As the COVID-19 pandemic continues to wreak havoc on the US economy, small businesses and non-profit organizations appear to be experiencing the most severe ramifications. While loan programs available under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), provided some much-needed hope and potential relief to these small businesses and non-profits, navigating the application process is not as straightforward as anticipated. AP&S remains dedicated to providing effective guidance related to the CARES Act, as well as updates on Governor Raimondo’s most recent executive orders and policies that impact small businesses during these uncertain times.
Governor Raimondo’s Most Recent Executive Orders
As of Monday, March 30, 2020, in her “Twelfth Supplemental Emergency Declaration – Extension of Executive Orders on the Operation of Food Establishments and Close Contact Businesses” which is available at the following link – http://www.governor.ri.gov/documents/orders/Executive-Order-20-15.pdf – Governor Raimondo extended previously issued Executive Orders 20-04, 20-08 and 20-09. Specifically, Executive Order 20-04 extended the ban on all on-sight consumption of food and alcoholic beverages in RI restaurants, bars and food establishments until Monday, April 13, 2020. It is anticipated that Governor Raimondo will further extend this ban in the upcoming week.
Updates Related to the Paycheck Protection Program
On March 31, 2020, we published the first article of a three-part blog series that provided information to small businesses on the Paycheck Protection Program (the “PPP”) under the CARES Act enacted on March 27, 2020. Since then, the Small Business Association (the “SBA”) has released the following guidance to assist small businesses applying for a loan under the PPP:
- SBA’s Interim Final Rule: The SBA’s Interim Final Rule published on April 2, 2020 clarified certain provisions of the PPP. This Interim Final Rule can be reviewed by clicking here.
- PPP Affiliation Interim Final Rule: This Interim Final Rule clarifies the SBA’s affiliation rules for purposes of eligibility under the PPP. This Interim Final Rule can be reviewed by clicking here.
- Borrower’s Application: On April 3, 2020 the SBA released the PPP Borrower’s Application Form.
As of April 3, 2020, certain qualified SBA-lenders began to accept PPP loan applications from small businesses. Due to the popularity of the PPP, lenders are encouraging applicants to apply sooner rather than later. The SBA noted in its Interim Final Rule that applications are on a “first-come, first served” basis.
The PPP & the Hospitality Industry
In Rhode Island, the hospitality industry is a major part of the state’s economy. We are keenly aware of the devastating and lasting impacts that COVID-19 has had on the state’s restaurants and hotels. Fortunately, there are various resources available to small businesses in the hospitality industry during this difficult time, including a loan under the PPP. In fact, there are certain provisions of the PPP that are uniquely attractive to hospitality small businesses, such as:
- Expanded Eligibility Requirements: An applicant with a North American Industry Classification System code beginning with the number 72[1] (accommodation and food services), which includes hotels and full-service restaurants, that has more than one physical location may be eligible to receive a PPP loan so long as the business employs less than 500 employees at each physical location. Therefore, a restaurant that exceeds the 500-employee threshold in the aggregate may still be eligible for a PPP loan if the total number of employees in each physical location is less than 500.
- Waiver of Affiliation Rules: During the period from February 15, 2020 to June 30, 2020, SBA affiliation requirements pursuant to Section 121.103, Title 13, of the Federal Regulations are waived for an applicant that employs not more than 500 employees and, as of the date the PPP loan is disbursed, is assigned a North American Industry Classification System code beginning with number 72 (accommodations and food services).
- Tipped Compensation: When calculating the maximum PPP loan amount available under the CARES Act, payroll costs include cash tips or its equivalent. Therefore, tipped employees can be accounted for in the calculation of a PPP loan.
- Seasonal Small Businesses: An applicant with a seasonal business may elect to calculate its average total monthly payroll costs based on the 12-week period beginning February 15, 2019 or the period starting March 1, 2019 ending June 30, 2019.
- Rent and Loan Forgiveness: PPP loan proceeds may be used towards rent payments for lease agreements that were in force before February 15, 2020. Additionally, PPP loan proceeds that are used towards rent payments under a lease in force before February 15, 2020 may be eligible for loan forgiveness.
- Employees generally: The SBA’s Interim Final Rule published on April 2, 2020, indicated that an applicant is generally eligible for a PPP loan if it has 500 or fewer employees whose principal place of residence is in the United States. It is unclear as to how this provision is to be reconciled with the legislative language of the CARES Act that bases eligibility on having 500 or fewer employees without reference to any principal place of residence.
*Please note that all the information provided above is based on an interpretation of the CARES Act enacted on March 27, 2020 and rules promulgated by the SBA as mentioned above. Guidance from the SBA continues to be issued on an on-going basis. AP&S will provide updates as guidance is issued.
RI Commerce Corporation & the RI Local Initiative Support Collaborative Bridge Loan Program
As of April 3, 2020, the Rhode Island Commerce Corporation in partnership with the Rhode Island Local Initiative Support Collaborative (“LISC”), is offering bridge loans through its recently introduced LISC Bridge Loan Program to borrowers awaiting final approval of their SBA Economic Injury Disaster Loan (“SBA EIDL”) applications. The LISC Bridge Loan Program is available to RI restaurants and microbusinesses, as well as other RI small businesses that have one to ten employees whose businesses were affected by COVID-related restrictions on in-person activities. Some of the material terms associated with these bridge loans are:
- Long Term/Interest Rate: LISC loans are have a term of up to 6 months with 0% interest rate.
- Loan Amount: LISC loans are available to eligible borrowers in an amount up to $5,000.
- Application: Eligible borrowers could start applying as of April 3, 2020 through the LISC website by using the following link https://www.surveymonkey.com/r/RILISC.
- Eligibility Requirements: To be eligible, borrowers must first apply for a loan through the SBA EIDL program, which under the CARES Act was expanded to include businesses with not more than 500 employees, sole proprietors, with or without employees, independent contractors, cooperatives with not more than 500 employees, employee owned businesses, and Tribal small businesses with not more than 500 employees as eligible borrowers. The SBA EIDL application is available at the following link https://covid19relief.sba.gov/#/.
Next Steps
Please tune in next Tuesday for additional updates related to the Governor Raimondo’s Executive Orders as they relate to RI businesses, further details regarding the SBA’s implementation of the CARES Act loan programs, and other resources as they become available for small businesses.
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 one of the SBA loan programs or the Rhode Island Commerce Corporation in response to the COVID-19 pandemic, please contact Danielle Dufault at ddufault@apslaw.com or Christine DiBiase at cdibiase@apslaw.com
[1] https://www.ecfr.gov/cgi-bin/text-idx?SID=ac3f0ed89591f0b8e401745b4db30866&mc=true&node=se13.1.121_1201&rgn=div8
