Federal Programs Support Businesses Affected by COVID-19

All firms experience ups and downs during a normal business cycle, pushing forward and growing when times are good, cutting back and hanging on when the economy softens.

Normal cycles last four to five years, giving prudent businesses time to adjust to both good and bad times. 

The COVID-19 pandemic, however, and the stay-at-home orders, flipped a switch that instantly shut down millions of small businesses across the nation.

How was a restauranteur, a car dealer or a beauty salon owner, let alone a small nonprofit, to survive as the virus savages the country for an unknown length of time? 

The Cares Act, which President Trump signed March 27, created three programs to support the small businesses that provide over two-thirds of America’s jobs.

The Paycheck Protection Program creates incentives to retain employees during the public health crisis.

Main points:

• The application is simple.

• Loans are given starting April 3 to businesses, veterans’ organizations or 501(c)(3) charities with fewer than 500 employees. (Certain industries with a greater number may qualify. See SBA.gov for more info).

• All the businesses of an applicant are aggregated to determine the number of employees.

• The business forms may vary, i.e., can be sole proprietor, partnership, C-corp., LLC, etc.

• The funds are lent for eight weeks of employee and related expenses. (Up to 25% can be for rent, mortgage payments and utilities).

• The United States must be the applicant’s principal place of business.

The applicant must certify:

• The company was in operation Feb. 15, either paying employees or independent contractors.

• Support is necessary to carry on the business.

• Funds will be used to retain workers, make mortgage or lease payments, or pay utilities.

• Only American products or services will be purchased to the extent feasible.

• The interest rate is 1%.

• If funds are properly spent, the principal portion of the loan is forgiven.

There is a funding cap of $349 billion, so applications should be made ASAP. 

(In the first 2½ hours of receiving applications, Bank of America reported it had received applications for many billions of dollars.)

Applications are made through any participating U.S. Small Business Administration lender, FDIC insured bank or credit union, or Farm Credit System entity.  

The Economic Injury Disaster Loan Program and Advance, already on the books, extends $10,000 in emergency funding to businesses experiencing sudden loss of revenue.

Grants are nominally loans, but will not have to be paid back. 

Main points:

• Loans are given to sole proprietors or independent contractors, cooperatives, ESOPs, agricultural cooperatives, 501(c)(3) charities with fewer than 500 employees. (Again, certain industries with a greater number may qualify). 

• An applicant may not be delinquent for child support.

• An applicant cannot be a farmer.

• Money does not have to be spent on employee salaries.

The SBA Express Bridge Loans program quickly grants up to $25,000 to small businesses that already have a relationship with an SBA Express lender. 

The program is designed to provide liquidity for an applicant who is waiting for a loan grant under the SBA Economic Injury Disaster loan program. That program provides non-forgivable loans of up to $2 million for businesses in federally-declared disaster areas – and it is presumed that all states will be so declared.

Copyright 2024 The Business Journal, Youngstown, Ohio.