COVID-19 COVID-19 Whitep… · Please see a recap of the week’s releases below. SBA & Treasury’s Loan Forgiveness Application for Borrowers: • Relaxed Criteria on INCURRED &

COVID-19REGULATORY UPDATE &

BUSINESS CONSIDERATIONSM ay 1 8 , 2 0 2 0

SMALL BUSINESS LOAN UPDATE-LOCAL UPDATE

KDP Certified Public Accountants, LLP 2

The SBA & U.S. Treasury have issued several pieces of positive guidance related to the Paycheck Protection Program this week, including clarification of borrower eligibility criteria, as well as through issuing a Forgiveness Application that borrowers may use to compute their PPP Forgiveness amount. Within the Forgiveness Application, many of the INCURRED & PAID provisions have been defined, and generally relaxed. In other areas, such as the definition of Full Time Equivalents, the guidance differs from prior assumptions and should be reviewed carefully. Please see a recap of the week’s releases below.SBA & Treasury’s Loan Forgiveness Application for Borrowers: • Relaxed Criteria on INCURRED & PAID:

• Several PPP Loan forgiveness criteria have been relaxed over initial interpretations. New and critical concepts are introduced to borrowers in the attached Application (we recommend reading). A summary of key provisions is also provided below.

• Introduction of the elective “Alternative Payroll Covered Period” (“APCP”):• The APCP recognizes challenges many businesses face with respect to their pay periods not lining up with their PPP Loan 8-week

(56-day) Covered Period.• Key provisions of the APCP include:

• Borrowers with bi-weekly (or more frequent) payroll schedules may adjust their 56-day Covered Period (for Payroll Costs only) to begin with the First Day of the First Pay Period following receipt of their PPP Loan. For example:

• If PPP proceeds were received Monday, 4/20/2020, the businesses Covered Period begins Monday, 4/20/2020 and ends Sunday, 6/14/2020, • HOWEVER, if the First Day of the First Pay Period following PPP loan receipt is Sunday, 4/26/2020, then the borrower may elect to use an APCP,

• In such case: the First Day of the APCP would be Sunday 4/26/2020 and the last day of the APCP would be Saturday, 6/20/2020.

• If the APCP is elected, it must be used in all cases where the Forgiveness Application refers to the APCP. • The Covered Period must be used in all cases where the Forgiveness Application refers to the Covered

Period.

SMALL BUSINESS LOAN UPDATE


Other Payroll Provisions:• Payroll Costs are considered Paid on the day paychecks are distributed, or the day the ACH transaction is initiated.• Payroll Costs Incurred (but not paid during the last pay period in the Covered Period or APCP) ARE ELIGIBLE for Forgiveness if paid on or before the next regular payroll

date. Non-Payroll Costs (i.e. Other Eligible Expenses): • Non-Payroll Costs must be paid during the Covered Period (NOT the APCP – the APCP applies ONLY to Payroll Costs), OR• Incurred during the Covered Period and paid on or before the next regular billing date (even if the billing date is after the Covered Period).• Recall that Non-Payroll Costs cannot exceed 25% of the total forgiveness amount.Guidance on Full-Time Equivalent (FTE) Calculation:• Average FTE during the Covered Period (or if elected, the APCP) is calculated by each employee by dividing their average number of hours paid per week by 40, and

rounding the total to the nearest tenth.• The maximum for each employee is capped at 1.0.

• Alternatively, a simplified method may be elected: • Assign 1.0 for employees who work 40 hours or more per week• Assign 0.5 for employees who work fewer than 40 hours per week

• FTE Reduction Exceptions: • You may still count towards your FTE’s any employee(s) that (during your Covered Period, or if elected, your APCP) met the following conditions and ALSO was not replaced by a

new employee: • Was given a written rehire offer that was rejected by the employee,• Was terminated for cause,• Voluntarily resigned,• Voluntarily requested and received a reduced hourly schedule.

