Kyle I. Miller

The impact of COVID-19’s rapid spread has been particularly devastating to small businesses, impeding the ability of businesses of all sizes to maintain positive cash flow. While larger corporations may have sufficient cash reserves to survive a temporary closure or drop in revenue, small businesses may have more limited access to cash or credit facilities in order to ensure continuous operation and retain their employees. Fortunately, federal, state, and local governments have stepped in to provide relief. In this update, we set forth a summary of various relief programs currently available at the federal level, including those bolstered by the recently passed Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), as well as relief programs available (or pending) in the States of New York and California, and in New York City and Los Angeles. We encourage businesses impacted by COVID-19 to contact us with any questions on eligibility and application processes.

Federal Relief Programs

The U.S. Small Business Administration, a federal independent agency (the “SBA”), aids, counsels, assists and protects the interests of small businesses. The SBA currently offers relief to small businesses and other organizations impacted by COVID-19 in the form of low-interest loans, including through the new Paycheck Protection Program (“PPP”) under its Section 7(a) loan program and the increased availability of Economic Injury Disaster Loans (“EIDLs”) under its Section 7(b) loan program.

PPP Loans. This is the primary program through which the SBA provides financial assistance to small businesses and certain other organizations. The CARES Act authorizes increased funding for PPP loans to be made until June 30, 2020 and modifies certain other conditions under the existing Section 7(a) loan program. Under the CARES Act, eligibility has been expanded to include business concerns, certain nonprofit organizations, certain veterans organizations, and certain Tribal business concerns, in each case with not more than 500 employees (or higher for businesses in certain industries) as well as individuals operating as sole proprietorships, independent contractors and eligible self-employed individuals. In general, the number of employees will be aggregated across affiliated businesses or organizations, but the affiliation will be disregarded for businesses in the accommodation and food services industries, franchises, and businesses that receive financial assistance from a Small Business Investment Company. In addition, with respect to any business in the accommodation and food services industries that has more than one physical location, the maximum number of employees is determined on a per location basis, rather than across the entire business. The SBA’s affiliation rules are complicated and should be discussed with counsel.

Eligible recipients may apply for a loan with a maximum amount equal to the lesser of (a) $10,000,000 and (b) the average monthly payroll costs for the year prior to when the loan is made multiplied by 2.5. Payroll costs include, among other things, payments for vacation, parental, family, medical or sick leave, allowance for dismissal and separation, group health care benefits and state and local taxes assessed on the compensation of employees. Payroll costs exclude the portion of any salary, wages, commissions and other similar compensation of any individual employee in excess of $100,000.

A PPP loan may be used to pay rent, utilities, payment of interest on mortgages, payroll costs, employee salaries, costs related to continuation of group health care benefits, interest on certain other debt obligations, and any other purpose permitted under the 7(a) loan program generally. The loans will have a term of two years and will bear interest at a 1% fixed rate with payments being deferred for a period of six months, during which interest will continue to accrue. No personal guarantee or collateral is required and the lender will have no recourse against any member, shareholder or partner of a loan recipient.

A portion of PPP loans may be forgiven in an amount equal to the amount spent on payroll, covered rent and mortgage obligations, and covered utility payments for the 8 weeks following origination of the loan. However, only 25% of the forgiven amount may be for non-payroll costs.

The amount to be forgiven is reduced (a) in proportion to any reduction in the average number of employees during the eight weeks after the making of the loan as compared to, at the option of the borrower, either (i) February 15, 2019 to June 30, 2019 or (ii) January 1, 2020 to February 29, 2020 and (b) by any reduction in the total salary or wages of any employee (other than an employee making in excess of $100,000) in excess of 25% of total salary or wages during the most recent full quarter of such employee’s employment before the making of the loan. Certain reductions in number of employees and/or reductions of salaries that take place between February 15, 2020 and the date that is 30 days after the enactment of the CARES Act will be disregarded to the extent the reduction is eliminated by June 30, 2020 (i.e., if the business rehires its employees and/or restores salaries by June 30, 2020).

PPP loans do not require an applicant to show that they are unable to obtain credit elsewhere. In addition, applicants may receive both a PPP loan and an EIDL, but may not use a PPP loan for the same purpose as an EIDL.

Applicants must apply through third-party Section 7(a) lenders, which include banks and non-bank lending institutions. Small businesses and sole proprietorships can apply starting April 3, 2020 and independent contractors and self-employed individuals starting April 10, 2020.

EIDLs. The SBA also provides EIDLs as low-interest loans under its Section 7(b) loan program to help businesses recover from economic harm related to declared disasters. The SBA is offering COVID‑19 related disaster loans for businesses harmed by the virus in all 50 states, the District of Columbia, and the five major U.S. territories. EIDLs are meant to assist small businesses to meet their financial obligations through a disaster recovery period, including to pay fixed debts, payroll, accounts payable and other bills. Although EIDLs typically require that borrowers demonstrate that they are unable to obtain credit elsewhere, the CARES Act has removed this condition for loans made until December 31, 2020, making EIDLs available to a larger group of potential borrowers.

Applicants can apply for an EIDL on the SBA Disaster Loan Assistance website.

New York State Relief Programs

As of this writing, New York State has not yet passed a small business COVID-19 relief program, but legislation is pending. We will continue to provide updates as these programs develop.

