In a matter of weeks, the COVID-19 pandemic has created an environment of uncertainty that is testing both our core social and economic systems. These unchartered waters have particularly impacted small businesses and non-profit organizations. While the effects of this pandemic continue to unfold and there are still many unknowns, AP&S is positioned to provide valuable guidance regarding the growing list of resources available to certain businesses and non-profit organizations during these challenging times.
This blog is the first of a three-part series dedicated to connecting eligible businesses and non-profit organizations to these valuable resources. In this blog, we will: 1) provide our readers with Rhode Island Governor Gina Raimondo’s most recent executive orders and how they affect RI businesses; and 2) provide a brief summary of certain of the provisions of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (otherwise known as the “CARES Act”) with respect to emergency loan program relief that may be available to certain businesses and non-profit organizations. Our upcoming blogs will continue to update businesses and non-profit organizations on changes related to these topics, as well as new policies seeking to aid businesses and non-profit organizations in response to the devastating effects of COVID-19.
Governor Raimondo’s Most Recent Executive Orders
Effective Monday, March 30, 2020, Governor Raimondo’s “Amended Eleventh Supplemental Emergency Declaration – Staying at Home, Reducing Gatherings, Certain Retail Business Closures and Further Quarantine Provisions” available at the following link – http://www.governor.ri.gov/documents/orders/Executive-Order-20-14.pdf – requires “all non-critical retail businesses” to “cease all in-person operation.” While the Governor’s Amended Eleventh Executive Order provides a fairly comprehensive list as to what the Governor considers to be critical retail businesses, RI business owners can seek a further determination as to whether their retail businesses may qualify as “critical” by submitting the form available at the following link https://dbr.ri.gov/critical/ to the Rhode Island Department of Business Regulation.
The CARES Act – The Highlights for Small Businesses & Non-Profits
On March 27, 2020, the federal government enacted the CARES Act. The CARES Act expands the scope of economic relief available to certain small businesses, non-profits, self-employed individuals and independent contractors impacted by COVID-19. The CARES Act will provide this much-needed relief by offering loan programs tailored to deal with the effects of COVID-19 through the Small Business Association (the “SBA”) and qualified SBA lenders. The following loan programs are now available to qualifying businesses and non-profits:
Paycheck Protection Program and Loan Forgiveness
Any business concern, non-profit organization, veteran’s organization, or Tribal business that employs less than 500 employees (whether employed on a full-time, part-time or other basis), including self-employed individuals and independent contractors, harmed by COVID-19 may be eligible for a loan under the Paycheck Protection Program. Until June 30, 2020, a business can apply for a loan under the Paycheck Protection Program for costs and expenses listed under the “Permitted Uses” section provided below. To be eligible, the lender will first determine whether the applicant: (i) was in operation during the period from February 15, 2020 to June 30, 2020, the so-called “Covered Period”, and (ii) had employees to which it paid payroll and for which it incurred payroll taxes. If you received a loan under the SBA’s Economic Injury Disaster Loan Program, you will not be eligible for a loan under the Paycheck Protection Program with respect to the same costs and expenses already covered. However, you may be able to refinance the existing Economic Injury Disaster Loan.
- Loan Term and Benefits: For amounts not forgiven (as more particularly described below), the loan term is up to 10 years with a maximum fixed interest rate of four percent (4%). The SBA is fully guaranteeing the loans. You may also have an extended deferment period for 6-12 months before payment is required. Additionally, in connection with loans under the Paycheck Protection Program there are:
- No loan servicing fees;
- No prepayment fees;
- No pledge of collateral requirement; and
- No personal or business guarantees requirement.
- Loan Amount: The amount a qualified borrower is eligible to borrow is 2.5x the average monthly payroll costs (as defined in the provisions of the CARES Act) incurred during the one-year period before the date on which the loan is made, with a maximum loan amount of $10 million. In the case of seasonal businesses, the lender will determine the average monthly payroll costs based on, at the election of the borrower, the 12-week period beginning on February 15, 2019 or the period from March 1, 2019 to June 30, 2019. Annual employee salaries in excess of $100,000 appear to be excluded from these calculations.
- Permitted Uses: The loan proceeds may be used for the following:
- Payroll costs;
- Costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave and insurance premiums;
- Employee salaries, commissions or similar compensation;
- Mortgage interest payments;
- Utilities; and
- Interest on other debt obligations incurred before February 15, 2020.
