Coronavirus (COVID-19) Resource Page

The SBA expects that both the Payroll Protection Program Loans and EIDL loans will be given to small business applicants approximately one month after applying.  If a small business has applied for this loan but needs funding right away, there are two options a small business may utilize.

1. Bridge Loans: The SBA Express Bridge Loan (“EBL”) is available to help businesses while they await approval or funding for either the Payroll Protection Program Loan or the EIDL Loan. These loans are available to businesses that had a prior borrowing relationship with an SBA qualified lender. Under the SBA EBL program, businesses can borrow up to $25,000 under a seven-year repayment term, with interest rates capped at the prime rate + 6.5%.
2. EIDL Advance: The CARES Act provides that those applying for the EIDL Loan may receive a $10,000 grant in the form of a loan advance.  The EIDL advance can provide modest economic relief to businesses that are currently experiencing a temporary loss of revenue and provides a bridge as the EIDL application is pending.  The SBA provides that this advance will not have to be repaid, even if the EIDL application is later denied, and expects it to be available within three days after the application is submitted.

If you would like more information as to how to qualify for these loans or to talk to one of our attorneys to discuss how you may be able to manage your business through these trying times, please contact one of your trusted G&M attorneys.

Under the Paycheck Protection Program, pre-approved SBA 7(a) lenders will provide loans to small business with fewer than 500 employees. The usual SBA 7(a) program limitations on small business eligibility, such as based on annual revenue or affiliations, do not apply (making it easier to qualify). The loans are available to assist small businesses with payroll support, mortgage interest, rent, and utility payments.  Best of all, these loans are unsecured and require no personal guarantee. A few highlights of the program include:

• Most small businesses with fewer than 500 employees are eligible, including those with more than one physical location so long as total combined employees is below 500 employees.
• Sole-proprietors, independent contractors, and other self-employed individuals are also eligible for these loans.
• Normal affiliation rules for businesses in the hospitality and restaurant industries and franchises are waived.
• Businesses must have been operational as of February 15, 2020 and had employees for whom it paid salaries and payroll taxes, or a paid independent contractor.
• Loan amounts up to $10 million can be used for (i) payroll support which includes average eligible monthly payroll costs (excluding comp above $100,000), paid sick or medical leave and insurance premiums, multiplied by 2.5, (ii) mortgage interest payments or rent and (iii) utilities payments. 
• Borrowers will be required to make a good faith certification that the 7(a) loan is necessary due to uncertain economic conditions caused by COVID-19 and will be used to retain workers and maintain normal operations (payroll, lease and utility payments).
• 2-year loans will be given at an interest rate of 1.00% with no prepayment penalty. Repayment of the loans (if not forgiven as described below) is automatically deferred for six months, however interest will accrue during that six month period.
• Borrower is eligible for loan forgiveness equal to the amount spent by the Borrower during an 8- week period after origination date of the loan on operational costs compared to the prior year incurred prior to February 15, 2020.  Amounts forgiven may not exceed the principal amount of the loan. 
• 7(a) lenders will verify these payments through documentation such as (i) IRS Payroll Expense Forms 940 and 941, (ii) a payroll summary report of wages and benefits supported by a bank statement or employee pay stubs, (iii) mortgage or lease and utility statements and (iv) trailing twelve–month profit and loss statement as of the date of application.
• Debt forgiveness will be reduced proportionately by any reduction in average monthly number of full-time employees during the 8 week period compared to the average monthly number of full-time employees between either February 15, 2019 and June 30, 2019 or between January 1, 2020 and February 29, 2020 (at the election of the borrower) or pay received by any employee reduced beyond 25 percent of such employee’s compensation in the last full quarter prior to the 8 week period in which the employee was employed.  Borrowers may re-hire those workers who were previously laid off due to COVID-19 crisis and such workers will qualify under the guidelines.
• Cancelled indebtedness will not be included in the Borrower’s taxable income.
• UPDATE: self-employed individuals and independent contractors are eligible as of April 10, 2020 to apply for the Paycheck Protection Program. The loans are available to cover up to eight weeks of average monthly payroll plus 25%, at a maximum amount of $10 million with a fixed 1% interest rate and maturity of two years, with loan payments deferred for six months. The program will be available through June 30.
• UPDATE (as of April 16th, 2020): 
• Paycheck Protection Program (PPP) reaches maximum $350 billion appropriated by CARES Act.
• SBA currently has no authority to accept PPP loans.
• SBA currently has no authority to accept PPP lender applications. 
• E-tran currently is shutdown.
• Lenders currently are not able to adjust loan amounts within CAFS system.  

UPDATE: The SBA has issued guidance that it will now provide EIDL loan disbursement of up to only $15,000, in addition to the advance of up to $10,000 in emergency grant funds to eligible applicants within three days of application. There is no obligation to repay the grant. To receive the $10,000 emergency grant, it is not necessary to have an approved EIDL loan. However, if you are able to secure a PPP loan, the $10,000 grant will be subtracted from the forgiveness amount.

