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COVID-19 Small Business Relief Programs

04/09/2020

The ongoing COVID-19 pandemic has resulted in the swift passage of federal and state measures aimed at helping small businesses during this difficult time. As of the second week of April, 2020, all of these programs are in effect; however, significant logistical issues remain as executive agencies and lenders scramble to keep up with demand. This bulletin is intended to provide a basic outline as to some of these programs. Additional information can be obtained through hyperlinks to program web sites below and from any of the attorney members of Heyl Royster’s practice groups devoted to commercial transactions and business litigation. If you are interested in applying for these programs, we encourage to you to contact your financial institution without delay.

Paycheck Protection Program (PPP)

The PPP is a loan program created by the U.S. Coronavirus Aid, Relief and Economic Security Act (the CARES Act) intended to allow small businesses to continue paying their employees during this emergency. Managed by the U.S. Small Business Association (SBA), the PPP will make available about $349 billion in guaranteed loans through federally approved banks with an interest rate of 1%. Business may borrow the lesser of $10 million or an amount subject to a payroll cost-based formula contained in the Act. The SBA will forgive these loans so long as all employees are kept on the payroll for eight weeks and 75% of the borrowed funds are used for payroll costs. The remainder may be earmarked for rent, mortgage interest or utility costs. The application period for businesses began on April 3, 2020 and will continue through June 30, 2020. The application period for independent contractors and self-employed individuals will begin on April 10, 2020 and will also continue through June 30, 2020.Loans will be awarded on a first-come, first-served basis.

To be eligible for a PPP loan, a business must have been operating as of February 15, 2020, have 500 or fewer employees, and meet certain other criteria defined in section 3 of the Small Business Act (15 USC § 632) and the SBA’s rules. Sole proprietorships and self-employed individuals are eligible, as are 501(c)(3) non-profit and 501(c)(19) veterans organizations, among others. Businesses that are not eligible for PPP loans are identified in 13 CFR 120.110 and are further described on the SBA’s web site.

Detailed information can be found at:
https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp

The application can be found here:
https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf

Economic Injury Disaster Loan Program

The Economic Injury Disaster Loan Program (EIDL), also managed by the SBA, offers direct loans of up to $2 million for small businesses, small agricultural cooperatives, and private non-profits with 500 or fewer employees. A program that preexisted the ongoing crisis, its aim is to help entities which have suffered substantial economic injury resulting from “disasters” to defray costs such as rents, payroll, and other operating expenses. EIDLs do not replace lost sales or revenue.

As typically managed, loan forgiveness is not a feature of this program. However, interest rates are not to exceed 4.00% per year, and the repayment period can be as long as 30 years with no early repayment penalties. EIDLs are subject to an SBA review to determine eligibility and repayment terms based on need and credit worthiness.

In direct response to the COVID-19 pandemic, the SBA is now offering EIDL loan advances of up to $10,000 for businesses experiencing temporary difficulties. Unlike regular EIDL loans, these advances need not be repaid.

Further information is found at the SBA’s EIDL web page at:
https://disasterloan.sba.gov/ela/Information/EIDLLoans

The EIDL emergency advance program is described here:
https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance

Debt Relief for New and Existing SBA Borrowers

The SBA is also providing $17 billion in debt relief to existing and new SBA borrowers with non-disaster SBA loans. The Relief is available to small businesses, sole proprietorships, cooperatives and ESOPs with standard SBA 7(a), 504 or microloans. Under this program, the SBA will cover all loan payments – principal, interest and fees – on these SBA loans for up to six months. This includes new borrowers who take out such loans within six months of the signing of the CARES Act.

The requirements for SBA7(a), 504 and microloans can be found at the SBA’s web page at:
https://www.sba.gov/funding-programs/loans

If you have any questions about the COVID-19 Small Business Relief Programs please feel free to contact John Heil at jheil@heylroyster.com or Mark Ludolph at mludolph@heylroyster.com.