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PPP Loan Forgiveness Update

More details regarding Paycheck Protection Act loan forgiveness emerged from the US Small Business Administration last week that make it much easier for those who received PPP loans of less than $50,000 to apply for forgiveness. While the loan forgiveness process will still be administered by your lending bank and is not automatic, as some had hoped, stay tuned for a much simpler form for use with smaller loans. Robert Jackson from the Apple Growth Partners COVID-19 Response Team wrote this recent post summarizing the new process.

New PPP Loan Forgiveness Form from the SBA

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Monday, October, 12, 2020

Over this past weekend, the U.S. Small Business Administration (SBA) posted a new loan forgiveness form to the public for those who received a Paycheck Protection Program (PPP) loan of $50,000 or less. The new form, form 3508S, is much simpler than both the long form (form 3508) and the EZ form (form 3508EZ). While the form states that it is for those who received a PPP loan of $50,000 or less, note that a borrower cannot use the new form if the borrower, together with their affiliates, received total loans of $2,000,000 or more.
 
In addition to the $50,000 threshold, a borrower can use the new form if –

  • The requested forgiveness amount was used to pay costs that are eligible for forgiveness;
  • The borrower used at least 60% of the requested amount on payroll costs; and
  • The requested forgiveness amount took into consideration the applicable owner-employee or self-employed individual/general partner compensation caps.

The borrower does not need to show any calculations of the loan forgiveness amount on or with the form, as they would have to do with the long form or the EZ form. Furthermore, the borrower is exempt from applying the complicated loan forgiveness salary and FTE reductions when using the new form 3508S.

With the new form also comes simpler procedures for lenders.

As noted above, the $50,000 threshold applies to the original loan amount, not the amount of forgiveness being requested. It is also not a blanket forgiveness, which is something that lenders had been pushing for in the past few months. A borrower must still retain records that support the calculation of the forgiveness amount being requested.

The announcement of the simpler form comes about a week after the opening of the loan forgiveness season by the SBA. While it is not what many borrowers and lenders were hoping for, it will still ease the time burden on smaller businesses and their lenders. Keep in mind that banks are using their own equivalent online forms for loan forgiveness applications, so eligible borrowers should first check with your bank to see when the new form will be available to file with your bank.

To access the newly released Form 3508S, click here.
To access the instructions to Form 3508S, click here.

Contact our COVID-19 Response Team for questions on the new forgiveness forms. 

Robert Jackson, CPA

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Ohio Provides Qualified Liability Shield From COVID-19 Claims

By M. Scott Young, Anthony P. McNamara and William J. Hubbard
of Thompson Hine
September 2020

On September 14, Ohio Governor Mike DeWine signed into law a qualified and temporary liability shield against claims based on exposure to or infection from SARS-CoV-2 (aka COVID-19), MERS-CoV (aka coronavirus that causes Middle East respiratory syndrome) and SARS-CoV (aka coronavirus that causes severe acute respiratory syndrome). The law, Amended Substitute House Bill 606, grants qualified immunity from civil actions for damages based in whole or in part on injury, death or loss to person or property caused by these viruses, unless it is established that the exposure to, or the transmission or contraction of, any of the viruses
or their mutations resulted from the reckless, intentional, willful or wanton misconduct of the person against whom the action is brought. However, even if there is no immunity, the law prohibits class actions from being brought.

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It also provides that government orders, recommendations or guidelines neither create nor can be construed as creating a duty of care that may be enforced in a cause of action or that may create a new cause of action or substantive legal right against any person with respect to the matters contained in the government order, recommendation or guideline. Such guidelines are also presumed to be irrelevant to the existence or breach of a duty of care and inadmissible in legal actions to establish the existence of a breach of such a duty. The law states that the rationale for this qualified liability shield is that recommendations regarding how best to avoid infection with COVID-19 have changed frequently where the recommendations are not based on well-tested scientific information. The law notes specifically that “the Centers for Disease Control and Prevention (CDC) for the first eight weeks of the COVID-19 health emergency recommended that members of the general public not wear masks since most masks are ineffective in protecting individuals from viruses. The CDC then reversed its recommendation and started encouraging members of the general public to wear masks in public places. Ohio businesses need certainty and consistency to enable them to reopen.”

