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Food Venture Financing News - Weekly Issue No. 7

05.05.20
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In This Issue:

PPP Financing and Economic Need

  • The Treasury Department published an interim rule last week highlighting that borrowers must assess their economic need when applying for a PPP loan.
  • Borrowers must certify in good faith that "current economic uncertainty makes this loan necessary to support the ongoing operations of the Applicant."
  • Portfolio companies of private equity firms must consider whether they can make that certification in good faith.
  • The range of factors to be considered in evaluating economic need include the following:
    • Current and projected impact of COVID-19 on the company's business as well as any uncertainties in those projections, such as potential client or customer communications with the companies regarding future business transactions;
    • Business history and performance during recent economic downturns (if applicable);
    • Current cash reserves or other capital as well as the company's ability to access other sources of capital and the terms of other sources of capital;
    • Current or future plans to retain or reduce workforce or payroll costs as well as the ability of the company to restore such workforce to pre-COVID-19 levels;
    • Competitors' measures and responses to COVID-19's effects on business;
    • Any other actions the company has taken or is considering to address economic uncertainty not associated with workforce or payroll reduction.
  • Any recipient of a PPP loan that returns funds by May 7th will be deemed to have made the certification in good faith.
  • The Treasury Department will audit all PPP loans in excess of $2 million.
  • The Treasury Department FAQs can be found here.

Third Tranche of PPP Loans?

  • Banking groups say that the majority of the $310 billion in second tranche PPP funding may already be used up given the high volume of applicants already in the queue.
  • Senate Majority Leader Mitch McConnell (R-Kentucky) has signaled that in future PPP rounds, if any, Congress will have to exert some level of economic "caution."
  • Future rounds of PPP funding may not include a loan forgiveness component.
  • The requirement that 75% of PPP loan proceeds must be spent on payroll costs such as salaries and benefits may also be changed.

IRS Guidance/PPP Loan Forgiveness

  • The IRS has indicated that, to the extent any business expense is paid with funds from a PPP loan that is subsequently forgiven, business expenses cannot be deducted for federal tax purposes as expenses incurred in a trade or business.

EIDL and Agricultural Businesses

  • SBA announced yesterday that it is now accepting Economic Injury Disaster Loan applications from agricultural businesses impacted by COVID-19. This may help bolster supply chains for food companies that contract for domestically grown raw materials, particularly in high-value specialty crops.

Webinars

In a webinar co-hosted last week by Naturally Bay Area and North Bay FIG, Blair Kellison, CEO of Traditional Medicinals, presented his vision of how food and natural products company leaders can best lead in the COVID-19 business environment. You can view his very compelling presentation here.

Food System and Disaster Relief Efforts in Our Industry

Farmers and ranchers are on the frontlines of the current COVID-19 food system support. Kitchen Table Advisors provides personalized, in-depth business advising support to over 60 sustainable family-run farms and ranches in Northern California. KTA is helping those farms and ranches navigate a variety of business challenges, including cash flow planning, emergency financing applications, new sales accounts, and other mission-critical functions. Contact Noelle Fogg Elibol for more information at noelle@kitchentableadvisors.org.

Visit the links below to learn more about organizations that are working on COVID-19 relief efforts:


At Davis Wright Tremaine LLP (DWT), we are proud to have one of the largest Food & Beverage legal practices in the country, with over 40 attorneys representing food innovators, entrepreneurs, and investors at every level of the food chain, from Farm to Label.

Please contact our Food and Beverage team if we can assist you in any way in these unprecedented times.


The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.

DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.

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