• FTE Reduction Safe Harbor: • Borrowers are exempt from the reduction in loan forgiveness based on FTE calculations if BOTH of the following conditions are met:

• The FTE reductions occurred between 2/15/2020 – 4/26/2020, AND• FTE levels were restored to the levels as of the 2/15/2020 pay period by no later than 6/30/2020

• Salary/Wage Reduction:• If salary/wage reductions were employed, there is a specific worksheet that must be completed within the application to determine what, if any, reduction in your forgiveness

amount is required.• Documentation:

• The Forgiveness Application provides detailed information regarding required and acceptable forms of Documentation to support expenditures/forgiveness on Page 10/ (of the attached document).

Clarification on Borrower Eligibility:• As mentioned in our note from May 13th, the SBA/Treasury drew a line in the sand with respect to review of the “Needs Certification”, scoping in all loans with a principal

balance of $2MM or higher, and indicating that businesses with loans of less than $2MM are presumed to have limited options/access to capital • Borrowers are still encouraged to ensure there are no conflicts within existing revenue contracts that may violate provisions on supplanting (primarily relevant to state or

federally-funded contracts).

Finally, the Oregon DOR issued an FAQ on May 6th that amounts related to EIDL emergency advances, SBA debt relief payments, or Forgivable PPP loans (whether or not forgiven) received by a business under the current Federal Relief Programs is not commercial activity, and thus NOT SUBJECT to the Oregon Corporate Activity Tax (“CAT”) -link to FAQ: https://www.oregon.gov/dor/programs/businesses/Pages/CAT/Beyond-CAT-FAQ.aspx

https://www.oregon.gov/dor/programs/businesses/Pages/CAT/Beyond-CAT-FAQ.aspx



PPP Frequently Asked Questions:• The link above is directed to the FAQ on the Treasury.gov website. There are

many Q&A’s across a variety of topics.• This has been helpful in a few circumstances (such as defining what is included

in the $100K compensation cap and confirmation of the covered period).• The FAQ is typically updated every 1-3 days, and new questions are added to

the bottom of the document. Check back often.Interim Final Rule 1 (4/2/2020):• This IFR was released the evening before the PPP went live, and provides a

robust amount of information regarding:• Program eligibility, loan calculations, “Payroll Costs” definition clarification, specifics

regarding exclusions from “Payroll Costs”, introduces and explains the “75%/25% Rule”for Payroll Costs to Other Eligible Costs, appropriate use of loan proceeds, preliminaryforgiveness information, and helpful information for lenders.

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

https://home.treasury.gov/system/files/136/PPP--IFRN%20FINAL.pdf



Interim Final Rule [3] on Applicable Affiliation Rules (4/3/2020):• This IFR primarily discusses rules on eligibility and affiliation, as well as helpful

guidance applicable to Faith-Based OrganizationsInterim Final Rule [4] on Additional Eligibility Criteria and Requirements for CertainPledges of Loans (4/14/2020):• This IFR includes a tremendous amount of very helpful information for

Independent Contractors and Self-Employed Individuals that have applied for andreceived the PPP.

• The IFR also includes a fair amount of contradictory information, particularly with respectto forgiveness for self-employed individuals: what will be forgiven and whatdocumentation will be required. Pages 11/-13/ are helpful, although a bit circular. Weexpect your Lender, the SBA & Treasury to clarify some of these provisions.

• While the IFR is specifically related to Self-Employed Individuals and IndependentContractors, some of the discussion is relevant for more traditional businesses,and gives a sense for what direction the regulators will lean for those entities

https://home.treasury.gov/system/files/136/SBA%20IFR%202.pdf

https://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Eligibility-Criteria-and-Requirements-for-Certain-Pledges-of-Loans.pdf



Interim Final Rule [5] on Requirements for Promissory Notes, Authorizations,Affiliation, and Eligibility (4/24/2020):• This IFR includes additional information re: Lender requirements and Eligibility.• Introduces the Limited Safe Harbor with Respect to Certification Concerning Need

for PPP Loan Request.Interim Final Rule [6] on Additional Criterion for Seasonal Employers (4/28/2020):• This IFR includes information largely applicable to Seasonal Employers.Interim Final Rule [7] on Disbursements (4/28/2020):• This IFR includes clarification regarding the waiting period and allowable tactics to

defer the start of your 8-week Covered Period. The IFR clarifies:• That the full loan must be disbursed in one lump sum,• That borrowers risk cancellation of their loans through deferral of signing and remitting

the promissory note to their lender in a timely manner (within 20 days of approval).