The law’s qualified immunity provisions apply retroactively from March 9 and extend through September 30, 2021. This is good news for Ohio employers concerned about controlling the potential risk of liability for employees’, independent contractors’ and customers’ claims related to the viruses covered by this law through the end of this year. Because the bill is temporary and does not absolve all potential liability for the covered viruses, employers should
continue to vigilantly comply with existing guidance and regulations designed to control exposure to the covered viruses, including COVID-19, for employees, independent contractors and customers. It is also important to note that this law does not impact any potential liability exposures that may exist in the context of federal law and related compliance with OSHA regulations.

Call BG Consulting Group at 216-956-0378 to discuss the impact of this law and other COVID-19 related issues on your business, and get help creating a plan to address them.

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COVID Nation: Our Health from Sea to Shining Sea

Op Ed
By Jose Julio Divino, MPH

August 2020 – It has been seven months since the coronavirus, or “COVID-19” as coined by the World Health Organization (WHO), was declared a public health pandemic, yet the politicization of this deadly virus continues to ravage our country, killing nearly 180,000 and infecting almost six million of our fellow Americans so far, according to the US Centers for Disease Control and Prevention (CDC).  These mortality and prevalence rates correspond to the entire population of US cities like Fort Lauderdale (FL), Providence (RI) and Newport News (VA) being decimated, and twice the population of urban centers like Houston and Chicago testing positive for the coronavirus.  

Set against the background of “Black Lives Matter”, the resulting downward economic spiral since the coronavirus lockdown – not seen since the Great Depression – has come to symbolize the “new normal” among many vulnerable families and individuals, especially among communities of color.  The decision on whether to have a nutritious meal or scrimp on expenses just so households (many of which are headed by single parents with young children or seniors on a fixed income) can have enough to pay rent and avoid eviction from their homes has risen to epidemic proportions. According to The Hamilton Project and Future of the Middle Class Initiative at the Brookings Institute, there are about 14 million children in the US that are not getting enough to eat 

The food insecurity situation is, moreover, exacerbated for persons with serious underlying medical conditions (e.g., heart disease, diabetes, lung disease) who will now have to choose whether to prioritize their monthly rent or grocery budgets over medical expenses. For our elders, already considered to be most at high-risk, social distancing can prove to be a further obstacle in accessing adequate and nutritious food. It is a scientific fact that persons who experience food insecurity are likely to be less healthy.   

Psychosocial adversity and mental illness in the COVID era have also increased. As a direct consequence of elevated stressors and anxieties, be it for frontline workers, members of communities of color, people who have lost their jobs or unpaid adult caregivers, worse mental health outcomes, increased substance use and elevated suicidal ideation have been documented, according to the CDC. 

It is highly probable that the COVID blame game will only crescendo. “To wear or not to wear” face coverings will remain a hotly contested conversation. Until a cure or a vaccine is identified, it is only by being supportive of each other and, in celebrating empathy, will we be able to win the fight against COVID-19.   

It is time to take responsibility for our actions. While there is now mounting evidence that COVID-19 does not discriminate based on age (younger individuals are increasingly becoming infected and dying), there remains a cohort staunchly opposed to social distancing. In wearing a mask, we are saying that “I respect you.” 

As the proverbial saying goes, “united we stand, divided we fall.”

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Developing a Systematic Action Plan for Managing Revenue Risk Posed by Financially Challenged and Bankrupt Customers

In the August 19, 2020 issue of Crain’s Cleveland Business, guest bloggers H. Jeffrey Schwartz and Gus Kallergis, co-chairs of the Business Restructuring and Insolvency group at Calfee, Halter & Griswold LLP, posted this blog highlighting the risk businesses will face in the coming months from customers going out of business or declaring bankruptcy, and therefore unable to pay their receivables.  At BG Consulting Group, we’ve identified this “trailing risk” of the pandemic induced economic downturn as one of the most significant issues our clients will be facing.  Messers. Schwartz and Kallergis describe the risk and some ways to plan for it, and we’re happy to repost their article here.