- Loan Forgiveness: A borrower under the loan program may be eligible for forgiveness to the extent used for payroll costs, interest on mortgages incurred before February 15, 2020, rent on leases in force before February 15, 2020, and certain utility payments, in each case, incurred and payment made during the 8-week period beginning on the loan origination date.
- Reductions: The amount of loan forgiveness will be reduced based upon any reduction in the number of employees retained and if wages for employees making less than $100,000 per year were reduced by more than 25%. The Paycheck Protection Program does not penalize employers who rehire employees who were laid off, or restore reduction in wages or salaries after February 15, 2020, so along as the employees are re-hired or the wages are re-stored by June 30, 2020.
- Tipped Employees: A small business with tipped employees as described in Section 22 3(m)(2)(A) of the Fair Labor Standards Act of 1938 (29 U.S.C. § 203(m)(2)(A)) may receive forgiveness for additional wages paid to those employees.
- Documentation required when applying for loan forgiveness:
- Documentation verifying the number of full-time employees on payroll and the applicable pay rates.
- Documentation including cancelled checks, payment receipts, transcript of accounts, or other documents verifying payments for: (a) covered mortgage obligations, (b) covered rent obligations, and (c) covered utility bills.
- Certification from a representative of the eligible recipient, authorized to make such a certification, that the information is true and accurate, and the amount for which the forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make payments on covered utility bills.
- How to Apply: You must apply through a qualified SBA lender. The lender must issue a decision on your application no later than 60 days from the receipt of your application.
Additional Relief Available to Small Businesses from the SBA
- Economic Injury Disaster Loans: The CARES Act expanded the eligibility requirements for economic injury disaster loans under Section 7(b)(2) of the Small Business Act to include sole proprietors, independent contractors, cooperatives and employee owned businesses, and Tribal small businesses with 500 or less employees Additionally, it expanded the following options:
- Amount/Term/Interest Rate: Up to $2 million loans at a 3.75% interest rate for up to 30 years, but loan forgiveness is not available under this loan program.
- Waivers: Under the CARES Act, the SBA is now permitted to waive the requirement for a personal guarantee on advances and loans of not more than $200,000 during the time period from January 31, 2020 to December 31, 2020. The SBA will also waive the requirement that an applicant be in business for the one-year period before the disaster, provided no waiver will be made for a business that was not in operation on January 31, 2020.
- Requirements: The SBA may approve an applicant based solely on the applicant’s credit score and will not require an applicant to submit a tax return. The CARES Act permits the SBA to use alternative methods to determine applicant’s ability to repay.
- Application: Applicants must apply directly through the SBA.
- Emergency Grants: During the period of January 31, 2020 to December 31, 2020, an eligible borrower who has applied for an Economic Injury Disaster Loan, in response to COVID-19, can request an advance up to $10,000 from the SBA. The advance is to be issued within three (3) days after the SBA receives the application. The advance may be used to address an allowable purpose for a loan under Section 7(b)(2) of the Small Business Act, including maintaining payroll to retain employees during business disruptions, meet increased costs to obtain materials unavailable from applicant’s original source to interrupted supply chains, make rent or mortgage payments, or repay obligations that cannot be met due to revenue loss. An applicant will not be required to repay the advance even if subsequently denied a loan.
*Please note that all the information provided above is based on an interpretation of the CARES Act enacted on March 27, 2020, and guidance from the SBA has not been issued yet. AP&S will provide updates as guidance is issued.
Understanding that this pandemic, and thus the government’s response regarding how to most effectively protect its citizens while being cognizant of the effects of social distancing on both our economy and our psyches, is ever-evolving, AP&S is dedicated to providing timely and effective advice to its current and future business clients in their attempt to navigate these precarious times. To that end, please tune in next Tuesday for additional updates related to the Governor Raimondo’s restrictions on RI businesses and further details regarding the SBA’s implementation of the CARES Act loan program.
Additionally, if you would like assistance at this time in determining which loan program may be most appropriate for your business or in securing a loan through the SBA in response to the COVID-19 pandemic, please contact Danielle Dufault at firstname.lastname@example.org or Christine DiBiase at email@example.com.