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Government Assistance to Small Businesses in Response to COVID-19

Author: Glenn Burlingame, Esq.

Government Assistance to Small Businesses in Response to COVID-19

This Client Alert focuses on government assistance to small businesses in response to the COVID-19 pandemic by the U.S. Federal, New York State and New York City governments.

U.S. Federal Government Assistance to Small Businesses

The U.S. Federal Government is expanding Small Business Administration (SBA) loan programs in response to the COVID-19 pandemic. The two most significant loan programs are the Economic Injury Disaster Loan (EIDL) Program and the 7(a) Loan Program. Key terms of each loan program are outlined below.

SBA EIDL Program

COVID-19 Declared a Disaster for Purposes of EIDL Program

On March 6, 2020, the Coronavirus Preparedness and Response Supplemental Appropriations Act was signed into law. The act, among other things, declared COVID-19 a disaster for EIDL program purposes. Small business owners in all U.S. states and territories are currently eligible to apply for a low-interest loan due to COVID-19.

Size Standards

In order to qualify, businesses must satisfy SBA's definition of a small business concern, along with the size standards for small business.

What is a small business size standard?
A size standard, which is usually stated in number of employees or average annual receipts, represents the largest size that a business (including its subsidiaries and affiliates) may be to remain classified as a small business for SBA programs. The definition of “small” varies by industry.

Unavailability of Other Credit:

The EIDL loans are only available if the SBA determines that the applicant is unable to obtain other credit.

Loan Amount:

  • Up to $2 million
  • Actual loan amounts are based on amount of economic injury

Interest Rate for For-Profit Businesses: 3.75%

Interest Rate for Not-for-Profit Businesses: 2.75%

Term: Up to 30 years, based upon each borrower’s ability to repay.

Upfront Fees: None

Prepayment Penalties: None

Use of Proceeds:

  • Fixed debts
  • Payroll
  • Accounts payable and other bills that cannot be paid because of the disaster's impact

Other Terms: Determined on a case-by-case basis

SBA 7(a) Loan Program—Proposed Changes in Response to COVID-19

Stimulus Package:

On March 25, 2020, the U.S. Senate approved a $2 Trillion stimulus package. The U.S. House is expected to approve its version of the stimulus package on or about March 27, 2020. The final version of the stimulus package is expected to include changes to the SBA 7(a) loan program.

Temporary Relaxation of Size Standards:

Temporarily permit businesses with 500 or fewer employees to be eligible to receive 7(a) loans even if such business does not qualify as a small business under the SBA size standards.

Increased Maximum Loan Amount:

Increase the maximum loan amount from $5 million to $10 million

Expansion of Permitted Uses:

Expand the permitted uses of proceeds to include payroll support, paid sick leave, mortgage payments, rent payments and servicing existing debt.

Temporary Waiver of Certain Fees:

Temporarily waive upfront and annual servicing fees charged to borrowers and lenders

Temporary Increase in Amount of SBA Guaranty:

Temporarily permit the SBA to guarantee up to 100 percent of the loan amount (regardless of loan size)

Increase Maximum Loan Amount for SBA Express Loans:

Increase the maximum loan amount for SBA Express Loans from $350,000 to $1 million

Temporary Forgiveness of Certain 7(a) Loans

Temporarily provide forgiveness of certain 7(a) loans in an amount equal to the cost of maintaining payroll continuity for a prescribed period

New York State Government Assistance to Small Businesses

The State of New York has not implemented COVID-19-related small business loan or grant programs. Instead, the State is currently directing small businesses to the SBA. New York State, however, continues to provide resources for small businesses to obtain various forms of financing unrelated to the current health crisis. Those resources are channeled through Empire State Development (ESD).

The ESD's Small Business Loan web page (https://esd.ny.gov/small-business-loan-resources) provides various small business loan programs, ranging from microloans of less than $25,000 to loans exceeding $500,000.

For example, the Regional Revolving Loan Trust Fund Program provides working capital loans to small businesses located within New York State that generate economic growth and job creation and are unable to obtain adequate credit or adequate terms from commercial lenders. Priority is given to businesses that: create or retain jobs; are located in distressed areas; are owned by minority or women entrepreneurs or firms which employ minorities, women or displaced workers; that can leverage other public and or private dollars)

New York City Government Assistance to Small Businesses

New York City has launched two loan programs in response to the COVID-19 pandemic: the NYC Small Business Continuity Loan Fund and

1. NYC Small Business Continuity Loan Fund

Eligibility Criteria

To be eligible, businesses must:

  • Employ 99 employees or fewer in total across all locations
  • Demonstrate ability to repay the loan
  • Have no outstanding tax liens or legal judgements
  • Be located within the five boroughs of New York City
  • Demonstrate that the COVID-19 outbreak caused at least a 25% decrease in revenue
    • Supporting documentation must be provided such as:
      point-of-sales reports
      bank statements
      quarterly sales tax filings
      2019 tax returns, or CPA-certified profit & loss statements.
    • Recommendation: gather documentation before starting application process

Loan Amount: Up to $75,000

Interest Rate: Zero

Purpose: To help retain employees and ensure business continuity.

Use of Proceeds: Permitted uses include working capital, inventory, or other investments.

2. NYC Employee Retention Grant Program

Grant Amount: 40% of payroll costs for two months to help retain employees.

Eligibility Criteria:

Businesses, including non-profits, must:

  • Be located within the five boroughs of New York City
  • Demonstrate that the COVID-19 outbreak caused at least a 25% decrease in revenue
  • Employ 1-4 employees in total across all locations
  • Have been in operation for at least 6 months
  • Have no outstanding tax liens or legal judgements