https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Requirements-for-Promissory-Notes-Authorizations-Affiliation-and-Eligibility.pdf

https://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Criterion-for-Seasonal-Employers.pdf

https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Disbursements.pdf



OTHER REMINDERS:SBA Relief Loans (information on SBA.gov):

• Economic Injury Disaster Loan Emergency Advance• This advance (of $10,000) can provide economic relief to businesses that are currently experiencing a temporary loss of

revenue.• Loan advance will not have to be repaid, but will reduce your PPP forgiveness amount, if applicable.• Funds will be made available following a successful application at https://covid19relief.sba.gov/#/

• SBA Express Bridge Loan• Allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000

quickly for those who have an urgent need for cash while waiting for decision and disbursement on an Economic InjuryDisaster Loan.

• Will need to be repaid in full or in part by proceeds from the EIDL loan



SAIF Worker Safety Fund:• SAIF Board of Directors approved a $10 million COVID-19 worker safety fund for “Safety Supplies”, to help policyholders pay for expenses tied to

making workplaces safer against the virus / addressing the impact of the pandemic on workers. This includes:• Worksite cleaning and disinfection supplies; resources to reopen businesses safely after a COVID-19-related closure; resources to redesign or modify

workspaces to encourage social distancing; and mental health and wellness initiatives.• All SAIF policyholders (including those in the assigned risk pool) will be eligible, and expenses incurred on or after March 1 will be considered.• SAIF will accept submissions until all funds have been expended or until the fund is no longer needed.• Employers may be able to submit expense reports to SAIF for safety related supplies for reimbursement. Application forms will be available at

www.saif.com when the application process is opened. You may also contact your insurance broker for more details.

• Payroll Tax Deferral• For organizations not pursuing, or not eligible for the PPP Forgivable Loans, the CARES Act establishes the ability to defer remittance of Federal Payroll

taxes for the period from March 27, 2020 – December 31, 2020, which would not be due until December 31, 2021.• This program allows all employers to defer payment of employer Social Security taxes (6.2% on the first $137,700 of wages) that are otherwise owed

for wage payments made after March 12, 2020, through the end of the calendar year.• The deposit due date for 50% of the taxes is deferred to December 31, 2021, with the remaining 50% deferred until December 31, 2022.• Employers applying for the CARES Act (PPP loan) ARE NOT eligible for these deferrals if such taxpayer has had indebtedness forgiven under the PPP

(i.e. CARES Act Section 1102).



• Employee Retention Credit (FAQ here, on the IRS website)The fully refundable tax credit is:• 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19

• This means: A maximum $5,000 total credit, per employee, if qualified wages paid after March 12, 2020 and before January 1, 2020 inall calendar quarters are at least $10,000.

• To qualify: Eligible Employers must fall into one of two categories (measures are calculated each calendar quarter):• The employer's business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.• The employer's gross receipts are below 50% of the comparable quarter in 2019. Once the employer's gross receipts go above 80% of

a comparable quarter in 2019, they no longer qualify after the end of that quarter.• Eligible Employers MAY NOT receive the Employee Retention Credit if they also have received a Paycheck Protection Program

(“PPP”) Loan.

