Federal Lawsuit against SBA to change The PPP Loan

A lawsuit has been filed at The Federal Level in California by a group of businesses challenging the eligibility requirements of The Original CARES Act.
 
If you remember, way back when in March and early April when all of this began, that the intention of The CARES Act was to help businesses and entrepreneurs who were in need. Guidance, issued in the form of Frequently Asked Questions by The SBA actually stated that businesses owned by large corporations or private individuals who had access to existing liquidity were ineligible for PPP Loans.
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It further stated that borrowers should consider other sources of liquidity before applying . Lenders could rely on a borrower certification of need, but a borrower still had to certify in good faith that their PPP Loan request was necessary.
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I guess we all forgot that in order to get one of these things, we were all supposed to actually be in need.
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Think about it. Let’s say that you are a private Entrepreneur that has done what they were supposed to do over the years. You’ve paid your bills, filed your taxes, and saved your money. This thing hits last March. You put in for and receive a PPP Loan in the amount of $100,000.
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You do everything that you are supposed to do when it comes to payroll and operating expenses. You wait the eight or twenty-four weeks and put in your forgiveness application. But now it is denied. Why? Because they can prove that you had the $100,000 elsewhere. Or maybe they can prove that you had a Line of Credit in excess of $100,000 that wasn’t being used at the time.
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In other words, you were ineligible to borrow the money in the first place because under the law you did not “NEED” it.
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The suit further alleges that given these restrictions, borrowers may need to repay these loans with money that they don’t have, or may need to do further borrowings. These further borrowings would certainly not be at the preferred rates of the PPP Loan which would damage the plaintiffs.
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The purpose of the lawsuit is to stop The SBA from being able to do this.
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I will try to keep you informed as this lawsuit progresses.
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Let me leave you with this one thought…
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Our state has already met all of the metrics that have been put in place by our Governor to move us to Phase Four. Governor Pritzker is hesitant and unwilling to move us beyond our current point stating that the earliest possible date for this would be June 26th.
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Under Phase Four most businesses could reopen with social distancing guidelines in place. This means that a restaurant or bar that used to have a capacity of 100 might only have a capacity of half of that. The same is true for everything from a nursery school to a movie theater. Gatherings are limited to under 50 so that kills off all or most of the convention and event planning industries.
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There is only one point that I would like to make. It is in reference to The Phase Five reopening requirements where everything basically goes back to normal. My point is that in order to get to Phase Five, we must have a vaccine in place.
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And when is that going to happen?
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I’m not a Doctor, I don’t even play one on TV. But if what I am hearing and reading is correct, that answer could be never. It could be the fall or next spring. It could be a couple of years from now, or it could be never.
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I’m not going to get into the politics or the science behind all of this. I’m not going to get into what I think is right or wrong. But I am an Entrepreneur with 29 years under his belt, which has made me an extreme pragmatist.
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We are all going to need to figure out how to pay our bills under this new edict which is Phase Four.
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It’s pretty obvious, even if we are extremely lucky, that this is going to take quite a while. You will need to reconfigure your business and it’s cash flow in order to survive. Be realistic. If you only expect to bring in X, don’t be optimistic enough to assume X plus Y. Redesign your expenses to fit your new income projections. Do you really need all of those extra people if your revenues have been cut in half?
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Your variable expenses are one thing, but what about your overhead? Unless you do something drastic, that isn’t going to change. This may necessitate a pricing change. No one likes to talk about this. It isn’t fun. It isn’t a great time on a Saturday night. But you need to do whatever is necessary to survive this thing.
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If Pritzker sticks to his guns, we could be inside Phase Four for the next couple of years, maybe longer.
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We are here to help, and to do whatever we can to get you through these difficult times. If you need a meeting, let’s schedule it now. If you just need to talk, please call at your convenience.
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Let’s get this done.
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Accounting Solutions Ltd. stands ready to complete its mission and purpose to protect you, your family, and your business. Whatever you need, whether you are a current client or not, we are here to help. I’m here and I remain,
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Sincerely yours,
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Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
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www.AccountingSolutionsLtd.com
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