Small businesses are now eligible to take advantage of loans or financial assistance to lessen the financial stress COVID-19 has caused to so many companies and individuals. Below we outline the current financial assistance programs available to small businesses, as well as one that may be available soon. Learn about each loan program by clicking the name of the program you would like to learn more about below.
UPDATE: On Friday, April 24, 2020, President Trump signed into law a $484 billion bill that will replenish coronavirus aid programs for small businesses. This bill will provide additional funding to both the Paycheck Protection Program and the SBA Economic Injury Disaster Loan. The SBA will continue accepting applications for the Paycheck Protection Program from approved lenders applying on behalf of any eligible borrowers starting on Monday, April 27, 2020 at 10:30am. ShuffieldLowman will continue to monitor and update our website as additional information becomes available.
The Coronavirus Aid, Relief, and Economic Security Act (or CARES Act), a $2 Trillion package, was signed into law on Friday, March 27, 2020, and provides for a substantial expansion of Section 7(a) of the Small Business Act for the period between February 15, 2020 and June 30, 2020 (the “covered period”) called the Paycheck Protection Program. Businesses are now eligible to apply for business loans under Section 7(a) and should consider the updated regulations to evaluate eligibility.
Who is eligible for loans under the Paycheck Protection Program?
7(a) loans will no longer be limited to “small business concerns”; instead, during the covered period, such loans will be available to
- Any business concern, nonprofit organization, or veterans organization which employs not more than 500 employees OR, if applicable, complies with the size standard set forth by the Administration, which may be located online at https://www.sba.gov/document/support--table-size-standards;
- Sole proprietors, independent contractors, and “eligible self-employed individuals” who are also entitled to the qualified sick leave tax credit under Section 7002 of the Families First Coronavirus Response Act; and
- Businesses with more than one physical location, if they employ no more than 500 employees per physical location and are assigned a North American Industry Classification System (NAICS) code beginning with the number 72.
- For the above categories, employees employed on a full-time, part-time, or other basis may be counted.
The requirement that applicants not have access to credit from other sources has been eliminated for the covered period.
Maximum Loan Amount
The maximum loan amount offered to an applicant will be calculated using the following formula, but will not exceed $10,000,000.00.
- 2.5x -
- The average monthly Payroll Costs (as defined below) for the 1-year period before the loan is made, or
- If the applicant was not in business between February 15, 2019 and June 30, 2019, the average monthly Payroll Costs between January 1, 2020 and February 29, 2020, or
- If the applicant is a seasonal employer, the average total monthly Payroll Costs between February 15, 2019 or March 1, 2019 (at the election of the Borrower) and June 30, 2019.
- Plus the outstanding balance of any Economic Injury Disaster Loans made under Section 7(b)(2) of the Small Business Act after January 31, 2020, which may be refinanced under this loan.
Payroll Costs include:
- salary, wages, commissions, tips, or other such compensation to employees, sole proprietors, or independent contractors up to $100,000 per year, as prorated for the covered period,
- payment of vacation, parental, medical or sick leave,
- allowance for dismissal or separation, group health care benefits, including insurance premiums;
- retirement benefits; and
- state or local taxes on compensation.
Payroll Costs do not include:
- compensation to individuals in excess of an annual salary of $100,000, as prorated for the covered period;
- certain taxes under Chapter 21, 22, or 24 of the Internal Revenue Code;
- payments to employees who do not reside in the United States; and
- qualified sick leave for which credit is allowed under Sections 7001 or 7003 of the Families First Coronavirus Response Act.
Forgiveness of Loans under Paycheck Protection Program
The Paycheck Protection Program requires lenders to forgive certain amounts (based on Payroll Costs and other expenses of Borrower) of the 7(a) loans obtained during the covered period.
Calculation of “Amount Forgiven”:
- an amount equal to the sum of following costs incurred by the Borrower during the 8-week period following the origination of the 7(a) loan –
- Payroll Costs (including additional wages paid to tipped workers);
- Payments of Interest (but not Principal) on any mortgage obligation which is owed by the Borrower, is a mortgage on real or personal property, and existed prior to February 15, 2020;
- Rent on any lease in force before February 15, 2020; and
- Utility payments, including for electricity, gas, water, transportation, telephone or internet access, if those services began before February 15, 2020.
- Note - recent guidance from the Department of Treasury states that “due to likely high subscription,” it is likely that non-Payroll Costs will be limited to 25% of the Amount Forgiven. This may be addressed by the regulations that will be issued by Small Business Administration in the coming weeks.
