings
• Access to personal capital
• HELOC, investments, retirement plan, real estate equity
• Re-evaluate during slowdown to improve efficiency and
reduce costs
• Operations
• Processes
• Technology
17

Intermediate Actions
•Don’t let up on business leads – keep long view in
mind
•Scenario planning
• Best and worst case scenarios
• How to best cope with uncertainties
•Organizations more vulnerable
• Cybersecurity
• Theft and fraud
•CARES Act – tax provisions to increase cash flow
18

CARES Tax Provisions
•Net Operating Losses (NOL)
• Net operating losses from 2018, 2019, and 2020 can be
carried back 5 years
•Qualified Improvement Property (QIP)
• The technical correction was made to correct the life of
qualified improvement property to 15 from 39 years
retroactive to January 1, 2018. This will allow bonus
depreciation to be taken on qualified improvement
property.
•Opportunities to amend tax returns and claim
refunds
19

CARES Tax Provisions
•Payroll tax deferral
• Deferral of employer Social Security taxes
• No deferral if PPP loan forgiveness
•Employee retention credit
• Credit claimed against employment tax deposits
• Credit not available if the taxpayer takes a payroll
protection loan (PPP)
20

Legal Considerations With
Intermediate Planning
•Considerations when borrowing new money:
• Can you afford to repay?
• What are your “start-up” costs?
• What collateral needs to be pledged?
• Do you need to offer a guaranty?
21

Long-term Actions
•When to bring employees back
• Are they available ?
• Pay while non-productive ?
• PPP debt forgiveness vs. working capital loan
•Be prepared when business ramps up
• Liquidity
• Resources
•Will your business model change in how products
andor services are delivered
• Embrace new sales channels
• Evaluate market shifts and behavioral changes
22

Long-term Actions
•Identify points of failure
• Corrective actions
•Time to revisit strategic plan and tabled initiatives
•Create disaster recovery and continuity plans
•Forecasting will continue to be critical
•All long-term action plans will impact future cash
flow
23

Legal And Business
Considerations With Long-Term
Planning•If short-term and medium solutions are not enough
to solve the problem, then what are your options?
•Identify your breaking point early—the point at
which you stop investing time and money into the
business.
24

Legal And Business
Considerations With Long-Term
Planning•Possibly solutions:
• Permanent debt restructuring
• Permanent operational changes
• Closure in the least harmful way (considering legal
implications for owners)
• Court proceedings to reorganize
• Due to Covid-19, businesses with up to $7.5m in debt can take
advantage of less expensive, streamlined chapter 11 process.
• Learn more here:
https://www.mpmlaw.com/how-to-navigate-congress-changes
-to-the-bankruptcy-code-mainebiz/
25

Final Thought
•The road to economic recovery may be long, but
your community wants you to succeed and there
are professionals who can help.
26

Questions?
27

THANK YOU
28
David V. Jean
Albin Randall & Benett
djean@arbcpa.com
(207) 518-6832
Katie Krakowka
Murray, Plumb &
Krakowka
kkrakowka@mpmlaw.com
(207) 523-8215
Andrew C. Helman
Murray, Plumb & Murray
ahelman@mpmlaw.com
(207) 523-8290

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