EMD&R COVID-19 / STATE OF EMERGENCY ADVISORY FOR BUSINESSES IN MASSACHUSETTS AND NEW HAMPSHIRE
APRIL 13, 2020: EMD&R is committed to providing the best service to our business clients. As such, we continue these weekly emails to keep you posted on common questions from clients as well as on public statements from governors and mayors that may impact your business.
Things are far from known, but three weeks have now passed, and we know a bit more about the coronavirus, government efforts to get small businesses funding for payroll, and other emergency aid.
The virus is still ripping through segments of society and the stories are heart-wrenching, compelling, and a reminder of our vulnerabilities as a person, a business, and a country.
We also know a lot more about our businesses, our employees, and our families. We know about resolve and toughness.
As business lawyers, we see businesses under stress, but this is unprecedented because it is hitting everyone at roughly the same time.
So, this week we take a breather and review some things relative to the SBA Loan Programs but also how we can begin to heal, recover, and return to business.
SBA MATERIAL UPDATE AND FEDERAL UNEMPLOYMENT PAYMENTS
We have all heard of the $1,200 checks being issued to Americans, but the Small Business Administration has been ramping up to process applications for several new programs.
Paycheck Protection Program: The Paycheck Protection Program (PPP) is meant to encourage employers to retain workers on their payroll. There are multiple motivations for this, including keeping employees off unemployment and on health insurance, as well as keeping a continuity of staff for your small business.
The PPP will give your business a loan for eight weeks of payroll, mortgage, rent, mortgage interest, or utilities. In essence, the program keeps the lights on. Your business may also qualify for this loan to be converted to a grant that would permanently forgive the debt of the loan.
As long as you use the money for those purposes, and only those purposes, the debt will be forgiven so long as at least 75% of the money taken out is used for payroll. The loan must be spent within 8 weeks after being received. The PPP will exist until June 30, 2020. You must apply for the loan from a bank that is approved by the SBA and that your business already has an existing relationship like a checking account or financing.
Disaster Assistance (EIDL): In light of a major disaster being declared in Massachusetts and New Hampshire, businesses may also apply for disaster relief in addition to paycheck protection. These loans are up to 2 million dollars, and must be used to cover fixed debts, payroll, accounts payable, and other bills that would go unpaid because of COVID-19. Currently, applicants can also have $10,000 of these funds advanced within three days of a successful application. This advance is a grant that does not need to be repaid. If you already have a relationship with an SBA express lender, this advance can be as high as $25,000.
Unlike the PPP, these are in fact loans (except for the advance payment), but ones with very reasonable terms. Small businesses may borrow at 3.75% interest, and nonprofits at 2.75%. The SBA will determine on a case-by-case basis your ability to repay but have a maximum of 30-year loans available.
Debt Relief Program: If you already have loans through the SBA, certain actions may be of interest to borrowers. Any 7A, 504, or Micro-type loan is automatically paid on the interest, principal, and fees for six months by the SBA. Any new loans of these types issued prior to September 27, 2020 will also be covered.
Also, if you have an SBA Serviced Disaster loan, like that described above, you will be automatically deferred in payments to the end of the year. Be aware, that interest still accrues, but no payments need to be made.
Federal Unemployment Payments: Employees who are laid off due to the COVID-19 crisis are entitled to state unemployment insurance payments as they normally would in any regular employment termination. There is, however, now an added new federal unemployment payment to unemployed workers of $600 per week. Additionally, even the self-employed or independent contractors are entitled to this federal weekly payment if they are not working due to pandemic issues. Employers will not be charged in any way for this federal unemployment payment and many states are not charging employers for state unemployment payments if a business is listed as “nonessential” and required to shut down. Ironically, because of this federal unemployment payment, employers may actually find that some of their employees will actually want to be laid off!
COMING OUT OF IT
Yes, we are going to recover from the COVID-19 crisis in a timeframe that is dictated by safety and security along with economics and politics. Once the government lifts certain restrictions, you will need to make a value judgment of your own as to how you go forward.
We will keep you posted as regulations come down from the various agencies that will be responsible for administering these programs.