- Reduction of amount forgiven – the “Amount Forgiven” will be reduced (but not increased) by
- Reduction due to reduction in number of employees - multiplying the Amount Forgiven by a decimal obtained by dividing -
- The average number of full-time equivalent employees per month employed during the 8-week period following the origination of the 7(a) loan; by
- The average number of full-time equivalent employees per month employed between February 15, 2019 and June 30, 2019 OR between January 1, 2020 and February 29, 2020 (at the election of the Borrower, unless the applicant is a seasonal employer, in which case the former shall be used).
- Reduction due to reduction in salary – The “Amount Forgiven” shall also be reduced by the amount of any reduction in total salary or wages of any employee during the 8-week period following the origination of the 7(a) loan by more than 25% from the most recent full quarter, if that employee did not receive wages or salary during any pay period in 2019 which would have amounted to more than $100,000 if annualized.
- Exemption to reduction of Amount Forgiven where employees re-hired or salaries restored to prior amounts - the Amount Forgiven will not be reduced, as stated above, by reductions in the number of employees or salary of employees which occur between February 15, 2020 and April 26, 2020, IF those employees are re-hired and/or salaries are restored prior to June 30, 2020.
- Reduction due to reduction in number of employees - multiplying the Amount Forgiven by a decimal obtained by dividing -
Amounts forgiven under this program will not be considered as gross income for purposes of taxation.
Other important facts regarding the Paycheck Protection Program
- Application Procedures: You may apply through any existing SBA-approved Lender. A list of those lenders currently approved to provide SBA loans can be found online at https://www.sba.gov/partners/lenders/microloan-program/list-lenders. Other lenders may become approved and enrolled in the program over time, so you may consult with your lender if they do not appear on the list to determine if they will be offering loans under the Paycheck Protection Program. Applications can be made beginning on April 3, 2020 for small businesses and sole proprietorships, and April 10, 2020 for independent contractors and self -employed individuals. A copy of the application form for the Paycheck Protection Program can be found online at https://www.sba.gov/sites/default/files/2020-03/Borrower%20Paycheck%20Protection%20Program%20Application_0.pdf. We recommend that businesses review the application to ensure they can provide all the requested documentation and certify the necessary information.
- Loan proceeds must be used for the following purposes - Payroll Costs, payments of interest (but not principal) on any mortgage obligation, rent (including rent under a lease agreement), utilities, and interest on any other debt obligations that were incurred before the covered period.
- No Personal Guarantee or Collateral will be required during the covered period.
- The interest rate for a loan is capped at 4%, but according to guidance recently issued by the Department of Treasury, which can be found online at https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses, the interest rate will be .50%.
- Loans will be deferred for 6 months, according to Department of Treasury Guidance.
The U.S. Small Business Administration (“SBA”), under the authority of the recently passed Coronavirus Preparedness and Response Supplemental Appropriations Act as well as Section 7(b) of the Small Business Act, is offering disaster relief loans for “small business concern[s], private nonprofit organization[s], or small agricultural cooperative[s]” suffering “substantial economic injury” as a result of the COVID-19 pandemic. Currently, these loans are being offered in every state, including Florida. They may be in an amount up to $2 million, with interest rates of 3.75% (for small businesses) and 2.75% (for non-profit businesses). The repayment term may be up to 30 years; however, the term and amount of the loan will be within the discretion of the SBA and will be evaluated on a case-by-case basis depending on an applicant’s ability to pay. Pursuant to Section 7(b)(2)(D) of the Small Business Act, the SBA may condition these loans on a determination that the applicant is unable to obtain credit elsewhere. Applications can be completed online at https://disasterloan.sba.gov/ela/, or by phone by calling the SBA at 1‐800‐659‐2955.
- Does my business qualify as a “small business concern?” – Under Section 3(a) of the Small Business Act, a “small business concern” is generally defined as “one which is independently owned and operated, and which is not dominant in its field of operation.” In addition, a business may be required to fall within the “size standards” promulgated by the SBA in order to be classified as a “small business concern”. These size standards are specific to various separate industries and are based on criteria such as number of employees, dollar volume of business, net worth, net income, a combination thereof, or other appropriate factors. The current size standards can be accessed or downloaded online at https://www.sba.gov/document/support--table-size-standards.
- Has my business suffered “substantial economic injury?” – For purposes of disaster relief loans offered under Section 7(b) of the Small Business Act, “substantial economic injury” is defined as “an economic harm to a business concern that results in the inability of the business concern— (I) to meet its obligations as they mature; (II) to pay its ordinary and necessary operating expenses; or (III) to market, produce, or provide a product or service ordinarily marketed, produced, or provided by the business concern.” Information on what factors are considered by the SBA in evaluating whether a particular business has suffered a substantial economic injury can be found on the SBA Form 1368, which the SBA may request as part of the application for the disaster relief loan. Form 1368 can be found online at https://www.sba.gov/document/sba-form-1368-additional-filing-requirements-economic-injury-disaster-loan-eidl-and-military-reservist-economic.