• REMINDERS!• Oregon 2020 First Quarter tax estimates were due on 4/15/2020• Oregon Corporate Activity Tax (CAT) Estimates are still due on 4/30/2020• Please contact us if you have any questions regarding this tax or if you need assistance registering your business (registration

required after receiving $750,000 of gross receipts for 2020)

https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act

COVID-19 REGULATORY UPDATE (1 / 10)

AGENCY STATUS PROPOSED MEASURE SOURCE



“CARES” Act

Became Law: 3/27/20

Small Business Interruption Loans:• Available to any business concern, private nonprofit (except those receiving Medicaid

expenditures), and public nonprofit with fewer than 500 employees• Allowable expenditures:

• Payroll costs (salaries, commissions, other similar compensation)• Payroll support (sick, medical, family leave, costs of continuing health care benefits)• Employee salaries• Mortgage interest payments (no prepayments or principal payments)• Rent and lease payments• Utilities• Interest on other debt obligations incurred before covered period (2/15/2020)• Covered period for expenditures 2/15/2020-6/30/2020

• Maximum loan amount: • The lesser of $10,000,000 or• Multiplying the average total monthly payments for payroll costs incurred during the 1-

year period before the date on which the loan is made (unless the applicant is a seasonal employer, then an alternate calculation applies) by 2.5

• Borrower eligibility:• Business was in operation on 2/15/2020 and had employees for which the borrower

paid salaries and payroll taxes, or independent contractors as reported on Form 1099-MISC

https://www.congress.gov/






“CARES” Act

Became Law: 3/27/20

Small Business Interruption Loans, continued:• Loan forgiveness:

• Loan must be a covered loan, as obtained under this program• Forgiveness amount applies to payroll costs, covered mortgage interest, covered rent

obligations, covered utilities payments paid during the covered period (8 week-period following origination of the covered loan)

• Payroll costs may NOT include• Compensation of an individual employee in excess of an annual salary of

$100,000, as prorated for the covered period• Compensation for an employee whose principal residence is outside of the US• Qualified sick leave wages/family leave wages allowed under Families First

Coronavirus Response Act for which a payroll tax credit is allowed• Amounts forgiven are considered canceled indebtedness by a lender• Remaining loan balance after forgiveness is subject to a maximum maturity of 10 years

and a maximum interest rate of 4%• Lenders are required to provide complete payment deferment relief for borrowers with

covered loans for a period of not less than 6 months, including principal, interest, and fees, and not more than 1 year.







“CARES” Act

Became Law: 3/27/20

Recovery Rebates for Individuals:• All US residents with AGI under $75,000 ($112,500 for Head of Household and $150,000

married filing joint) are eligible for $1,200 rebate ($2,400 married), and additional $500 per child under 17

• Amount is reduced by $5 for each $100 the taxpayer’s AGI exceeds the above threshold• Amounts completely phased out for incomes exceeding $99,000 ($146,500 for Head of

Household and $198,000 for married filing joint)• Secretary to refund or credit “overpayment” attributable as rapidly as possible

Special Rules for Use of Retirement Funds:• Coronavirus-related distributions (diagnosis of self, spouse, dependent, or adverse financial

consequences) up to $100,000 avoid penalties applicable under early withdrawal circumstances

• Amounts distributed may be repaid at any time during the 3-year period beginning the day after the distribution was received, regardless of contribution cap for that year

• Income inclusion spread ratably over 3-taxable-year period beginning with such taxable year (unless taxpayer elects otherwise)

Increase in Charitable Contributions for Individuals(2020)• ($300) above the line deduction• Increases contribution limit to 100% of AGI







“CARES” Act

Became Law: 3/27/20

Business Provisions:Delayed Estimated Tax Payments

• Delayed Payroll Tax Payments• Employers’ 6.2% may be deferred from the time CARES is signed through 12/31/2020. Half of

the deferred amount is due on 12/31/2021 and the other half 12/31/2022• Does not apply if taxpayer has had indebtedness forgiven from loans available above

Modifications for Net Operating Losses (liquidity focus)• Generally able to carryback a loss from 2018, 2019, or 2020 for five years. • 80% limitation on NOLs is temporarily suspended

Excess Business Losses• Allows owners of pass-through entities to deduct excess business losses for taxable years

beginning before 1/1/2021

Immediate Expensing of Certain Costs• Retroactively corrects an error that prevented businesses from writing off certain

improvement costs to qualified improvement property

Limitation on Business Interest• Increases limitation from 30% to 50% of taxpayer’s adjusted taxable income for 2019 and

2020.







