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 are more exposed to the fallout. 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 as well as those available (or pending) in the States of New York and California, as well as 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"), provides low-interest loans to help businesses recover from economic harm related to declared disasters, known as Economic Injury Disaster Loans ("EIDLs"). As of this writing, the SBA is offering COVID‑19 related disaster loans for businesses harmed by the virus in over 30 states, including New York. The loans 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 the SBA has previously stated that EIDL assistance is available only to small businesses when SBA determines they are unable to obtain credit elsewhere, the current fact sheets for EIDLs related to COVID-19, including those for New York State, do not contain this condition.
The SBA determines the specific terms of each loan on a case-by-case basis, but the general terms of EIDLs available to borrowers are: (i) maximum interest rate of 3.75%, (ii) maximum term length of 30 years, (iii) maximum loan amount of $2,000,000 for alleviating economic injury related to COVID-19, which can be waived by the SBA for businesses that are major sources of employment, and (iv) a collateral requirement for loans over $25,000 if a borrower is able to pledge it. Applicants must have an acceptable credit history as determined by the SBA, demonstrate an ability to repay the loan, have complied with the terms of previous SBA loans, and may be required to obtain and maintain appropriate insurance.
Applicants can apply 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.
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 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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.