Page 10 - CooperatorNews New Jersey Spring 2021

10 COOPERATORNEWS NEW JERSEY —SPRING 2021 NJ.COOPERATORNEWS.COM LAW & LEGISLATION You may have heard that co-ops can now obtain loans under the federal government’s Paycheck Protection Program (PPP) as a re- sult of their being included in the new Stim- ulus Bill. The rules governing the inclusion have finally been released by the US Small Business Administration. First, the window for co-ops to seek a loan under the PPP is now open. In that re- gard, the Consolidated Appropriations Act, 2021 (the Act), signed into law on December 27, 2020, included a second round of PPP funding for those businesses that already got a PPP Loan (now known as a ‘First Draw’ loan) and also permits a First Draw loan for any business (which now includes co-ops— but not condominiums or homeowners as- sociations) which did not get a First Draw loan originally. Under the program, First Draw loans can presently be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, utilities, worker protection costs related to COVID-19, unin- sured property damage costs caused by loot- ing or vandalism during 2020, and certain supplier costs and expenses for operations. You should note, however, the application form for a First Draw PPP Loan will require an officer of the co-op to swear and attest to the following representations: 1. The applicant was in operation on Feb- ruary 15, 2020, has not permanently closed, and had employees for whom it paid salaries and payroll taxes; 2. Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant, and; 3. The funds will be used to retain work- ers and maintain payroll; or make payments for mortgage interest, utilities, covered oper- ations expenditures, covered property dam- age costs, covered supplier costs, and covered worker protection expenditures as specified under the PPP Rules. You should not take this certification lightly, as any board member certifying the need for a PPP loan will be doing so in a fidu- ciary capacity, and therefore could possibly be held personally liable if certifying false in- formation or representations. In that regard, the application form also requires the officer of the co-op who executes the application form to agree to the following statement: “I understand that if the funds are know- ingly used for unauthorized purposes, the federal government may hold me legally li- able, such as for charges of fraud. I under- stand that knowingly making a false state- ment to obtain a guaranteed loan from SBA round of PPP loans last year, new First Draw enable you to address the aforementioned is punishable under the law, including under PPP loans will be forgiven—if during the 8- consent issue at the same time. If you de- 18 U.S.C. 1001 and 3571 by imprisonment of to 24-week period following loan disburse- not more than five years and/or a fine of up ment, the following are true: to $250,000; under 15 U.S.C. 645 by impris- onment of not more than two years and/or a maintained fine of not more than $5,000; and, if submit- ted to a federally insured institution, under costs and other eligible expenses 18 U.S.C. 1014 by imprisonment of not more than thirty years and/or a fine of not more spent on payroll costs than $1,000,000.” Based on the above, it is extremely im- portant for co-ops—and the officers who op has an underlying mortgage (which near- may execute PPP loan application forms—to ly all co-ops do), the mortgage documents are limited and given on a first-come-first- make absolutely certain that an application for that loan most likely contain a restriction served basis, time will be of the essence to for a PPP loan is accurate, honest, and sub- mitted in good faith. In that regard, if your prior approval. This matters, because while a regard, borrowers can apply for a First Draw co-op has experienced a drop in maintenance PPP loan will likely be forgiven and not need PPP loan until March 31, 2021. As indicated revenue, rent revenue from commercial ten- ants, and/or unexpected costs due to damage the rules and regulations regarding the use not include condos and HOAs, who current- or the need for supplies, it would seem rea- sonable to apply. However, if you are not sure nically a loan, and therefore constitutes ad- whether your co-op is suffering financially ditional debt—which will likely trigger a re- from COVID-related circumstances, or if quirement to obtain your mortgage lender’s you expect those circumstances to change, approval. For this reason, we believe it makes you should think carefully and consult with sense to contact the bank who holds your co- your co-op’s attorney and accountant before op’s underlying mortgage when applying for proceeding with a PPP First Draw loan ap- plication. It should be noted that just like the first plication through that lender—which will • Employee and compensation levels are where you have your operating or reserve • The loan proceeds are spent on payroll proval from your mortgage lender—again, • At least 60 percent of the proceeds are provide. You should also check your govern- If you believe your co-op qualifies, there is other limitations or conditions on obtaining another important consideration: If your co- on additional borrowing without your bank’s apply for and obtain your PPP loan. In that to be repaid (provided the co-op follows all above, unfortunately, this stimulus bill did of the loan funds), a PPP loan is still tech- a PPP loan. You can usually process the PPP loan ap- cide to process your PPP loan application through another lender (such as the bank accounts), you will likely need to obtain ap- depending on what your loan documents ing documents to make sure there are no a loan. Since the funds available for PPP loans ly remain ineligible for PPP money. n Marc H. Schneider is a partner at the New York-based law firm of Schneider Buchel, LLP, specializing in the legal concerns of co-op, con- do, and HOA communities. Some Co-ops Eligible for PPP Loans The Window Is Open—With Conditions BY MARC H. SCHNEIDER, ESQ.