Second Stimulus

On Friday another tranche of stimulus funding was signed. This will get more capital into existing programs. The question is will it be enough to meet current demand under the PPP and EIDL programs? I’m betting it won’t. We’ll see this week.

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Stimulus Stats

484,000,000,000 – The total appropriations for this round of stimulus was $484B.

310,000,000,000$310B was designated to replenish the PPP.

60,000,000,000$60B was designated to replenish EIDL.  

Live Q&A on Wednesday

SOCAP has invited me to do a live Q&A about the ever changing landscape of the stimulus packages and the impact on entrepreneurs. Many of you have submitted questions, and I’ll be answering your most frequently asked questions on this call. We’ll also have a segment for real-time Q&A as well. I’d love you to join. Tune in Wednesday, April 29, 1:00 – 2:00 pm EST. Click here to reserve your spot.

PPP Replenished

1.6 million businesses applied for the Payroll Protection Program (PPP). This high demand left many unfunded once the initial capital had been deployed. My small sample showed that only 18% of businesses that applied got funded. If you applied for the first round and didn’t get funded you are in the queue, so you do not need to apply again. Let’s hope you get funded in this tranche. Shoot me an email to let me know how it goes. USA Today

What is a “Small Business”?

Guidance released by the Treasury Department on April 24thgives more specific guidance that discourages bigger “small businesses” from accessing PPP loans. This comes on the heels of outrage over companies like Ruth’s Chris Steakhouse (and other publicly traded companies that technically meet the SBA definition of a small business) getting millions of dollars in PPP loans. The clarification pertains to the business’s good faith certification that still must certify in good faith that their PPP loan request is necessary. “current 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. Companies should be prepared to have their claims inspected by the SBA upon request. Any company that feels they would not meet this certification under the new rules may return the PPP money by May 7th and not face any consequences. U.S. Treasury Department

Minority Shareholders & Affiliation

You may recall that a company will not be eligible for PPP if their company plus any company they are affiliated with has over 500 employees. This week there’s been more clarification on how the SBA is considering affiliation. It all centers around the question of whether a shareholder has control. Control can be found in many ways, but this week’s clarification was about whether minority shareholders with certain “bad” veto rights would create control. Bad veto rights include blocking or approving payment of dividends or distributions; preventing a quorum of shareholders to take actions necessary to run the business; determining employee compensation; establishing or amending an incentive or employee stock ownership plan; broad powers to block changes in the company’s strategic direction; or incurring debts or obligations. When analyzing the bad veto rights held by minority investors, businesses must analyze each minority owner separately. If a minority shareholder can block an action by itself, without being a member of a certain group or class of shareholders, then the minority owner has control over the action. However, control is not found where a minority owner has control over an action merely because the minority owner is a member of a class or series of shareholders. Further, some control rights held by minority investors are there to give a minority owner an “opportunity to block certain extraordinary actions to protect his investment as a minority shareholder in the concern,” as noted in the SBA’s decision in Size Appeal of Southern Contracting Solutions III, LLC. If this is true for me, what can I do about it?Where bad veto rights have created an affiliate relationship, businesses and owners may want to consider amending corporate governance documents to irrevocably waive or relinquish any existing rights that create problems under the affiliation rules. Feel to shoot me an email if you want us to help you work through this. National Law Review


If you have any questions about the PPP or EIDL programs, let me know by clicking here. I’ll be answering the most frequently asked questions on at the live event on Wednesday. Sign up above.