We encourage you to call BG Consulting Group at 216-956-0378 to discuss an assessment of your business’s revenue risks and get help creating a plan to weather them.

H. JEFFREY SCHWARTZ and GUS KALLERGIS

The global COVID-19 pandemic has savaged the domestic and global economies.

The U.S. and the global economies struggle in recessions with no firm endpoints in sight, and bankruptcy filings and real estate foreclosures continue to mount.

In these problematic circumstances, manufacturers and distributors face challenges to avoid incurring unnecessary significant accounts receivable losses by forming an internal and external experienced, capable team with the necessary expertise to anticipate and effectively respond on a real-time basis to write-down risks as and when they arise before and during bankruptcy cases.

A shot across a pre-bankrupt’s or bankrupt’s bow: Issuing threat of stoppage and recalling goods in Transit

Companies must be poised to act with dispatch.

For example, sellers with goods in transit to a buyer have full recovery rights. Both the Uniform Commercial Code and international law empower a seller that learns of a buyer’s insolvency to stop goods in transit before their physical receipt by the buyer.

A savvy seller weighs whether it should reclaim the goods or demand immediate payment or adequate assurance of performance prior to completing the delivery into the physical possession of the insolvent buyer.

Often, if the goods are critical to the buyer’s operations, a seller’s mere threat of stoppage suffices to leverage immediate payment in full from a troubled buyer. Companies lacking vigilance do so at their own financial peril.

Vendor entitlement to administrative expense priority for goods received by a debtor in the 20 days before bankruptcy and thereafter

Because the uninterrupted flow of goods to an insolvent buyer is necessary to its ability to continue business operations, bankruptcy law confers payment priority on claims for goods received by a financially distressed buyer both in the 20 days immediately prior to a bankruptcy filing and thereafter. This payment priority is meant to encourage sellers to continue to do business with a financially distressed company and to refrain from exercising their rights to stop goods in transit.

Companies as sellers must focus awareness on their “get out of jail free card” — that domestic or foreign goods physically received by a bankrupt or its agent in the 20 days immediately before a bankruptcy filing entitles the seller to payment in full. The transit time of goods bears no impact on the running of the 20-day period.

Similarly, account creditors must bear in mind their full payment entitlement for goods received by a bankrupt. A seller of goods ordered by a bankrupt company is entitled to payment in full for those goods. So, too, with claims for goods under pre-bankruptcy filing purchase orders delivered into the hands of a bankrupt entitles the seller to payment in full.

Companies that fail to assert their full payment rights against a bankrupt risk losing out on a valuable opportunity to emerge from a customer’s bankruptcy unscathed.

Best practices for business sellers

Successful business sellers know that the overwhelming majority of significant bankruptcy cases tend to be filed in New York City, Delaware or Virginia. As a result, experienced vendors turn to outside bankruptcy counsel who regularly represent major vendors in cases in those venues.

Only then can vendors stand poised to act on the necessary real-time basis in bankruptcy cases in those venues. Savvy business sellers also should be prepared to respond to aggressive bankrupt’s dubious arguments such as the 20-day period immediately before the filing of a bankruptcy case begins more than a month before the bankruptcy filing, such as when a business seller drops off goods with a common carrier in Asia.

Therefore, the best protection for a seller with goods in extended transit is to threaten the exercise (and, if needed, then exercising) its right to stop those goods prior to physical receipt by the bankrupt to leverage its acknowledgement that the seller’s full payment rights do in fact attach to the goods upon receipt by a bankrupt. Business sellers must accept the reality of the desperate tactics of bankrupts and be prepared to respond to that harsh reality both expertly and on a real-time basis.

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Leadership Through Change

Your business’s ability to change in response to today’s rapidly shifting climate is crucial to its survival. Do you have the resources you need to lead the change you require? BG Consulting Group’s unique suite of competencies supports development, socialization and management of your change strategy. Test your readiness with our three-minute video. We welcome your call to schedule a brief introductory discussion around how we can help you succeed.

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Reopening Plans

By Nancy Hancock Griffith

While most businesses across the country are at least partially reopened, the work of creating safe workplaces and customer experiences continues. BG Consulting would like to recommend the following excellent resources to help your business create your own safety and workplace policies as you move forward.

