In installments of up to $ 10 million, the federal government distributes $ 900 billion in forgivable loans to borrowers other than marijuana-related companies (MRBs) who “touch the plants.”
Under the Economic Aid to Small Businesses, Nonprofit Organizations and Hard-Affected Places Law (Economic Aid Law), supplementing the Coronavirus Aid, Relief and Economic Security Law (CARES Act), on January 6, the United States Small Business Administration (SBA) and the Treasury Department released Paycheck Protection Program (PPP) guidelines for forgivable loans to new and previous borrowers , broadened the parameters on how funds can be spent and provided “set aside” for “minorities, underserved, veterans and women-owned businesses.”
Although closed to those who grow, process, transport or sell marijuana, a business that does not “directly contribute to the consumption, growth, improvement or development of marijuana” is eligible for the benefits of the marijuana. Economic Aid Act, including $ 284 billion in paycheck protection program repayable loans.
SBA Loans and Economic Aid Act
SBA loans are business loans structured in accordance with SBA requirements through an SBA approved lender that the SBA guarantees to repay in the event of default by the borrower.
Prior to the CARES Act, SBA programs included: “7 (a)” (up to $ 5 million for eligible small businesses); “Express” (up to $ 350,000 for a maximum of seven years); “Community Advantage” (targeting mission-oriented lenders who help underserved markets); “504” (economic development and job creation / maintenance through the acquisition / refinancing of fixed assets); and “microcredit” (through non-profit lending organizations to underserved markets).
The $ 900 billion Economic Assistance Act provides small businesses and individuals affected by the pandemic:
- Direct payment checks of $ 600 / person and $ 300 / week in enhanced UI benefits;
- $ 284 billion in repayable loans under the Paycheck Protection Program;
- $ 25 billion for housing assistance;
- $ 82 billion for education providers and $ 10 billion for child care assistance;
- $ 13 billion for the Supplemental Nutritional Assistance Program and Infant Nutrition Benefits;
- $ 7 billion to strengthen broadband access;
- $ 45 billion to support transportation services; and
- A tax credit “to support employers offering paid sick leave”.
The Economic Aid Act also restarts the PPP loan program via the following guidelines (collectively referred to as the Economic Impact Act guidelines):
- “Temporary changes to the business loan program; Paycheck Protection Program as Amended »Interim Final Rule consolidating the rules for PPP forgivable loans for new borrowers and outlining the changes to the Economic Aid Act;
- “Temporary changes to the business loan program; Paycheck Protection Program Interim Final Rule for Second Drawdown Loans, providing guidelines for new PPP loans to businesses that previously received a PPP loan; and
- SBA’s “Access to Capital Advice for Minority-Owned, Underserved People, Veterans and Women” businesses.
PPP loans, maximum loan amounts and loan forgiveness
The PPP provides up to $ 2 million in additional financing to companies that had previously received a PPP loan (PPP second draw loans) with 300 employees or less, using the proceeds of the first PPP loan on the “qualifying expenses” before. second PPP loan disbursement (i.e. payroll, rent, mortgage interest covered, and utilities) and a 25% or more income reduction.
The Economic Aid Act also makes upfront loans available to borrowers “SBA 7 (a) eligible” (first-draw PPP loans) effective February 15, 2020, with 500 or fewer employees who are: sole proprietors, independent contractors, and qualifying self-employed workers; Nonprofit; food service operations; or news agencies or non-profit public broadcasters.
The maximum first-draw PPP loan amount is $ 10 million, first-time PPP borrowers can receive up to 2.5 times their average monthly payroll from the previous year (excluding earning employees over $ 100,000 / year), and hotel and restaurant PPP borrowers can receive up to 3.5 times their average monthly salary costs.
All PPP loans of $ 150,000 or less are canceled if the borrower submits a one-page attestation to the lender describing the total loan amount, the amount spent on payroll expenses, and the number of employees who can be retained due to the ready.