SBA Express Bridge Loan Program
The SBA has also enacted the SBA Express Bridge Loan Program for businesses affected by the COVID-19 disaster. These SBA-guaranteed loans, which are currently only available for six months from March 13, 2020, can be obtained by small businesses who would otherwise qualify for a loan under Section 7(a) of the Small Business Act from qualified SBA Express Lenders. The proceeds must be utilized as working capital in order to “support the survival and/or reopening of the small business.” The amount of the loan can be as much as $25,000.00, and the repayment term can be as long 7 years. The interest rate may be fixed or variable and may be as high as the Prime Rate + 6.5%. If the Borrower obtains other long-term disaster financing, including from the SBA under Section 7(b), the Lender may require that the Express Bridge Loan be paid in part or in full from the proceeds of the long-term disaster financing. Other requirements for this program include that the applicant does not have the ability to obtain some or all of the requested loan funds on reasonable terms from non-Federal sources, including the Lender, without SBA assistance and that the applicant be a small business in existence as of March 13, 2020, who was been adversely impacted by the COVID-19 disaster. Finally, it is important to note that while an applicant for an Express Bridge Loan will still eligible for a separate business loan under Section 7(a), the amount of the Express Bridge Loan will count towards the maximum amount that can be borrowed under Section 7(a).
A comprehensive summary of the Express Bridge Loan Program may be found at https://www.sba.gov/sites/default/files/2020-03/Express-Bridge-Loan-Pilot-Program-Guide-FINAL-3.25.20.pdf.
Florida Small Business Emergency Bridge Loan
The Florida Department of Economic Opportunity (DEO) has been authorized to issue loans under its Florida Small Business Emergency Bridge Loan Program for small businesses which have suffered economic injury as a result of the COVID-19, across the entire state. These short-term bridge loans are for a term of 1-year, and generally will be in an amount of up to $50,000, though loans of up to $100,000 may be provided under special circumstances, depending on the applicant’s needs. The loans are interest-free for the 1-year loan term but will accrue 12% interest per annum after the 1-year term, until the loan is paid off. The loans will be made to the individual(s) who comprise at least 51% of the equity ownership of the particular business. Qualified businesses include for-profit, privately held small businesses that maintain a place of business in the state of Florida and have between 2 and 100 employees (which may include independent contractors), were established prior to March 9, 2020, and do not conduct certain activities such as illegal activities, gambling activities of a certain volume, and other adult-oriented activities. The applicant will be required to show that it has suffered economic injury as a result of the COVID-19 crisis, and that the need for the loan be directly related to the economic injury. Finally, the applicant will be required to pledge and assign any and all proceeds of insurance claims, other loans applied for or to be applied for, or other financial assistance received to the DEO for purposes of repayment of the loan.
A comprehensive summary of all the requirements and application instructions for the Florida Small Business Emergency Bridge Loan Program can be found online at https://floridadisasterloan.org/, and additional information can be found online at http://floridasbdc.org/disaster/ebl/.
Florida Short Time Compensation Program for Employers
As provided under Fla. Stat. § 443.1116, and administered by the DEO, this program provides an avenue for employers to avoid layoffs by providing prorated reemployment assistance benefits to employees whose work hours and earnings are reduced as part of a Short Time Compensation Plan. Essentially, if an employer finds itself in a temporary slowdown, as many already have during the COVID-19 crisis, instead of laying off individual employees, it can reduce the hours of 2 or more employees by 10%-40%, thereby spreading the reduced hours across multiple employees and avoiding temporary layoffs. Such re-allocation of hours must be documented in a Short Time Compensation Plan, which must be submitted to the DEO for consideration as part of the application for this program. The requirements for approval of a Short Time Compensation Plan are outlined in Fla. Stat. § 443.1116 (2), and include that the plan contain a certification from the employer that the reduction in wok hours is in lieu of temporary layoffs that would have affected at least 10% of employees with a certain department, shift, or other definable unit of two or more employees (an “affected unit”) and that the plan applies to at lease 10% of the employees within an affected unit. Employees subject to an approved Short Time Compensation Plan are then eligible for Short Time Compensation Benefits, which are calculated based on a percentage of the Unemployment Benefits an employee would be eligible for under Fla. Stat. § 443.111 if the employee were fully unemployed. By way of this temporary benefit, the employer can retain its employees and avoid costs associated with hiring and training, once the business resumes to it normal levels.
Future Financial Assistance Programs
Federal Reserve Main Street Business Lending Program:
Pursuant to Press Release published on March 23 2020, the Federal Reserve is rolling out several programs designed to “provide powerful support for the flow of credit to American families and businesses.” Though many of these programs are not designed to provide direct financial assistance to small businesses, the Press Release does announce a Main Street Business Lending Program “to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA.” Further details regarding this program have not yet been released.