“CARES” Act

Became Law: 3/27/20

Business Provisions, continued:Acceleration of Credit for Corporate AMT Liabilities

• Eliminates previous limitation on minimum AMT tax credits carried forward.

Increase in Charitable Contribution Limitations• Increases a corporation’s charitable deductions from 10% to 25% of its taxable income for cash

contributions made during 2020.

Economic Stabilization:Emergency Relief Through Loans and Loan Guarantees

• Short term non-forgivable loans available under certain circumstances and with certain restrictions

• Geared towards large businesses (>500 employees)



COVID-19 REGULATORY UPDATE (6 / 10)AGENCY STATUS PROPOSED MEASURE SOURCE

CongressHouse Bill

6201

Became Law:

3/18/2020

• Bill “H.R. 6201”, a.k.a. Families First Coronavirus Response Act includes provisions such as:• Establishes the Emergency Paid Sick Leave Act, requires employers (ER’s) to provide FT employees

(EE’s) 80 hours paid leave to self-isolate (100% of regular rates) or care for a family member with the coronavirus (67% of regular rates), or due to interruptions in school or childcare as a result of the coronavirus pandemic (67% of regular rates). PT EE’s also qualify for pro-rata benefits.

• This benefit is available for immediate use, regardless of length of employment.• This is in addition to existing paid sick leave offered by the ER, • ER’s are required to post a notice of this benefit (Sec. of Labor to provide example).• This aspect of the bill, and the FMLA expansion below, both expire on December 31, 2020.

• Provides temporary expansion of Family Medical Leave Act (FMLA) for some EE’s of Co’s with fewer than 500 employees, including right to take up to 12-weeks of job-protected leave:

• First two weeks of leave may be unpaid (or EE’s may use sick time),• Requires that 10 of the 12 weeks be paid at 67% of regular rates,• Secretary of Labor may issue exemptions to certain groups, including:

• Small businesses with fewer than 50 EE’s, and• Certain Health-Care Providers/First Responders.

• Provides a series of refundable tax credits for ER’s providing paid Sick Leave or paid FMLA:• 100% of qualified FMLA wages against 3111(a) (ER portion of Social Security tax)

• Capped by EE at $200 per day and $10,000 for all calendar quarters,• Credits in excess of the ER’s total liability under 3111(a) for all EE’s in a calendar

quarter will be refunded to the ER.• 100% of qualified paid Sick Leave wages each calendar quarter.

• States will receive $1 billion in grants to fund Emergency Unemployment Insurance.



https://www.congress.gov/bill/116th-congress/house-bill/6201/text?q=%7B%22search%22%3A%5B%22COVID-19%22%5D%7D&r=45&s=4


COVID-19 REGULATORY UPDATE (7 / 10)AGENCY STATUS PROPOSED MEASURE SOURCE

CongressHouse Bill

6074

Became Law:

3/6/2020

• Bill “H.R. 6074”, a.k.a. Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020(includes provisions for items such as:

• Provides $8.3 billion in emergency COVID-19 related funding across various agencies for multiple purposes. Including but not limited to:

• Deems COVID-19 a “disaster”; appropriates $20 million to the Small Business Administration Disaster Loans Program Account for “Economic Injury Disaster Loans” under section 7(b)(2)(D) of the SBA;

• Developing, manufacturing, and procuring vaccines and other supplies;• Grants for state, local and tribal public health agencies.


IRS, US Treasury,

and Oregon DOR

Passed:

3/21/2020

• US Treasury Secretary, Mnuchin, announced that BOTH the Federal tax return due dates and payments originally due April 15, 2020 (as a result of both the 2019 tax year, and the first quarter of 2020) can be deferred to July 15, 2020 in an amount up to $1,000,000. Interest and penalties will be disregarded (waived) from April 15 through July 15. This applies to individuals, trusts, estates, corporations, and other non-corporate filers.

• The Oregon Department of Revenue messaged will not assess underpayment penalties to taxpayers making good faith estimates of their first quarter Corporate Activity Tax (CAT) payments, due April 30, 2020.

https://www.irs.gov/coronavi

rus

IRSAnnounced:

3/11/2020

• The IRS advised that high-deductible health plans (HDHP’s) can pay for COVID-19 testing and treatment without jeopardizing their status.

