Federal Stimulus Relief Package Includes $350 Billion Loan Program for Small Businesses Impacted By Covid-19 Epidemic
On Friday March 27, Congress signed into law an unprecedented $2 trillion federal corona virus relief package, officially known as the CARES Act, which includes nearly §350 billion of funding for small business loan program. The program is designed to get cash into business owners’ hand as quickly as possible.
The Payroll Protection Program allows small businesses, including nonprofits, to acquire a loan equivalent to eight weeks of the business’s prior average payroll (or, for self-employed, earnings) plus an additional 25 percent of that amount. For a business or non-profit to qualify for the program it must employ 500 or fewer employees. As of now, the maximum amount that a small business can borrow under the program is $10 million dollars, and businesses will not be required to make any payments on the loan for six months.
In addition, the program seeks reward businesses that are able to maintain their workforce by offering forgiveness of nearly all of the loan to businesses that retain their workers. Specifically, the government will forgive the portion of the loan spent on payroll, benefits, utilities, rent, mortgage payments, or other debt. According to guidance issued by the Small Business Administration (SBA) and the Treasury Department, to qualify for loan forgiveness a business must spend 75 percent on its payroll to qualify for forgiveness, and companies that have already done layoffs can secure still secure forgiveness by quickly rehiring laid-off workers.
How to Apply
A small business seeking a loan under the program does not need to work through the Small Business Administration, but can apply at any federally insured depository institution, federally insured credit union, and Farm Credit System institution. In other words, an eligible business should be able to secure a loan at almost any FDIC bank. This measure should make it easier for businesses to acquire the much needed funds. However, some remain skeptical as to the rate at which banks will be able to process loan applications; Jose Arensmeyer, CEO of the advocacy group Small Business Majority, believes that it is still “going to be months before this money gets out there.
What Small Businesses Need to Know About the New Payroll Protection Program
The $2 trillion stimulus package passed by Congress seeks to keep small businesses and nonprofits afloat, and workers on the job, by making billions of dollars in forgivable loans available to the country’s 30 million small businesses. Below is a list of questions and answers designed to help small business owners understand the Payroll Protection Program.
Q: How does the Program help small businesses?
A: It will allow eligible small business to borrow money to pay employees and cover some basic operating costs. And most or all of the money borrowed will be eligible for forgiveness as long as certain conditions are met.
Q: How long can a business cover its payroll and operating expenses with these loans?
A: As of now, a business can cover up to 8 weeks of payroll and operating costs with forgivable loans.
Q: How much can a Business Borrow?
A: A business will be able borrow up to the amount that it paid its employees between Jan. 1 and Feb. 29 of this year. However, loans will be capped at $10 million.
Q: Who is eligible for relief?
A: Small businesses and nonprofits that employ 500 or fewer workers. If you think you may exceed that limit or be close to it, check the Small Business Administration’s website for something called the North American Industry Classification System. It will help you determine your eligibility based on staffing at each physical location.
Q: How does a business qualify for loan forgiveness?
A: To qualify for forgiveness, a business must retain its workforce and spend at least 75% of the loan on its payroll. Businesses that have laid off workers can still qualify as long as they quickly rehire those workers.
Q: Where can I apply for a loan under this program?
A: Businesses can apply at almost any SBA approved lending institution. Thus, the easiest way to apply may be to simply contact your existing bank and tell them that you want to apply for a loan under the Payroll Protection Program.
Q: When can I apply?
A: According to the U.S. Treasury Secretary, at least some portions of the program are expected to be up and running as early as Friday April 3rd. However, given the unprecedented level of demand that is expected for these loans, it may take weeks for the program to become fully operational.
Q: What information will I need in order to apply?
A: You will, at a minimum, need to be able to present documentation of what you paid in wages and benefits for at least the last 12 months, plus the number of employees.
Is Your Business Essential?
Under the New York State on PAUSE Executive Order which was recently signed by Governor Andrew M. Cuomo all non-essential businesses statewide have been ordered to close in-office personnel functions.
For any business wondering whether they are essential, The New York State Department of Economic Development has issued guidance intended to assist business determine whether they are an essential business and the steps they can take to request such designation.
According to the Guidance, the 12 categories of “Essential Businesses” include:
- Health Care Operations, Including:
- research and laboratory services
- walk-in-care health facilities
- emergency veterinary and livestock services
- elder care
- medical wholesale and distribution
- home health care workers or aides for the elderly
- doctor and emergency dental
- nursing homes, or residential health care facilities or congregate care facilities
- medical supplies and equipment manufacturers and providers
- Essential Infrastructure, Including:
- utilities including power generation, fuel supply and transmission
- public water and wastewater
- telecommunications and data centers
- transportation infrastructure such as bus, rail, or for-hire vehicles, garages
- hotels, and places of accommodation
- Essential Manufacturing:
- food processing, manufacturing agents, including all foods and beverages
- medical equipment/instruments
- sanitary products
- household paper products
- Essential Retail:
- grocery stores including all food and beverage stores
- convenience stores
- farmer’s markets
- gas stations
- restaurants/bars (but only for take-out/delivery)
- hardware and building material stores
- Essential Services:
- trash and recycling collection, processing and disposal
- mail and shipping services
- building cleaning and maintenance
- child care services
- auto repair
- warehouse/distribution and fulfillment
- funeral homes, crematoriums and cemeteries
- storage for essential businesses
- animal shelters
- News Media
- Financial Institutions:
- services related to financial markets
- Providers of Basic Necessities to Economically Disadvantaged Populations, Including:
- homeless shelters and congregate care facilities
- food banks
- human services providers whose function includes the direct care of patients in state-licensed or funded voluntary programs; the care, protection, custody and oversight of individuals both in the community and in state-licensed residential facilities; those operating community shelters and other critical human services agencies providing direct care or support
- skilled trades such as electricians, plumbers
- other related construction firms and professionals for essential infrastructure or for emergency repair and safety purposes
- defense and national security-related operations supporting the U.S. Government or a contractor to the US government
- Essential Services Necessary to Maintain the Safety, Sanitation and Essential Operations of Residences or Other Essential Businesses, Including:
- law enforcement
- fire prevention and response
- building code enforcement
- emergency management and response
- building cleaners or janitors
- general maintenance whether employed by the entity directly or a vendor
- automotive repair
- Vendors that Provide Essential Services or Products, Including Logistics and Technology Support, Child Care and Services:
- technology support for online services
- child care programs and services
- government owned or leased buildings
- essential government services
What if my business provides essential and non-essential services?
With respect to business or entities that operate or provide both essential and non-essential services, only those lines and/or business operations that are necessary to support the essential services, supplies, or support are exempt from the restrictions.
Prepared by Dominick F. Roa