Across the country, state governments are ordering the indefinite closure of bars, restaurants, gyms, and other indoor spaces that may contribute to the community spread of COVID-19. At the same time, pending federal legislation may add additional financial burdens to small businesses that remain open and continue to operate.
To help navigate potential sources of financial relief for small businesses, helpful information is curated below.
SBA Small Business Economic Injury Disaster Loan (EIDL) Program
The U.S. Small Business Administration (SBA) announced on Thursday, March 12, 2020, that it will be offering low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of COVID-19, as authorized by the Coronavirus Preparedness and Response Supplemental Appropriations Act. Loans will be available directly through the SBA.
Details. The loans may be used to pay fixed debts, payroll, accounts payable, and other bills that can’t be paid because of the disaster’s impact. Loans may not be used to recoup losses related to receivables or profits. The interest rate for small businesses without credit available elsewhere is 3.75%; businesses with credit available elsewhere are not eligible. The interest rate for non-profits is 2.75%. Loan terms will be determined on a case-by-case basis, based upon each borrower’s ability to repay, with a maximum repayment period of 30 years.
Pending. Loans are only available to small businesses in states and territories where the governor has submitted a request for Economic Injury Disaster Loan assistance. It is our understanding that the SBA has been contacted by all 50 states requesting relief. As of March 20, 2020, counties in the following states have been approved for Economic Injury Disaster Loan assistance relating to COVID-19: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Wisconsin, and Wyoming.
What can you do now? While the states and federal government continue to work through the logistics of the program, there are some things that business owners can do in preparation for an application:
- Collect information about your business that will be relevant to your application. You can find examples here, but recent tax returns and balance sheets will also be necessary.
- Document business expenses that cannot be covered during the disaster period.
- Reach out to your local SBA offices to talk to them about your specific case and make an official application.
Tax Credits under H.R. 6201, Families First Coronavirus Response Act
On March 18, 2020, H.R. 6201, the Families First Coronavirus Response Act, H.R. 6201, was signed into law. The Act requires employers with fewer than 500 employees to provide emergency paid sick leave and reduced pay under the FMLA to employees who have certain COVID-19-related absences. Small businesses with fewer than 50 employees are exempt from the requirements to provide paid leave under the Act if it would jeopardize the viability of the business as a going concern. Tax credits to offset costs are available to businesses that are required to make such payments.
Details. The Act provides refundable tax credits equal to up to 100% of qualified paid sick leave wages and qualified family leave wages paid by an employer that are paid in accordance with the Act. The credit is allowed against the employer-paid portion of Social Security taxes. For certain employee absences, the Act imposes daily and quarterly caps on credits. To prevent a double benefit, no deduction is allowed for the amount of the credit. Employers may elect to not have the credit apply.
The same tax credits are available to self-employed individuals qualifying for the refundable credits.
Pending. Technical guidance from the IRS is expected in the coming days.
Although the measure seems to serve a dual employer-employee purpose during the period of social distancing, there are yet questions about the enforcement of this policy as to employers who are currently required to provide emergency FMLA leave, but employ less than 50 employees. Additionally, it is unclear how the federal regulations will interplay with existing state and local paid leave requirements.
Other SBA Programs: Access To Capital
How to access lending partners? The SBA has developed Lender Match, a free online referral tool that connects small businesses with participating SBA-approved lenders within 48 hours.
The 7(a) program offers loan amounts up to $5,000,000 and is an all-inclusive loan program deployed by lending partners for eligible small businesses within the United States and its territories. The uses of proceeds include: working capital; expansion/renovation; new construction; purchase of land or buildings; purchase of equipment, fixtures; lease-hold improvements; refinancing debt for compelling reasons; seasonal line of credit; inventory; and starting a business.
The Express loan program provides loans of up to $350,000 for no more than 7 years with an option to make the loan a revolving line of credit. There is a turnaround time of 36 hours for approval or denial of a completed application. The uses of proceeds are the same as the standard 7(a) loan.
This information does not constitute tax or legal advice. For information and guidance on how this tax alert may affect your tax situation, please reach out to your personal tax professional.
Thanks to Jack Meadows for contributing to this article.