• Tax extension announced:• Extended to July 15 for taxable year 2019• Relief also includes estimated tax payments for tax year 2020 that are due 4/15/20• Contributions may be made to IRAs, HSAs, and Archer MSAs through due date

https://www.irs.gov/coronavi

rus


https://www.congress.gov/bill/116th-congress/house-bill/6074/text

https://disasterloan.sba.gov/ela/


https://www.cnn.com/2020/03/20/politics/steven-mnuchin-tax-day-july-15/index.html

https://www.irs.gov/coronavirus

https://www.irs.gov/coronavirus





Oregon Health Authority

Ongoing• The Oregon Health Authority posts regular updates regarding statistics surrounding

cases and counts in Oregon.• Johns Hopkins University & Medicine is a reputable source for global

information regarding the COVID-19 pandemic.

https://govstatus.egov.com/OR-OHA-COVID-19

Department of Education

Released:

3/20/2020

• To minimize the impact on our nation’s students, the DOE is temporarily waiving all interest on federally held student loans. Federal lenders have also been directed to allow borrowers to suspend their student loan payments without penalty for at least the next 60 days.

State of Oregon Employment Department

Released:

3/18/2020

• The Oregon Employment Department issued Temporary Rules for Unemployment Insurance Benefits Flexibility for “COVID-19 Related Situations”

https://www.oregon.gov/employ/Pages/COVID-

19.aspx

https://coronavirus.jhu.edu/

https://govstatus.egov.com/OR-OHA-COVID-19

https://www.oregon.gov/employ/Documents/OAR%20471-030-0070-temporaryrule.pdf

https://www.oregon.gov/employ/Pages/COVID-19.aspx





Oregon Governor’s Office

Ongoing

• Oregon Governor Kate Brown’s Office has issued a number of updates and guides over the past two weeks, including as of March 23, 2020:

• Ordering Oregonians to stay at home, closing specified retail businesses, requiring social distancing measures for other public and private facilities, and imposing requirements for outdoor areas and licensed childcare facilities.

• This order prohibits non-essential social and recreational gatherings outside of a home regardless of size, if social distancing measures cannot be taken.

• All businesses for which close personal contact is difficult or impossible to avoid are prohibited to operate (hair salons, gyms, malls, spas, etc.).

• All businesses are to facilitate work-at-home to the maximum extent possible. Work in offices is prohibited whenever telework and work-at-home options are available. When not available, businesses must designate an officer to establish, implement, and enforce social distancing policies consistent with guidance from the OHA.

• Childcare must be carried out in maximum stable groups of 10 or fewer children, and facilities must prioritize the childcare needs of first responders, emergency workers, and health care professionals, followed by critical operations staff.

• All public and private campgrounds are closed.

https://www.oregon.gov/gov/Pages/coro

navirus2020.aspx

https://www.oregon.gov/newsroom/Pages/NewsDetail.aspx?newsid=36192

https://www.oregon.gov/gov/Pages/coronavirus2020.aspx





Oregon Governor’s Office

Ongoing

• Oregon Governor Kate Brown’s Office has issued a number of updates and guides over the past two weeks, including as of March 23, 2020 (Continued) :

• Closure of Oregon public schools through the end of the school year.• Restaurants, bars, etc., may NOT offer food or beverages for on-site

consumption. They are restricted to carry-out and delivery only.• In order to preserve protective equipment and hospital beds, all non-urgent

health care procedures are postponed through June 15, 2020, including hospitals, ambulatory surgery centers, outpatient clinics, dental clinics, and veterinary clinics.

