COVID-19 Assistance Resources
A number of assistance programs available to businesses are components of the Coronavirus Aid, Relief, and Economic Security Act, otherwise known as the “CARES Act.,” signed into law by the President on Friday. This is a $2 trillion economic stimulus package that has a number of assistance measures that may benefit your business. Our team is dedicated to understanding the assistance programs available to small businesses, and we want to empower you, along with your advisors, to make informed decisions.
The following information is intended to serve only as a starting point; you should supplement the below with your own research and treat it as subject to change even though the bill has been signed, as we get further clarification. Please note that much of the detail won’t be known until the Small Business Administration (SBA) issues guidance and banks begin reviewing applications.
Paycheck Protection Program Loans
Only you and your advisors can make the decision whether to apply for the Paycheck Protection Program loans, but if you anticipate your business running into cash flow issues over the coming months, then these loans could be a good low interest option to consider. $349 billion is available to small businesses through this program. Here are the basics:
Interest rate is 3.75% for for-profit businesses, and 2.75% for non-profits.
No loan payments required 6 months from the loan issue date.
No personal guarantees required, no requirement to prove that you cannot obtain credit elsewhere, and will be low fee.
Most importantly, a portion of this loan could be forgiven by the government if you retain your staff and use the funds toward covered purposes – in this sense, this is essentially a grant, from the government to your business.
Eligibility: The law is intended to impact as many companies as possible, so there are very few restrictions regarding eligibility. What we know so far:
You must be a business with less than 500 employees.
You must have business expenses that are covered by the loan – (these including payroll, rent, mortgages, utilities, and debt obligations. These obligations must have been made before February 15th so rent on a lease signed after February 15th would not be considered an eligible expense).
One area that is not clear yet is the treatment by the SBA of employees of affiliated businesses. Affiliated businesses share some ownership or control. In this case, an affiliated business could be a parent company, an investor, or even other companies that your business shares an investor with.The current language might make companies backed by PE funds or VC investors ineligible, by counting employees of these affiliated businesses in a business’ employee count. Our read is that this exclusion of VC-backed businesses from the SBA loan program is unintended but, this will need to be clarified by SBA guidance.
The total loan amount and forgiveness amount formulas are tricky and much of how they are implemented will be up to the SBA and its authorized lenders. What we do know so far:
Maximum loan amount is $10 million.
The total loan amount that your business is eligible for is up for debate, and is read by most as 2.5 months of payroll costs (up to $100,000 per employee), although there is some disagreement as to how to interpret the language. This will need to be clarified by the SBA.
The government will forgive a portion of the loan equal to payroll costs, mortgages, rent and utilities for the eight weeks following loan origination if you retain your workforce.
The amount that is forgiven will be calculated by comparing the number of employees for the eight weeks following the beginning of the loan to the business’s prior number of employees – this can be measured either by looking at an average of early 2019 or early 2020. The forgiven amount will also be decreased by any reduction in pay affecting any employee making less than $100,000, and whose pay was reduced by over 25%
How the application will work: Businesses will be able to apply for these loans through approved SBA lenders. Many commercial banks are approved SBA lenders, including ones that you might work with already for bank accounts or credit cards. The Treasury Secretary is going to expedite both the addition of new lenders and other enhancements to the loan process. Realistically, this program is going to increase the normal SBA loan program ten-fold, so the banks are aggressively working to digitize as much of the process as possible.
Regardless of where you apply, we recommend being ready to apply as soon as possible, as we anticipate many businesses will apply for these loans. The exact application materials aren’t yet known. However, we do know the list of application materials for the existing SBA loan available to small businesses: The SBA Economic Injury Disaster Loan. While this list is longer than the list will be for the Paycheck Protection Program loan, it might be a good idea to review, and begin preparations.
We have some insight into the timeline, but given confusion around key provisions and the number of companies that will seek this assistance, this timeline may be pushed out:
SBA will interpret the law and issue guidelines to banks. Officials have stated that they are hoping this will be by April 3rd.
Banks interpret these guidelines for loan officers.
Applications could begin as early as next week.
The loan officer review of applications will last at least two to three weeks; the maximum review time for an application is 60 days from lender receipt of the application.
Decision will be made on your application, and sign the loan closing documents if approved.
Set a schedule of additional disbursement with your loan officer.
Begin interest payments 6-12 months after the date of loan origination.
What can you do now?
Call your financial and legal advisors to discuss your eligibility and whether this assistance will benefit your business.
Identify if you have a preferred financial partner, and, if so, discuss the process with them.
Review the potential application materials list and begin to prepare these.
Get in touch with the insurer for your business, if you have one, to confirm if you have any coverage for business interruption
Get informed. Links to a few of the resources that our team found helpful as we drafted this post are found at the bottom of this page.
What other assistance to businesses is available
The CARES Act includes a number of other provisions that are of interest to businesses:
$27 billion in funding for emergency grants, to aid in servicing existing SBA loans.
Tax relief and write-offs are available to businesses, including the deferral of certain payroll tax payments until 2021.
$454 billion is set aside for business relief through the Treasury department. Note, the process to obtain these funds and eligibility is more opaque than the process to obtain the SBA loans. Much of this fund is allocated to specific industries such as airlines.
In addition to industry specific funds, one program to obtain this funding will be the mid-sized company loan program, for those with 500-10,000 employees, to get low-interest (less than 2%) loans, with no payments due for six months. These loans do have some restrictions – you must retain 90% of your workforce, and there are limitations after you’ve received the loan requiring companies to not offshore jobs, and restrictions around collective bargaining and union activities. A second program will be the Main Street Lending Program, details of which are not known, but is expected to target small and medium sized businesses. Other programs might be launched as well, and the Treasury should be providing further guidance on many of its programs by April 6th. If you are curious to learn more you should discuss with your financial advisor.
Links that we found helpful:
US Small Business Association - Coronavirus (COVID-19): Small Business Guidance & Loan Resources
US Chamber of Commerce - Coronavirus Small Business Guide
This information is not final, subject to change, and meant for informational purposes only. Please note that nothing on this web page should be regarded as legal advice, and we encourage you to consult with your own advisors before making any business decisions. This information is solely presented as a convenience but is not meant to replace the advice of attorneys or other advisors.