We continue our efforts to keep you informed of key legal developments relating to COVID-19. Today, we highlight developments on economic assistance programs and worker safety, as well as procurement opportunities and local issues in the real estate sector.
For our previous updates, please see HERE.
SBA Safe Harbor on Borrower Certification for PPP
As we explained in last week’s update (see HERE), PPP borrowers are required to certify in their application that the “current economic uncertainty makes the loan request necessary.” SBA guidance issued after the commencement of the PPP program and remarks by public officials have raised borrowers’ uncertainty regarding the basis for this certification as well as concern regarding liability for improper certifications. To further compound borrowers’ concerns on this issue, SBA has announced that borrowers have until tomorrow, May 14th, to return PPP loans that they have already received without further scrutiny from the SBA on the certification requirement. This situation is leaving many borrowers wondering if they should return their loans to avoid any risk that their certifications will subsequently be deemed improper.
The good news is that the guidance provides a safe harbor for borrowers whose PPP loans are less than $2 million (considered together with any PPP loans to any of their affiliates). The SBA makes clear that “[a]ny 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.”
Even for borrowers receiving $2 million or more in PPP funds, the good faith test is subjective. We have been advising clients who have received PPP funds to take steps now to document their thought process relating to their business’ needs and the economic uncertainty that their businesses were facing at the time they applied. These uncertainties would likely include uncertainty as to the depth and duration of the pandemic and its potential effect on revenues, employees, and access to financing.
We do not believe that the cash balance of an applicant or its existing credit lines or access to funds precludes a good faith certification for most applicants given the tremendous uncertainties that the pandemic initially presented and which persist. It is also advisable to adopt board resolutions approving the application which contain recitals or other language incorporating some of these considerations. It is likely that lenders may be asked by the SBA to request additional documentation from their PPP borrowers relating to this certification, perhaps in connection with documentation relating to the forgiveness of the loan.
Moreover, even if the SBA determines through an audit that a borrower must repay its loans because it lacked an adequate basis for the certification concerning the necessity of the loan request, the SBA provides in FAQ #46: “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.”
Finally, the SBA issued a report last Friday on the second round of PPP loans (see HERE). As of this writing, there is still funding available. We have been in discussions with lenders who continue to process applications. Please continue to reach out to us if you need further guidance on whether and how to apply for PPP loans, as well as how to maximize the forgivable portion of the loan (see our prior update on this issue HERE).
Main Street Loans
We described in a prior update the Federal Reserve’s expansion of the Main Street Lending program (see HERE). These loans will be available to eligible borrowers in the coming days and weeks, and we plan to report on further guidance as it is released.
State and Local Economic Assistance Programs
Illinois Fast-Track Grants for Infrastructure Projects: Governor Pritzker has announced that the State will be leveraging “Rebuild Illinois” dollars to support summer public infrastructure projects and construction jobs (see HERE). With many local governments facing lost revenues, the State will offer $25 million in Fast-Track grants to local public infrastructure projects that are scheduled to begin this summer. The grants will range from $300,000 to $5 million and will be distributed on a rolling basis, with projects submitted in underserved areas given priority. The Fast-Track grants will help restore key public works projects that may have otherwise been cancelled and will help skilled labor return to the job in time for the construction season.
Illinois Department of Central Management Services (“CMS”): CMS has released a flyer detailing state and local economic resources and providing links for economic assistance programs. We are attaching this flyer with our email correspondence today.
While we have touched on many of these programs in our previous updates, the flyer provides a consolidated list and includes some nuanced information that may be relevant to some industries in specific circumstances. For instance, the Illinois Treasurer’s office has made $500 million in deposits available to banks and credit unions throughout the state, at near-zero rates, to help facilitate assistance to Illinois small businesses and non-profits negatively affected by the COVID-19 pandemic. Other links include information on tax relief, W/MBE resources, and loan and grant guidance.
OSHA Complaints and Enforcement Actions
We understand that OSHA is receiving a large number of complaints pertaining to COVID-19-related issues in workplaces in Illinois. The complaints often center on general violations of CDC guidelines (i.e. social distancing, hygiene practices, etc.), lack of proper personal protective equipment (“PPE”), inadequate or nonexistent COVID-exposure prevention plans, or a lack of training on these issues. As a result of these complaints, OSHA has begun actively conducting investigations of employers in Illinois, both through in-person inspections and through remote means, with enforcement (including issuance of citations) likely to follow. As before, we encourage you to regularly visit OSHA’s website for updates (see HERE), as its recommendations and guidance is constantly evolving. In the meantime, please feel free to contact us with any questions or concerns on OSHA-related issues.
A prominent Chicago Alderman has announced a major policy change in reaction to the anticipated slow-down of real estate development. Alderman Walter Burnett, Jr. represents Chicago's 27th Ward. The 27th Ward includes the Fulton Market District, the home to Google and Mondelez, and world-class dining. For years, Alderman has had a clear and unvarying policy against rezoning property in the 27th Ward for residential development north of Lake Street. Last week, he announced he would start considering such proposals because: "[w]e want to keep economic development happening in the City."
We are monitoring with interest other policies changes that may come to encourage economic activity in the aftermath of the COVID-19 pandemic in the greater metropolitan area. Encouragingly, at least one policymaker in Chicago has been willing to change what had been a hard line.
While the pandemic has affected many businesses, many essential services continue to be required by local and state government agencies. As a result, there are currently contracting opportunities available for goods, services and construction work. Information regarding contracting opportunities can be found below.
State of Illinois
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Feel free to contact us with any questions.
Gery Chico, Jon Leach, and Alpita Shah