• Temporary moratorium on residential evictions for nonpayment.• Certain financial assistance programs for businesses, including a curated list of

resources available can be found here: http://www.oregon4biz.com/Coronavirus-Information/COVID19-Resources.php

https://www.oregon.gov/gov/Pages/coro

navirus2020.aspx

https://www.oregon.gov/newsroom/Pages/NewsDetail.aspx?newsid=36192

http://www.oregon4biz.com/Coronavirus-Information/COVID19-Resources.php

https://www.oregon.gov/gov/Pages/coronavirus2020.aspx

BUSINESS CONSIDERATIONSW E A T H E R I N G T H E S T O R M

Liquidity should be your PRIMARY consideration. Business Continuity and Preparedness Actions are discussed in the following slides.

Disruption on all levels is likely to continue until: 1. More accurate virus case counts are known, 2. New case counts start to stabilize, and 3. Patient recovery data becomes more readily available.

Anticipate a significant spike in COVID-19 case reporting by late March as testing and reporting processes improve (which is supported by the bills discussed above). Lack of available and reliable testing is the key constraint. In the U.S., millions of tests and testing centers are being implemented. As the test becomes more available expect a sharp, yet likely temporary, spike in numbers similar to China.

Being informed as these matters unfold greatly reduces panic responses, and helps inform decisions regarding near-term planning tactics.

37%

12%

25%

8%

18%

HEALTH OF THE BALANCE SHEET

Current Assets Long-term Assets Current Liabilities Long-term Liabilities Equity


HOW STRONG IS MY BALANCE SHEET?

• Maintaining a current ratio (Current

Liquid Assets ÷ Current Liabilities) at

1.25x or higher is critical.

• Higher is Better. This ratio indicates

the organization’s ability to cover

current debts as they come due.

• Consider solvency through debt to

equity and debt to assets ratios.

DO I HAVE AN EFFICEINT DEBT/CAPITAL STRUCTURE?

• Refinance Variable-Rate and High-Rate

Debts to Fixed given favorable rates.

• Secure a line of credit for emergencies/

• Diversify:

• Lending partners

• Loan maturity dates

21KDP Certified Public Accountants, LLP

BUSINESS CONSIDERATIONS (1 / 4)


WHAT STEPS ARE IN PLACE FOR TREASURY MANAGEMENT?

EMPHASIZE BUILDING CASH RESERVES TO SUSTAIN OPERATIONS THROUGH THE NEXT 60 – 180 DAYS:

• Prepare a Schedule of Projected Cash Flows over the Short-, Mid- and Long-term horizons• Cash Inflows (Cash Sales, Accounts Receivables Collections, Deposits):

• Project all sources incoming cash flows as accurately as possible• Ensure collectability and validity of backlog

• Cash Outflows (Expenses/Accounts Payable/Payroll/Debt Service/CapEx):• Identify key necessary cash outflows, and rank between:

• Required items (such as payroll, debt service, etc.), and, • Those that likely can be extended for a temporary period.

• Consider a plan to cover any cash projected deficits• Consider other ways to hold any further discretionary spending (see ops and payroll below)• Work with your lending institution to negotiate a line of credit

• Drawing from the line should only be done when critical; • Revolver balances should be paid down as quickly as feasible.



HOW SHOULD I THINK ABOUT MY INVESTMENT PORTFOLIO?EXTREME VOLATILITY IN EQUITY MARKETS IS LIKELY TO CONTINUE OVER THE NEAR TERM • As a result, we likely have not seen the bottom in the market. We caution that attempting to predict timing of the bottom is a

risky proposition. • The market is typically a 6-month leading indicator and can start to recover quickly, and often at times when panic appears to

be at a pinnacle.

• Successful Long-Term Investing Requires a Two-Pronged Approach:• The first task is mathematical: Invest in a diverse portfolio of assets (stocks, bonds, commodities, real estate, and more)

that fits your time horizon and risk tolerance. • The second task is to remain calm: trusting the strategy & staying committed through good times & bad.

• Downturns happen: whether from a viral outbreak, military strike, tech bubble, etc. • History has shown those who hold fast while others panic tend to be rewarded for their resolve.

