The SBA-backed Paycheck Protection Program (PPP) is on hold right now after more than 1.6 million loans were approved since initial launch on April 3, 2020. Over the past two weeks companies and their respective banks have been working diligently to apply for and obtain these forgivable loans, exhausting all of the $349 billion earmarked for the program. The SBA has stopped taking applications until more funding for PPP is approved by Congress.
ACI strongly supports an extension of the program and believes that the PPP will be vital in helping the country recover from the coronavirus pandemic. While the Democratic and Republican parties are not aligned on the full scope of beneficiaries, should financial relief be expanded by the federal government, there has been bipartisan support for the additional $250 billion in PPP funding specifically designated for small businesses.
Banks struggling with loan volume
Over the past few weeks, ACI has been assisting clients with accumulating data for their PPP applications and coordinating the form submissions to our client’s respective banks. Fortunately, many ACI clients have elected not to apply, as they have been able to maintain operations and profitability in spite of COVID-19. In some instances the broker dealers have failed to qualify, primarily due to their payroll costs being allocated through Expense Sharing Agreements, whereby the affiliate of the broker dealer would be submitting the application on behalf of the consolidated entities. ACI has submitted applications on behalf of approximately 40 broker dealers to date.
While we have been extremely diligent in our efforts to get applications filed as accurately and efficiently as possible, we have experienced difficulties with the participating banks, as they are struggling with the sheer volume of applications. The banks are required to aggregate, review, and submit these applications to the SBA under extremely short time constraints, with no precedent as to what the outcome would be if the loans do not meet forgiveness criteria and the applicants then file for bankruptcy. Both the logistics and the risk have led to a lower success rate on approvals than we had initially hoped.
The SBA announced on April 16, 2020 that it would not accept any more applications until additional funding is authorized by Congress. It is unclear at this time what will be required for companies who are still seeking SBA loans as part of the potential second wave of PPP funding. We are hopeful that the already submitted applications will remain in queue and will be processed but there have been indications those who have previously submitted applications without success may need to re-apply, as stated by SBA spokesman Christopher Chavez.
While every firm’s situation is unique, we believe any business that applied and is still waiting for approval should be prepared to resubmit, if necessary, when the program is renewed. If you haven’t applied yet but are considering doing so, it would be prudent to have everything ready for when the admission process opens again. ACI is prepared to re-submit applications on behalf of our clients so we can maximize the likelihood of success for everyone who is searching for financial relief in these difficult times.
For your information, here are the program details:
Paycheck Protection Program loans explained
The CARES Act’s Paycheck Protection Program (PPP) allows qualified businesses with fewer than 500 workers to apply for a Small Business Loan to meet payroll costs. The loan is limited to the lesser of $10 million or the company’s average total monthly “payroll costs” for the 1-year period ending on the date the loan is made, multiplied by 2.5, plus any refinanced loan under the Economic Injury Disaster Loans (EIDL) program obtained after June 30, 2020.
Proceeds from a PPP loan may be used for payroll costs (as defined), employee benefits and commissions, interest payments on mortgages, rent, utilities, and interest on debt incurred before February 15.
A business can apply for loan forgiveness in an amount equal to the cumulative amount of payroll costs, rent, utilities, and interest paid on mortgages during the eight weeks after the loan is made. The amount forgiven is limited to the extent compensation and headcount are reduced relative to a base period, and any amount forgiven will not be taxable to the borrower.
ACI will continue to provide updates on our Resources page as we manage together through this challenging time. We hope everyone is taking proactive and precautionary measures to remain safe.
Paycheck Protection Program Update
/in News/by Shannon SandersonThe SBA-backed Paycheck Protection Program (PPP) is on hold right now after more than 1.6 million loans were approved since initial launch on April 3, 2020. Over the past two weeks companies and their respective banks have been working diligently to apply for and obtain these forgivable loans, exhausting all of the $349 billion earmarked for the program. The SBA has stopped taking applications until more funding for PPP is approved by Congress.
