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Food Venture Financing News - Weekly Issue No. 15

06.30.20
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In This Issue:

PPP Loan Changes

PPP Maturity

  • The Paycheck Protection Program Flexibility Act enacted on June 5th extended the term of PPP Loans from 2 to 5 years.
  • The SBA clarified last week that an extended term only applied to PPP Loans originated on or after June 5th; any then-existing loans retained the 2 year term unless the borrower and lender agreed to extend the term.
  • If you received a loan prior to June 5th and are interested in an extended term, we recommend contacting your lender as soon as possible.

PPP Forgiveness Applications

  • The standard PPP loan forgiveness application can be found here.
  • An "EZ" version that requires fewer calculations and less documentation for eligible borrowers that (i) are self-employed and have no employees; or (ii) did not reduce the salaries or wages of their employees by more than 25 percent, and did not reduce the number or hours of their employees; or (iii) experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25 percent, can be found here.

Personal Liability for PPP or EIDL Loans

  • Nearly a quarter of small businesses are considering closing permanently due to COVID-19, one survey found.
  • All PPP loans and EIDL loans under $25,000 do not require collateral or personal guarantees from the business or business owner.
  • EIDL loans exceeding $200,000 require a personal guarantee.
  • PPP and EIDL loans can generally be discharged in bankruptcy under the Small Business Reorganization Act. 

Spending Restrictions for EIDL Loans

The following expenses are not eligible uses with the proceeds of an EIDL loan: 

  • Dividends and bonuses
  • Disbursements to owners, except when directly related to performance of services
  • Repayment of stockholder/ principal loans
  • Expansion of facilities or acquisition of fixed assets
  • Repair or replacement of physical damages
  • Refinancing long term debt
  • Relocation 

SBA EIDL Loan Forgiveness

  • Forgiveness of an EIDL loan by the SBA is discretionary.
  • The SBA does not forgive the debt of businesses that are still in operation.
  • The SBA will typically pay off 50-75 percent of EIDL debt to the bank after the bank determines that the borrower is insolvent.
  • The SBA may seek to collect the balance due through the Treasury Offset Program (TOP), or its Fiscal Service department.
  • Any future tax refunds owed to the EIDL borrower by the federal government will be taken to cover EIDL debt to the SBA through the TOP.
  • The SBA's Fiscal Service may pursue conventional collection actions for the balance due under an EIDL loan. 
  • Large CPG companies have gained in cash efficiency and are more involved in acquiring and investing in emerging food tech companies.
  • While valuations overall are down, valuations in the natural foods and supplements sector have been stable and even accelerating for some companies.
  • Although the dairy sector has been steadily improving with government assistance, the sector may face hurdles when government aid runs out due to the decreased demand for dairy products.
  • Recent studies have found that consumers are more likely to embrace food tech innovation with 58 percent of consumers believing that science and innovation will lead to more sustainable and healthier food products.
  • A new report by Credit Suisse states that sales for CPG products have increased by 20 percent compared to 2019, indicating that consumer continue to prepare meals at home.

Articles

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.

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