The impact of the closures and restrictions caused by the coronavirus (COVID-19) response will especially challenge small contractors. Interruptions to supply chains, managing employee absences and business closures will increase expenses while revenue decreases. The federal government, in recognition of the potentially disastrous impact on smaller companies, is implementing relief programs for small businesses. This alert discusses the Small Business Administration's (SBA) efforts, as well as assistance for small companies included in the Families First Coronavirus Response Act, which was signed into the law by President Donald Trump on March 18, 2020.
SBA Emergency Loans
As in any emergency situation, the SBA has available loans of up to $2 million per company to help with cash flow issues. These are called Economic Injury Disaster Loans (Disaster Loans), and they are available to small businesses and private, non-profit organizations in designated areas of a state or territory. Congress has set aside $1 billion for the SBA that has been allotted to subsidize these Disaster Loans. The Disaster Loans' interest rate is 3.75% for small businesses and 2.75% for private, non-profit organizations. These loans also have long-term repayment periods of up to 30 years, depending on each borrower's circumstances.
Disaster Loans differ from the SBA's regular loan program in that the SBA makes the Disaster Loans directly, as opposed to guaranteeing a loan from a bank. To be eligible for a Disaster Loan, a contractor must demonstrate that it does not have an alternate source of credit and that the loan applicant is located in an SBA-declared disaster area. As of the writing of this article, SBA had designated just a handful of states as disaster areas, but this number will undoubtedly increase as COVID-19 spreads. SBA maintains a webpage identifying the designated states, which should be checked regularly for additions.
The Families First Coronavirus Response Act
This act, passed by the U.S. House of Representatives and then by the U.S. Senate on March 18 and signed by President Trump the same day, gives workers the right to take up to 12 weeks of leave in the event the employee is unable to work or telework because of the fallout from COVID-19. More specifically, an employee who has worked for his or her employer for 30 days may take up to 12 weeks of paid leave to 1) comply with a requirement or recommendation for quarantine, 2) care for the employee's child if the child's school or childcare facility has been closed, or 3) care for an at-risk family member who is adhering to a requirement or recommendation to quarantine due to exposure to or symptoms of coronavirus. After the initial 14 days of leave, which can be unpaid or consist of accrued paid time off, the employer must pay full-time employees at two-thirds the employee's regular rate. Employees who work a part-time or irregular schedule are entitled to be paid based on the average number of hours the employee worked for the six months prior to taking paid sick leave. These requirements apply to employers with less than 500 employees, but the U.S. Department of Labor is authorized to promulgate regulations that would exempt companies with less than 50 employees. Accordingly, small businesses with less than 50 employees should expect to be excepted from the paid leave requirement.
For companies with 50 to 500 employees, the act creates employer tax credits to defray the costs of the expanded unemployment compensation program. These credits are dollar-for-dollar credits based on the wages paid but are limited both daily and in the aggregate. For example, the credit is capped at $511 per day for quarantined employees and $200 for employees who take leave to care for others or for childcare.
In addition to the act, Congress has announced that it intends to start working immediately on a second COVID-19 stimulus bill.
The most that can be said now about COVID-19 is that we are in uncharted waters.