ACI strongly supports an extension of the program and believes that the PPP will be vital in helping the country recover from the coronavirus pandemic. While the Democratic and Republican parties are not aligned on the full scope of beneficiaries, should financial relief be expanded by the federal government, there has been bipartisan support for the additional $250 billion in PPP funding specifically designated for small businesses.
Banks struggling with loan volume
Over the past few weeks, ACI has been assisting clients with accumulating data for their PPP applications and coordinating the form submissions to our client’s respective banks. Fortunately, many ACI clients have elected not to apply, as they have been able to maintain operations and profitability in spite of COVID-19. In some instances the broker dealers have failed to qualify, primarily due to their payroll costs being allocated through Expense Sharing Agreements, whereby the affiliate of the broker dealer would be submitting the application on behalf of the consolidated entities. ACI has submitted applications on behalf of approximately 40 broker dealers to date.
While we have been extremely diligent in our efforts to get applications filed as accurately and efficiently as possible, we have experienced difficulties with the participating banks, as they are struggling with the sheer volume of applications. The banks are required to aggregate, review, and submit these applications to the SBA under extremely short time constraints, with no precedent as to what the outcome would be if the loans do not meet forgiveness criteria and the applicants then file for bankruptcy. Both the logistics and the risk have led to a lower success rate on approvals than we had initially hoped.
The SBA announced on April 16, 2020 that it would not accept any more applications until additional funding is authorized by Congress. It is unclear at this time what will be required for companies who are still seeking SBA loans as part of the potential second wave of PPP funding. We are hopeful that the already submitted applications will remain in queue and will be processed but there have been indications those who have previously submitted applications without success may need to re-apply, as stated by SBA spokesman Christopher Chavez.
While every firm’s situation is unique, we believe any business that applied and is still waiting for approval should be prepared to resubmit, if necessary, when the program is renewed. If you haven’t applied yet but are considering doing so, it would be prudent to have everything ready for when the admission process opens again. ACI is prepared to re-submit applications on behalf of our clients so we can maximize the likelihood of success for everyone who is searching for financial relief in these difficult times.
For your information, here are the program details:
Paycheck Protection Program loans explained
The CARES Act’s Paycheck Protection Program (PPP) allows qualified businesses with fewer than 500 workers to apply for a Small Business Loan to meet payroll costs. The loan is limited to the lesser of $10 million or the company’s average total monthly “payroll costs” for the 1-year period ending on the date the loan is made, multiplied by 2.5, plus any refinanced loan under the Economic Injury Disaster Loans (EIDL) program obtained after June 30, 2020.
Proceeds from a PPP loan may be used for payroll costs (as defined), employee benefits and commissions, interest payments on mortgages, rent, utilities, and interest on debt incurred before February 15.
A business can apply for loan forgiveness in an amount equal to the cumulative amount of payroll costs, rent, utilities, and interest paid on mortgages during the eight weeks after the loan is made. The amount forgiven is limited to the extent compensation and headcount are reduced relative to a base period, and any amount forgiven will not be taxable to the borrower.
ACI will continue to provide updates on our Resources page as we manage together through this challenging time. We hope everyone is taking proactive and precautionary measures to remain safe.
Paycheck Protection Program: What Small Broker-Dealers Need to Know Now
/in Regulatory Updates/by Shannon SandersonThe window is now open for businesses to apply for SBA-backed Paycheck Protection Program loans under the $2.2 trillion CARES Act that President Trump signed to help the country weather the coronavirus pandemic.
ACI understands many of our small broker-dealer clients are planning on using the program’s loans to cover payroll and operating costs during this crisis. Since net capital compliance is one of the most important functions ACI provides, we want to share relevant sections of FINRA’s guidance regarding the net capital treatment of covered loans.
The guidance may answer questions you have regarding a CARES Act loan and help guide you in your decision on whether or not to apply. While the provisions of the CARES Act are still being assessed industrywide, ACI stands ready to help you with the process.