• Capital markets are responding positively towards President Trumps seemingly reversal of the “timeline” of keeping businesses closed. On March 23, Trump recently announced that he anticipates reducing restrictions by Easter. This is a politically loaded decision that will be challenged as we approach this key date. That being said, this was the key indicator businesses were watching which caused a move between 8%-11% in the major US markets. Trump announced a balanced plan to tackle this public health crisis. Markets will continue to be volatile (both up and down) until further information is gained. Long investors understand the significant swings downward and upward during times of extreme uncertainty.



WHAT OPERATIONAL ADJUSTMENTS SHOULD BE MADE?

EVALUATION OF SUPPLY CHAINS AND STAFFING LEVELS NEEDED TO MAINTAIN CAPACITY

• Inventory and Supply chain considerations: • How can the organization overcome supply chain interruptions and significant delays?• Are there large inventory balances at risk of spoilage or obsolescence?• Are there opportunities to negotiate pricing, and or purchasing “requirements” with suppliers?

• Identify staffing levels needed to sustain anticipated level of operations over the near term:• Consider how your business would operate on a significantly reduced staff (i.e. up to 40%). • Consider options that spread the burden to your entire organization.

RIGHT NOW AS EMPLOYERS, WE HAVE THE RESPONSIBILITY TO TAKE CARE OF OUR PEOPLE FIRST



OTHER CONSIDERATIONS: INSURANCE & PEER GROUPS

WILL MY INSURANCE POLICIES PROVIDE RELIEF?

• It is strongly recommended that you connect with your agent/broker to understand coverages and options available to you. It is highly unlikely that your business interruption insurance will kick in as a result of this crisis. Often insurance contracts have specific exclusions for these types of situations. That being said, we still advise that you make the call to know where you stand.

HOW ARE BUSINESSES IN SIMILAR SECTORS REACTING?

• Build a peer network of similar businesses to understand what others are seeing, and what actions they are taking to conserve resources

ADDITIONAL INFORMATION



The White HouseDeclaration:

3/13/2020

• President Trump declared the Coronavirus Pandemic to be a National Emergency, opening a variety of funding mechanisms, authorities and avenues for the Secretary of Health and Human Services to employ.

https://www.whitehouse.gov/

The White HouseReleased:

3/16/2020

• President Trump and the White House Coronavirus Task Force released “The President’s Coronavirus Guidelines for America”, a tool to be leveraged over the next critical 15-day Window to slow the spread of COVID-19. See link to side.

https://www.whitehouse.gov/wp-content/uploads/2020/03/03.16.20_coronav

irus-guidance_8.5x11_315PM.pdf

Federal ReservePassed:

3/15/2020

• The Fed decreased the benchmark federal funds rate (by 100bps) to effectively 0.00%. This follows a 50bp cut just two weeks prior.

• Expected to last until confidence of employment & price stability goals are met.

• While rates can go “negative”, Fed messaged they are not anticipating at this time.

https://www.federalreserve.gov/covid-19.htm

https://www.whitehouse.gov/

https://www.whitehouse.gov/wp-content/uploads/2020/03/03.16.20_coronavirus-guidance_8.5x11_315PM.pdf


ADDITIONAL INFORMATION




3/15/2020

• Fed announced a $700 billion “quantitative easing” program to purchase $500 billion in Treasury Securities, $200 billion in mortgage-backed securities:

• This measure, successfully employed during the 2008 financial crisis, is designed to infuse cash into the economy to:

• Keep inflation in check, • Ensure consumers have access to credit, and • Ensure banks have access to capital.



3/17/2020

• Fed announced establishment of a Commercial Paper Funding Facility(CPFF) to support the flow of credit to households and businesses in an effort to keep unemployment and pricing in check.


Federal Reserve Passed:3/22/2020

• The federal financial institution regulatory agencies and the state banking regulators issued an interagency statement encouraging financial intuitions to work constructively with borrowers affected by COVID-29 and providing additional information regarding loan modifications.


Federal Reserve Passed:3/23/2020

• The Fed announced the Federal Open Market Committee (FOMC) will purchase Treasury securities and agency mortgage-backed securities in any amount necessary to support smooth market functioning.



https://www.federalreserve.gov/newsevents/pressreleases/monetary20200317a.htm