New York City Relief Programs

New York City has created two small business relief programs for economic injury related to COVID-19.

NYC Employee Retention Grant Program. This program offers a grant covering up to 40% of a business’s payroll (up to $27,000) to help retain employees as revenue decreases. The grant is available to businesses and non-profit organizations that meet the following specifications: (i) located within the five boroughs of New York City, (ii) suffered at least a 25% decrease in revenue as a result of COVID-19, (iii) employs one to four employees total, (iv) in operation for at least 6 months, and (v) no outstanding tax liens or legal judgements. To calculate the requisite 25% decrease in revenue, average revenue for two months in 2020 after the COVID-19 impact will be compared against (a) the average revenue for the same two-month period in 2019 and (b) its average monthly revenue in 2019. Businesses and non-profits will need to submit financial documents demonstrating revenue figures for those periods, which can include point-of-sales reports, bank statements, quarterly sales tax filings, 2019 tax returns, or CPA-certified profit & loss statements. Payroll records must also be uploaded to calculate grant amounts.

Applicants can apply on the NYC Employee Retention Grant Program website.

NYC Small Business Continuity Loan Fund (forthcoming). This program, once implemented, will offer zero interest loans up to $75,000 to businesses in order to help mitigate losses in profit. The loans will be available to businesses that meet the following specifications: (i) are located within the five boroughs of New York City, (ii) suffered at least 25% decrease in revenue as a result of COVID-19, (iii) employ 99 or fewer employees total, (iv) have demonstrated ability to repay the loan, and (v) have no outstanding tax liens or legal judgements. Businesses will need to submit financial documents demonstrating revenue decrease, which can include: point-of-sales reports, bank statements, quarterly sales tax filings, 2019 tax returns, or CPA-certified profit & loss statements.

Applicants can access the pre-application link on the NYC Small Business Services website and access the pre-application for the NYC Small Business Continuity Loan Fund.

State of California Relief Programs

California offers ongoing relief programs to small businesses affected by disasters in California.

California Small Business Loan Guarantee Program and Disaster Relief Loan Guarantee Program. The California Infrastructure and Economic Development Bank, a unit within the California Governor’s Office of Business and Economic Development (the “IBank”), offers the California Small Business Loan Guarantee Program and Disaster Relief Loan Guarantee Program (the “Loan Guarantee Programs”) to help small businesses and non-profits impacted by disasters (including COVID-19) and located in declared disaster areas, secure loan guarantees and direct loans. The IBank partners with Financial Development Corporations throughout California which assist such businesses in securing the loans and work directly with the businesses as underwriters.

Eligible applicants are small businesses located in California with 750 or fewer employees. The funds can be used for start-up costs, new construction, inventory, working capital, export financing, franchise fees, business expansion, lines of credit, gap financing, agriculture, and disaster relief. The guarantee terms are: (i) loans up to $20 million, (ii) maximum guarantee amount of $1 million, (iii) guarantee terms of up to 7 years, but the loan term can be longer, (iv) guarantees of up to 80%-95% of the loan, (v) loan interest rates negotiated directly between the lender and borrower, and (vi) qualifications are based on lender criteria.

Applicants can apply for a loan guarantee or get additional information by contacting one of the Financial Development Corporations listed on the IBank Small Business Finance Center Website.

Jump Start Loan Program. IBank offers loans from $500 to $10,000 for a term of up to 5-years, fully amortized, to small businesses or individuals becoming a small business that are located in California. Borrowers must be low-wealth entrepreneurs with a business located in a declared disaster area. The funds can be used for start-up costs, property, buildings, machinery, equipment, inventory, and tenant improvements.

Applicants can apply or get additional information by contacting one of the Jump Start Financial Development Corporations listed on the IBank Small Business Finance Center Website.

Several other states have introduced COVID-19 relief programs. State-by-state relief can be monitored on the website of the Governor of each state, and a database of fact sheets related to these programs is available through the SBA’s list of Presidential and SBA Agency Declared Disasters.

City of Los Angeles Relief Programs

Los Angeles has created the Small Business Emergency Microloan Program to provide financing to small businesses affected by the COVID-19 outbreak.

Funds obtained through the program may only be used for working capital and are only available to either (1) “microenterprises” in the City of LA that are low-income or will retain low-income jobs, or (2) small businesses in the City of LA that will retain low-income jobs. To be eligible, business owners must have a reasonable and responsible credit history, an explanation for any derogatory marks, and bankruptcies and debt write-offs must be no less than 12 months old. Business owners must also demonstrate that historical profits were sufficient to service their business’ debt and that their businesses have been detrimentally impacted by the COVID-19 outbreak. Collateral is required on a case-by-case basis and a co-signer with reasonable credit and sufficient income to repay the loan can be included to strengthen the application. All business owners who own 20% or more of the equity in the business must guarantee the loan.

The following documents will be necessary for application: one year of business tax returns (if available), interim business financial statement, personal financial statement, a personal tax return, bank statements for the previous three months, and a statement of sources and uses of funds.

The terms of the microloans are as follows: (i) $5,000 to $20,000 limits, (ii) interest rate options of (a) 0% for a term of 6 months to 1 year or (b) 3% to 5% for a term of up to 5 years, (iii) terms of 6 months to 5 years, and (iv) no loan or administration fees.

Applicants can apply on the Los Angeles Economic & Workforce Development Department Website.