Paycheck Protection Program Loans Explained
The CARES Act’s Paycheck Protection Program (PPP) allows qualified businesses with fewer than 500 workers to apply for a Small Business Loan to cover payroll costs. The loan is limited to the lesser of $10 million or the company’s average total monthly “payroll costs” for the 1-year period ending on the date the loan is made, multiplied by 2.5, plus any refinanced loan under the Economic Injury Disaster Loans (EIDL) program obtained after June 30, 2020.
Proceeds from a PPP loan may be used for payroll costs (as defined), employee benefits and commissions, interest payments on mortgages, rent, utilities, and interest on debt incurred before February 15.
A business can apply for loan forgiveness in an amount equal to the cumulative amount of payroll costs, rent, utilities, and interest paid on mortgages during the eight weeks after the loan is made. The amount forgiven is limited to the extent compensation and headcount are reduced relative to a base period, and any amount forgiven will not be taxable to the borrower.
The good news is that U.S. Treasury Secretary Steve Mnuchin last week said that the federal government has the full intention of committing more funding if PPP loan requests total more than the $350 billion already pledged. He said the program has “huge” bipartisan support.
FINRA Guidance on the Net Capital Treatment of Covered Loans
FINRA has provided guidance on the PPP loans, confirming that the loan balances will be considered non-aggregate indebtedness. This ensures that broker dealers who receive PPP loans cannot be placed in a worse net capital position as a result of an approved loan application. Qualifying expenses related to the loans may be added back to net capital, to the extent they qualify for forgiveness under the SBA program.
More specifically, a firm that has included a covered loan as a liability on its balance sheet may add the amount of qualifying expenses back to net capital to the extent it has incurred expenses that would be eligible for forgiveness. The add-back to net capital may not exceed the amount of the balance sheet liability for the covered loan that the firm reasonably expects to be forgiven under the CARES act. Since the add-back cannot be greater than the balance sheet liability for the covered loan, the add-back cannot increase net capital by more than the balance sheet liability for the covered loan.
FINRA also stated a firm that has included a covered loan as a liability on its balance sheet may exclude the covered loan from aggregate indebtedness during the 8-week “covered period” after the origination of such covered loan. After the end of the covered period, such firm may exclude from aggregate indebtedness the amount of its liability for such covered loan that the firm is permitted to add back to net capital, as described above.
For more details on FINRA’s guidance and what needs to be included in a FOCUS report, click here.
Net Capital Treatment of Deferred Annual Assessment from FINRA
FINRA has stated that firms with fewer than 150 registered persons can treat the annual assessment invoices that are distributed this month as billed as of August 1, rather than as due upon receipt. Also, small firms can choose to pay 50% of the amount due on September 1, 2020 and the remaining 50% on December 1, 2020.
Small firms should, consistent with obligations under Generally Accepted Accounting Principles (GAAP), determine whether they should accrue a liability for the 2020 annual assessment. To the extent a liability is accrued for the unpaid annual assessment, small firms will be permitted, until September 1, 2020, to add back the amount of such liability to their net worth for purposes of computing net capital and, to the extent applicable, to exclude the liability from their aggregate indebtedness in computing their minimum net capital requirement.
For more details on FINRA’s guidance and what needs to be included in a FOCUS report, click here.
ACI will continue to provide updates on our Resources page as we manage together through this challenging time. We hope everyone is taking proactive and precautionary measures to remain safe.
Relief Is in Sight
/in Informational, News, Regulatory Updates/by Jay GettenbergThe $2.2 trillion CARES Act contains key provisions, which may directly assist small broker-dealer firms in weathering the COVID-19 pandemic crisis.
While the provisions of the CARES Act are still being reviewed, we want to share with you some points that may assist you with retaining your employees and keeping your operations running as smoothly as possible.
Financial Services Sector Designated an Essential Critical Infrastructure Sector in this Coronavirus Pandemic
/in Informational, News/by Shannon SandersonACI’s broker dealer and investment advisory clients, as well as ACI itself, qualify as part of the DHS-designated Essential Critical Infrastructure Workforce for the financial industry.