In addition to expanding the 7(a) loan program described above, the CARES Act alternatively provides that small business may recoup revenue losses attributed to the COVID-19 pandemic via the 7(b)(2) Economic Injury Disaster Loan (“EIDLs”).  Rather than the Paycheck Protection Loan Program that is essentially based on preserving employment and operation of small business over a longer period of time, EIDL 7(b) Loans are working capital loans that can provide support for 7(a) small businesses experiencing a temporary loss of revenue.  The EIDL program allows applicants to borrow up to $2 million with long-term repayments (up to 30 years) in order to keep payments affordable, with the first month’s payments being deferred a full year from the date of the promissory note.  To qualify for EIDL Loans, the small business must meet the qualifications for an SBA 7(a) loan so the restrictions for such loans are not only companies with under 500 employees, but is also based on a company (and its affiliates) annual revenue.  Thus, many larger small businesses will not qualify for the EIDL program and will be better suited for the Paycheck Protection 7(a) loan program described above.  Also, a small business may take advantage of only one loan program either through an EIDL Loan or Paycheck Protection loan.  You will want to speak with a G&M attorney to determine which one your small business may be better suited for to provide relief during the COVID-19 crisis.

The small business must have been qualified or can qualify under previous SBA 7(a) guidelines.  The applicable interest rate for EIDL Loans is 3.75% for for-profit businesses and 2.75% for nonprofit entities. The other loan terms are determined on a case-by-case basis and are primarily based upon each Borrower’s ability to repay.  The SBA has the discretion to offer these loans based solely on an applicant’s credit score, or it may use an alternative method for determining applicant’s ability to repay.

On December 27, 2020, the Consolidated Appropriations Act of 2021 (“CAA”) was signed into law providing nearly $900 billion in emergency coronavirus relief to families, workers, small businesses, and organizations impacted by the health crisis.  This new legislation includes the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Act”) which provides a multitude of benefits to small businesses designed to mollify the economic repercussions imposed by the COVID-19 pandemic.  The Act enhances the Paycheck Protection Program (“PPP”) previously introduced by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) as it includes new forms of relief for businesses.  A few highlights of the Act are as follows:

PPP Second Draw Loan:  Under the Act, PPP loans will be available to businesses with 500 or fewer employees that have not previously received a PPP loan to help with, among other things, payroll, rent, utilities, and healthcare costs. Moreover, particularly hard-hit businesses that previously borrowed under the CARES Act may be eligible to receive a second PPP loan.  To receive a PPP second draw loan, eligible borrowers must: (i) have less than 300 employees; (ii) have previously used or will use the full amount of their first PPP; and (iii) demonstrate at least a 25 percent reduction in gross receipts in any quarter of 2020 relative to the same 2019 quarter.  Borrowers who returned all or part of the initial PPP loan may reapply if they have not yet received forgiveness.  The amount of any additional PPP loan that a borrower may obtain is 2.5 times its average monthly payroll costs, except entities in industries assigned to NAICS Code 72 (Accommodation and Food Services) may receive loans of up to 3.5 times of their average monthly payroll costs.  All second draw loans, however, are capped at $2 million per borrower.

Expansion of Forgivable Expenses:  Previously, the CARES Act provided that PPP borrowers were eligible for loan forgiveness equal to the sum of their payroll costs, in addition to covered mortgage interest, rent, and utility payments.  The new Act expands these forgivable expenses to include certain COVID-related expenses, which include, but are not limited to, supplier costs on existing contracts and purchase orders, including the cost for perishable goods and technology operations expenditures; costs incurred for personal protective equipment, costs incurred as a result of complying with federal and state health and safety guidelines; and costs related to property damage resulting from public disturbances occurring within the past year.  The Act further clarifies that business expenses paid with forgiven PPP loans are tax-deductible, thereby overriding the IRS’s previously issued guidance on tax deductibility of expenses paid for with PPP loan proceeds.

Full Loan Forgiveness:  To be eligible for full loan forgiveness, the Act provides that borrowers may now self-select a covered period of between 8 and 24 weeks from when the loan was received (rather than having to pick either 8 or 24 weeks) and that such covered period can extend through March 31, 2021.  The Act also creates a simplified forgiveness application for borrowers who received loans of $150,000 or less. 

Bankruptcy:  With respect to bankruptcy, the CAA makes certain interim amendments to the Bankruptcy Code that contemplate a corporate debtor’s eligibility to receive CARES Act funding.  Pursuant to the CAA, a corporate debtor may file a motion with the bankruptcy court to obtain CARES Act funding, and the court must hold a hearing within 7 days.  If the court authorizes the loan, then, to the extent it is not forgiven, it will be treated as a priority claim ahead of administrative expenses under section 507(a) of the Code.  These amendments will expire two years after the CAA becomes law.