FINRA Update on CARES PPP, Broker Dealers and Net Cap (4/3/20)

FINRA COVID-19 / CORONAVIRUS INFORMATION / FAQs

NET CAPITAL TREATMENT OF COVERED LOANS UNDER THE CARES ACT

HERE is your link to the FINRA webpage discussing net capital treatment of a PPP forgivable loan for small businesses (CLICK HERE).

Here is a copy of what is on the FINRA FAQ page (copied and pasted straight from the FINRA site):

Q: Section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), provides that a recipient of a covered loan (as defined in Section 1106(a)(1)) is eligible for forgiveness of indebtedness on the covered loan in an amount (the “Forgivable Expense Amount”) equal to the sum of the following costs incurred and payments made during the eight-week period beginning on the date of the origination of the covered loan (the “covered period”):

1. Payroll costs (as defined in Section 1106(a)(8));

2. Any payment of interest on any covered mortgage obligation (as defined in Section 1106(a)(2)), which shall not include any prepayment of or payment of principal on a covered mortgage obligation;

3. Any payment on any covered rent obligation (as defined in Section 1106(a)(4)); and

4. Any covered utility payment (as defined in Section 1106(a)(5)).

Can member firms add back to net capital amounts that they expect to be forgiven under Section 1106?

A: A member firm that has included a covered loan as a liability on its balance sheet may add the Forgivable Expense Amount back to net capital to the extent the firm has recorded expenses for the costs and payments making up the Forgivable Expense Amount, provided that the add-back to net capital may not exceed the amount of the balance sheet liability for the covered loan that the firm reasonably expects to be forgiven pursuant to Section 1106 (taking into account among other things the limits under Section 1106(d) on the amount of forgiveness). Since the add-back cannot be greater than the balance sheet liability for the covered loan, the add-back cannot increase net capital by more than the balance sheet liability for the covered loan.

A member firm that makes such an add-back must create and retain documentation of the basis of the add-back, including a record of its computation of the Forgivable Expense Amount, a record of the costs and payments making up that amount, and a record of its estimate of any limits under Section 1106(d) with the basis for such estimate. On the firm’s FOCUS Reports, the add-back must be reported in Item 3525 (Other (deductions) or allowable credits).

Added April 2, 2020

Q: Can a member firm that has obtained a covered loan exclude the amount of the covered loan from aggregate indebtedness?

A: A member firm that has included a covered loan as a liability on its balance sheet may exclude such covered loan from aggregate indebtedness during the 8-week “covered period” after the origination of such covered loan. After the end of the covered period, such firm may exclude from aggregate indebtedness the amount of its liability for such covered loan that the firm is permitted to add back to net capital, as described above. Any part of the covered loan excluded from aggregate indebtedness may be included on the firm’s Statement of Financial Condition in its FOCUS Report Part II in Item 1380 (Other – Accounts payable and accrued liabilities and expenses”) or in Item 1385 (Accounts payable, accrued liabilities, expenses and other) in its FOCUS Report Part IIA.

Added April 2, 2020

FINRA staff listened to what we said and worked with the SEC to obtain this necessary and appropriate net capital relief so eligible small firms can apply for a PPP forgivable loan. We, your small firm advocates, GREATLY APPRECIATE FINRA's assistance with this time sensitive and, for many firms, critical issue; we would not have received this relief without their work with the SEC on our behalf.

TODAY IS "GO TIME" ON CARES/PPP LOAN APPLICATIONS!

CALL YOUR ACCOUNTANT AND DISCUSS WHETHER YOUR FIRM IS A CANDIDATE FOR THESE FORGIVABLE (UNDER CERTAIN CIRCUMSTANCES) LOANS!

Stay strong. Stay healthy. Stay in touch.

Paige

Paige W. Pierce

President

McLaughlin Ryder Investments, Inc.

ppierce@mclaughlinryder.com

(703) 684-9222 ext 215

(801) 949-5577 (m)