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Food Venture Financing News - Weekly Issue No. 8

05.12.20
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In This Issue:

SBA Inspector General's Report Challenges SBA Guidelines

  • On May 8th the SBA's Inspector General issued a report stating that the SBA did not follow several congressional mandates in implementing the PPP program.
  • The SBA's failure to issue guidance to lending institutions to prioritize underserved communities was criticized by the SBA's Inspector General.
  • The report also found that the SBA issued rules that required borrowers to use 75% of the funding on payroll costs to receive full forgiveness of their loan, even though the CARES Act didn't mandate any specific amount to be dedicated for payroll expenses.
  • The SBA's Inspector General recommended that the SBA reconsider its requirement that 75% of every PPP loan be allocated to payroll.

PPP Safe Harbor Deadline Extended to May 14th

  • To encourage PPP borrowers to return funds they may not truly need, the SBA extended its safe harbor deadline for returning funds to May 14th.
  • Borrowers are likely to continue to be evaluated by the SBA on the economic need requirement.

PPP Loan Forgiveness

  • The CARES Act specifies that a PPP loan recipient has 56 days after it receives its PPP loan funding to use at least 75% of it for payroll expenses.
  • If PPP borrowers use less than 75% of their PPP funding for qualified payroll expenses, the difference will be subject to repayment at a 1% interest rate.
  • If PPP loans are not forgiven, payments are deferred for six months, with a two-year period repayment term commencing at that point.
  • The SBA audit period could extend from 3-6 years after the loan is forgiven.
  • A PPP lender has to make a decision on a PPP forgiveness application within 60 days. Borrowers will have to supply the following as part of their loan forgiveness application
    • Documentation verifying the number of full-time equivalent employees on payroll, and their pay rates
    • Payment verification for covered mortgage obligations, lease obligations, and utility payments
    • Certification that the documentation presented is true and correct, and that the amount for which forgiveness is requested was used for eligible expenses
    • Any other related paperwork the lender requests

Employer Checklist for Business Reopenings

Food and Beverage Financings

  • The food and beverage sector continues to be a high value sector for investors due to the continued demand for food and beverage products.
  • Companies should continue to focus on seeking capital from multiple sources - convertible promissory note offerings, extensions of prior financing rounds, and government programs.
  • While private equity funds continue to focus on current-pipeline deals and existing investments in their portfolio companies, food ventures should continue to network and build connections for future financing rounds.
  • Equity financings may be smaller and take longer during the pandemic.
  • Plant-based meat companies and branded CPG food companies with a strong e-commerce component are receiving the most interest from investors as a result of the COVID-19 crisis.

Articles

Webinars

Food System and Disaster Relief Efforts in Our Industry

  • ReFED CO-19 Food Waste Solutions Fund
     The ongoing COVID-19 crisis has upended our food system, resulting in a surge of on-farm food loss, food business closures, and a skyrocketing number of food insecure individuals. In response to these challenges, ReFED launched the ReFED COVID-19 Food Waste Solutions Fund to quickly deliver vital funding to organizations that can rescue food before it is wasted and get it to those who need it so urgently.

    ReFED has started to grant $1 million to a portfolio of organizations that will — in the next 90 days — prevent more than 10 million pounds of food or 8.3 million meals from being wasted.

    The Fund's first set of grants have been made to four organizations on the front-lines of COVID-19 to scale their impact immediately:
    • Forager: Enables a digital community of farmers, producers, grocers, restaurants, and consumers. Over the next 90 days, they will expand the reach of the tech platform to 10 states.
    • SeaShare: Sources and processes high quality, donated seafood and has distributed over 3.5 million servings to Feeding America food banks over the past two months.
    • Boston Area Gleaners: Rescues surplus farm crops for people in need. They are scaling cold-storage and repacking facilities and expanding the geographic reach of produce sourcing in light of COVID-19.
    • Food Rescue US: Operates a technology-based last-mile meal prep operation. In response to COVID-19, they launched Restaurant Meal Programs and Community Kitchen, a collaboration with World Central Kitchen.

    Contact alexandria.coari@refed.com for more information
  • Kitchen Table Advisors
    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.

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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