Lear, a leading global automotive technology company, has made its Safe Work Playbook available to download. Find it here:
https://www.lear.com/Site/Company/Safe-Work-Playbook.aspx

OSHA, the nation’s Occupational Safety and Health Administration, has also released long awaited workplace guidance in its 3 stage reopening plan, available here:
https://www.osha.gov/Publications/OSHA4045.pdf

Finally, University Hospitals in Cleveland offers its Healthy Restart Playbook, with recommended procedures relevant to all types of business environments, downloadable here:
https://www.uhhospitals.org/-/media/Files/Coronavirus/UH-Healthy-Restart-Playbook5-6-2020.pdf

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What You Need to Know about Crisis Communications

By Nancy Hancock Griffith

We’ve seen notices from just about every type of business, delivered in just about every way imaginable, outlining the response to the COVID-19 pandemic. I think we can all agree, this is a crisis. So it’s time to review some basic, and oft forgotten, principles of crisis communications.

  1. Be honest. This one’s pretty easy, especially in states where non-essential businesses are shut down. Outline what, if any, service you’re still able to provide, and how to access it for the time being. If response times are going to be slower, set realistic expectations. This will help both your clients and your employees.
  2. Stay in your lane. Let’s leave the science to the scientists, folks. Don’t explain the virus. Whatever you say today, even if it is correct, will be old news tomorrow anyway. When you speak, speak about your business. And don’t predict when or how you’ll be able to return to normal, until we all really know when and how we’ll be able to return to normal.
  3. Stay professional. You have a brand for you business. Make sure everything you’re saying now, including what you say, how you say it, when you say it, and what channels you use, consistently reflects your established brand.
  4. Here’s the big one — this is actually a chance to enhance your client relationships, and perhaps pave the way for some new ones. You need to be balanced, and don’t come across as mercenary, but anything you can offer online, at advantageous cost structures, any message you can give about how you serve your community now and when normal returns, is important. Don’t just focus on doom and gloom — remind everyone we’ll see each other on the other side.
  5. Make sure you keep 1 through 3 in mind when you work on number 4!

If you’re having trouble crafting your message, try contacting a reputable crisis communications team for help. We’re happy to give you our recommendations if you reach out to us on our website.

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Advice for Leaders in the Post COVID-19 World

By Davis Young, Guest Blogger for Crain’s Cleveland Business, June 9, 2020

Like us, we’re sure you read a large number of emails, articles and blog posts in an effort to sort through the issues relating to operating your business in the post COVID-19 environment.  Top of mind for many of our clients is the issue of leadership, and how business leaders can clearly and confidently communicate with employees regarding the new workplace policies and behaviors that will be implemented.  Change is difficult, and today’s business leaders must not only embrace change, but guide their employees to do the same.  We’re happy to share an excellent blog post by Davis Young that was recently published in Crain’s Cleveland Business, outlining some key components of a successful workplace communications strategy.

Workplaces Opening Up Present an Important Opportunity

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As the world of work begins to open up again, we have arrived at a moment of opportunity for employers and employees to come together in common purpose to align mutual expectations. We need to think seriously and often not only about our own individual roles but also how we can support colleagues who share our same sense of shock and disbelief over recent events.

Masks, shields, partitions, gloves, social distancing and sanitizer dispensers are meant to protect and to assure us our company is doing the right things. That’s an important upside. The ever-present downside is that these new workplace enhancements are constant visual reminders to employees that they are in an environment of risk — risk of becoming seriously ill, risk their job may go away, risk their company and its customers may be on very shaky ground. And if you are working remotely at least in the short term, you face the risk of having no one to talk to, the risk of feeling disconnected, of suddenly feeling left out of the loop.

Companies need to acknowledge and accommodate the fears their people have. The world has changed on a dime and if ever there was a need for empathy in the workplace it is now. No CEO can look their people in the eye and tell them they know what’s going to happen next. They don’t know. Nobody does. If leaders want their people to perform well in an environment of uncertainty, this is the moment to ensure that truth, kindness, understanding and patience are part of the company culture. That’s not a sign of weakness. It’s a sign of strength.