First and second draw loans can be canceled if the funds are used for “eligible costs”, defined in the first round of PPP as “payroll, rent, mortgage interest covered and utilities” and expanded by the directives of the law on economic aid to encompass:
- spending on worker protection and modifying facilities to comply with federal COVID-19 health and safety guidelines (including personal protective equipment);
- the cost of property damage related to vandalism or looting due to the public unrest of 2020 that was not covered by insurance or other compensation; and
- payments for business software or cloud computing services that facilitate: business transactions; delivery of products or services; the processing, payment or monitoring of salary expenses; human ressources; sales and invoicing functions; or accounting or tracking supplies, inventory, records and expenses.
To be eligible for full loan cancellation, PPP borrowers must spend at least 60% of the proceeds on payroll over a covered period of eight to 24 weeks.
Lack of Minority-Owned, Underserved, Veterans and Women Businesses Program
The Economic Assistance Act provides set-aside contracts for new and small borrowers, borrowers from low to moderate income communities, and community and smaller lenders, including:
- $ 15 billion in first and second draw PPP loans by community banks;
- $ 15 billion in first- and second-draw PPP loans by insured depositories, credit unions and institutions in the agricultural credit system with less than $ 10 billion in assets;
- $ 35 billion for new first-draw borrowers; and
- $ 15 billion and $ 25 billion for first- and second-draw PPP loans, respectively, to borrowers with up to 10 employees or for loans of less than $ 250,000 to borrowers in low- and moderate-income neighborhoods.
To ensure increased access to PPPs for businesses owned by minorities, underserved people, veterans and women, the SBA:
- only accept PPP loan applications from community financial institutions during the first two days of the reopening of the PPP loan portal;
- direct lenders match borrower demands with small lenders capable of helping traditionally underserved communities;
- match small businesses through matched lenders with certified development companies, farm credit system lenders, microcredit intermediaries and traditional lenders with smaller asset sizes; and
- work with the Federal Reserve Board of Governors on the PPP liquidity facility to enable PPP lenders, including non-bank 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
Exclusion of MRB loan affecting the plant
Although “MRBs affecting plants” are not eligible for any loan under the Economic Aid Act, “MRBs not affecting plants” may qualify for compensation.
Authorized and regulated by the state, MRBs affecting plants include plants that plant, grow, harvest, process / extract, test, package, dispose of, transport and distribute marijuana and any entity with a financial or controlling interest in them. . See “FIN-2014-G001: BSA Expectations for Marijuana Related Companies”, FinCEN, February 14, 2014. Companies that provide products and services to MRB-related factories, but do not directly manufacture, process, transport, distribute or distribute marijuana, are “not touching plants” BRMs.
Specific industries (including gambling, associations, lenders, life insurance, pyramid schemes, private clubs and exaggerated sexual nature) and those engaging in “illegal activities” are excluded of any eligibility for SBA loans. For eligibility for “7 (a) program”, “legality” depends on “the nature of the specific operations of the business” disqualifying “a direct marijuana business” ie a plant affecting MRB and an “indirect marijuana business” deriving any gross income from “products or services” sales to direct marijuana businesses “reasonably determined to contribute to the” use, growth, improvement or other development “of marijuana . See “Small Business Administration Standard Operating Procedures for Lender and Development Company Loan Programs,” April 1, 2019.
Indirect marijuana businesses include those that provide “testing services”, “grow lights, hydroponics or other specialized equipment” or “advice or guidance” on “legal, financial / accounting matters,” policy, regulation or other specifics related to the establishment, promotion or operation of a direct marijuana business. Conversely, the SBA expressly excludes a “plumber who repairs a sink” or a “technical support company repairing a laptop” from assistance with “use, growth, improvement or any other purpose. development ”of marijuana.
Thus, while being closed to plants affecting BRMs, BRMs that do not affect plants that do not “contribute to the consumption, growth, improvement or development of marijuana” are eligible for the benefits of marijuana. Economic Aid Act, including $ 284 billion in paycheck protection program repayable loans.
Steve schain is the lead attorney for the global cannabis law firm Hoban Law Group. With 17 offices and 54 lawyers, Hoban Law Group is the only firm 100% dedicated to cannabis and hemp law. Admitted to practice in Pennsylvania and New Jersey, Schain represents entities, governments and individuals in litigation, regulation, compliance, preparation and submission of license applications, entity formation and drafting of laws. Contact him at [email protected]