Page 10 - CooperatorNews NY March 2021

10 COOPERATORNEWS — MARCH 2021 COOPERATORNEWS.COM LAW & LEGISLATION You may have heard that thanks to co- operative corporations being included in costs, including employee benefits. Funds will be doing so in a fiduciary capacity as the new federal Stimulus Bill passed at can also be used to pay for mortgage in- the end of December, residential co-ops terest, utilities, worker protection costs held personally liable if he or she certifies can now obtain loans under the Fed’s Pay- check Protection Program (PPP). While damage costs caused by looting or van- this is fantastic news for communities dalism during 2020, and certain supplier application form also requires the co-op struggling with the ongoing financial im- pacts of the pandemic, it also raises lots of questions about applications, eligibility, however, that the application form for a and the rules around how funds are to be First Draw PPP Loan will require an offi- disbursed and allocated. The Rules The rules that govern co-ops’ eligibil- ity have finally been released by the US February 15, 2020, has not permanently false statement to obtain a guaranteed Small Business Administration (SBA). closed, and had employees for whom it loan from SBA is punishable under the Here’s an overview: First, the window for co-ops to seek a loan under the PPP is now open. In that this loan request necessary to support the five years and/or a fine of up to $250,000; regard, the Consolidated Appropriations ongoing operations of the Applicant; and Act, 2021 (the “Act”), signed into law on December 27, 2020, included a second workers and maintain payroll; or make not more than $5,000; and, if submitted to round of PPP funding for those busi- nesses who already got PPP funding— now known as a First Draw Loan—in the property damage costs, covered supplier than thirty years and/or a fine of not more first round, and also permits a First Draw costs, and covered worker protection ex- Loan for any business (now including co- ops, but not condominiums or homeown- ers associations) that did not get a First Draw Loan originally. Under the program, First Draw Loans shouldn’t lightly; any board member cer- can presently be used to help fund payroll tifying their co-op’s need for a PPP loan related to COVID-19, uninsured property false information or representations. To costs and operational expenses. Boards and managers should note, agree to the following statement: cer of the co-op to swear and attest to the es, the federal government may hold me following representations: • The Applicant was in operation on I understand that knowingly making a paid salaries and payroll taxes; • Current economic uncertainty makes 3571 by imprisonment of not more than • The funds will be used to retain not more than two years and/or a fine of payments for mortgage interest, utilities, a federally insured institution, under 18 covered operations expenditures, covered U.S.C. 1014 by imprisonment of not more penditures as specified under the PPP Rules. While the board certification re- quirement may seem like a formality, it to make very certain that an application a board member, and could possibly be make clear the gravity of the process, the officer executing the application form to “I understand that if the funds are knowingly used for unauthorized purpos- legally liable, such as for charges of fraud. law, including under 18 U.S.C. 1001 and under 15 U.S.C. 645 by imprisonment of than $1,000,000.” Based on the above, it is extremely im- portant for co-ops and the officers who may execute PPP loan application forms for a PPP loan is legitimate and above- board, and does not subject the co-op and its officers to liability, either personally or as a body. So if your co-op has suffered a drop in maintenance revenue, rent rev- enue from commercial tenants, and/or incurred other costs related to emergency supplies or property damage, it would seem reasonable to apply for PPP funds. However, if you are not sure whether your co-op is suffering financially from COVID-related circumstances, or ex- pects those circumstances to change, you should think carefully and consult with your co-op’s attorney and accountant be- fore proceeding with a PPP First Draw Loan. Note that just like the first round of PPP loans last year, new First Draw PPP Loans will be forgiven—but only if the following criteria are met during the 8- to 24-week covered period following loan disbursement: • Employee and compensation levels are maintained; • The loan proceeds are spent on pay- roll costs and other eligible expenses; and • At least 60% of the proceeds are spent on payroll costs. Other Important Considerations If you believe your co-op qualifies, there is another important consideration: If your co-op has an underlying mortgage (which nearly all co-ops do), the mort- gage documents for that loan most likely contain a restriction on additional bor- rowing without your bank’s approval. So while a PPP loan will likely be forgiven and therefore not need to be repaid - pro- vided your co-op follows all the rules and regulations regarding the use of the loan funds, as discussed above—a PPP loan is still technically a loan, and therefore con- stitutes additional debt, which will likely trigger a requirement to obtain your mortgage lender’s approval. For this reason, we believe it makes sense to contact the bank that holds your co-op’s underlying mortgage when apply- ing for a PPP loan. You can usually pro- cess the PPP loan application through that lender, which should enable you to address the consent issue at the same time. If you decide to process your PPP loan application through another lender (such as the bank where you have your Co-ops and the Paycheck Protection Program A Window to Obtain PPP Loans Opens BY MARC H. SCHNEIDER, ESQ. continued on page 17