• Leaders need to position themselves as credible resources for timely information. Absent that, rumors will take control and that’s the last thing anybody wants. Be transparent. Tell it like it is.

• Communicate regularly, but don’t overcommunicate. There are plenty of companies that will fall into that trap and cause employees to tune out. Every employee has a right to expect that if it’s something important, they will learn it first from leadership. That’s the way to get rid of rumors.

• Be open to any question or comment. It’s OK for somebody to feel insecure in this environment. Acknowledge that. Employees have one issue that stands out above all others: “Is my job safe?” Nobody knows, but the best way to have that happen is for each person to focus fully on doing really good work. Encourage that. It must be the standard.

• Everyone needs to support each other at all levels. If there was ever a time for teamwork and pulling in the same direction, it is now. If employees want to come out of this pandemic with jobs, everyone must do all they can to take care of customers and each other. This is no time to lose a customer or a client because of poor performance or shoddy service. Excellence in all aspects of work must be the expectation.

• Every employee has a life outside of work. Those lives have been seriously disrupted by the pandemic. More employees are going to bring more personal issues into the workplace than ever before. The single best way to accommodate that is for all of us to become better listeners.

• Companies should expect everyone to come to work with a positive attitude. That is the way through our common dilemma. Yes, times are tough. Yes, there is great uncertainty. Yes, it’s scary. But we all need to be part of the solution, not part of the problem. That’s all about attitude and bringing a can-do outlook to work every day.

No question, it’s going to be a new world of work. There is no going back to “normal.” We can’t return to yesterday. We are in a difficult situation, but the truth is we have an exciting opportunity in front of us to create a new and even better future. We mourn what we have lost, but our workplaces can be even better and stronger going forward if we are thoughtful in how we create the future.

Young was president of the former public relations firm Edward Howard & Co. He has counseled numerous well-known organizations on communicating with their employees.

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Paycheck Protection Program Update

SBA Issues Guidance on Good-Faith Certification

In order to receive a Paycheck Protection Program (PPP) loan, borrowers must generally certify that current economic uncertainty renders such a loan necessary to support ongoing operations. Throughout the month of May, the Small Business Administration (SBA) has been updating its PPP FAQs as they relate to this certification. On May 13, 2020, the SBA again updated its FAQs to address certification of economic uncertainty in light of COVID-19. Specifically, this update provides further guidance on the consequences of the failure to certify appropriately, including the requirement to repay any PPP loan. Additional guidance on how the SBA will approach the certification issue is outlined below.

Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?  Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue:  Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.  SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.  Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance.

SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.  

By Stacy Bauer

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Force Majeure Contract Clauses

COVID-19 has caused us to take a deeper look at many of our business practices, including the physical workplace, business plans, and emergency contingency plans. Business contracts are another area that need review.

Business agreements routinely include boiler plate language, such as a force majeure clause. This language protects the parties in the event of an unlikely circumstance that would significantly impair either or both parties’ ability to perform, such as fire, war, flooding, earthquake and the like. While these clauses have rarely been relevant, the pandemic requires us to take another look.

One of the benefits of force majeure clauses is that they protect a party that is unable to perform from claims of breach of contract and related damages resulting from non-performance. The events listed in force majeure clauses differ from a breach of contract scenario because the party did not choose to not perform, rather circumstances beyond its control caused its inability and thus failure to perform.

If your business cannot perform under a contract due to COVID-19, either because of the virus itself or the government’s response to it (shelter in place orders, quarantine or other governmental restraints), look at your existing contracts to determine whether each has a force majeure clause and, if so, whether it is broad enough to include the current pandemic, and how the parties agreed to proceed in the event the clause is triggered. If there is no force majeure clause, or if it is not broad enough to cover COVID-19, there are other legal defenses that can help you, such as frustration of purpose and impracticability.

And while force majeure clauses and other defenses may be available, the best first strategy is to communicate with the other party to the agreement. Using common sense, issues related to non-performance or inability to perfom can hopefully be resolved without resorting to legal action.

Until now, virus, pandemic, quarantine and the like have not typically been listed in force majeure clauses. Many businesses are taking the time now to update their contracts to include such circumstances as a hedge against future unknowns.

By Stacy Bauer