COVID-19: Small Business Support

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Resources for Small Business Loans and Other Financial Support Programs

In light of the COVID-19 crisis and recent “shelter in place” orders across California, there is much concern over whether businesses will be able to survive — particularly small businesses. Many small businesses operate on narrow margins, and even a brief reduction in sales or an order for complete closure could cause them to shutter their doors permanently. These small businesses are unlikely to be buoyed by insurance because most policies carve out epidemics as an exception to coverage, though businesses should check their insurance policy or consult with an agent to determine their coverage. Even if it is unclear whether losses are covered, businesses should consider filing a claim because the total number of claims is a factor governmental decision makers will likely consider when determining the ultimate need for relief programs. Fortunately, various local and federal agencies are already providing emergency programs to support small businesses in need of funding during this crisis.

The United States Small Business Administration implemented an Emergency Disaster Assistance Fund that provides low-interest loans for those impacted by the crisis. This program provides loans of up to $2 million, and provides interest rates ranging from 2.75 percent for nonprofits to around 3.75 percent for for-profit organizations. SBA is offering the loans with long-term repayments to keep payments affordable, up to a maximum of 30 years, with terms determined on a case-by-case basis depending on each borrower’s ability to repay. There is no cost to apply for the loans, applications will not negatively impact credit, and businesses are not required to take the funds even if they qualify.

There is an approximate 3-week turnaround for obtaining a loan, so business are encouraged to apply as soon as possible given the anticipated rush for these emergency loans. The loans were first made available for businesses in California and Washington, though the program is quickly expanding to other states as well. Importantly, businesses must have been solvent prior to the crisis to be eligible for the program, and businesses with credit available elsewhere are not eligible. Additional information regarding applications for the Emergency Disaster Assistance Fund can be found on the SBA website.

On Friday, Congress passed and the President signed the third part of the Coronavirus Aid, Relief, and Economic Act, which includes new SBA loan resources, such as the Paycheck Protection Program. This program expands the guidelines for traditional 7a SBA loans and allows for loans up to $10 million as well as loosening company revenue restrictions. Companies of up to 500 employees are eligible, with some exceptions.

The loans provide funds to pay payroll costs, health benefit costs and insurance premiums, mortgage interest, rent, utilities and other interest obligations for the business. The loans may be forgiven for the covered costs incurred in the 8 weeks following origination of the covered loan based on a specific formula.

There are, of course, limitations on forgiveness based on the costs covered, actual use of the loan proceeds, and the numbers of employees employed during the period, among other factors. SBA will determine the forgiveness amount and remit the funds direct to the lender, along with interest on the forgiven amount. There are many details that still have not been finalized at this point and lenders have only just received the information. The key to this program is that the forgiven amounts are connected to the loan origination, so requesting and closing the loan as quickly as possible is critical. Many of the SBA-authorized lenders are still figuring out the program and are not necessarily prepared for the loan volume, so borrowers will need to be persistent and complete their applications. Borrowers should collect their 2017 and 2018 federal tax returns (and 2019 returns if filed), payroll records for February 2019 through February 2020 (13 months total) and 2019 year-end financial statements. This is not a complete list, as each borrower is different, but these items will be necessary in every application. To find a lender see SBA’s lender match guide here.

At the state level, California expanded several financing assistance programs to help ensure small businesses have access to emergency loans during the crisis, including the California Capital Access Program for Small Business, the California Infrastructure and Economic Development Bank (IBANK) Disaster Relief Loan Program and IBANK Jump Start Loan Program. The CalCAP program is a loan loss reserve program that may provide up to 100 percent coverage on losses as a result of certain loan defaults. Lenders may be more inclined to underwrite loans on borrower-friendly terms for small businesses enrolled in the program because the program would minimize the lender’s risk of loss in the event of COVID-19 related defaults.

Similarly, IBANK’s Disaster Relief Loan Program provides guarantees of up to 80 to 95 percent of a loan, or a max guarantee of $1 million, for loans issued through its partner Financial Development Corporations. To be eligible for the program, an applicant must be a small business located within the State with less than 750 employees or an eligible nonprofit. IBANK’s Jump Start Loan Program also offers direct “microloans” ranging from $500 to $10,000 to assist low-wealth entrepreneurs in disaster areas or low-wealth communities. An applicant’s eligibility is dependent on their annual income being equal to or less than the statewide average, so this program is a potentially valuable resource for those who are most vulnerable to financial strain caused by the crisis. Application materials and additional information regarding the IBANK programs can be obtained from the Small Business Finance Center website. In addition, the Governor’s Office of Business and Economic Development is currently maintaining a list of state-wide COVID-19 emergency relief programs, including the above programs.

There are also geographic-specific resources throughout California. Many local government agencies are implementing their own emergency programs to supplement state and federal relief:

  • Sacramento-based businesses can access resources for employer and employee issues, as well as state and federal emergency funding, through the City of Sacramento’s Coronavirus Resources website. The website provides information regarding the City’s Small Business Assistance Fund, which provides zero interest loans of up to $25,000 with payments deferred until the end of the crisis. These loans are intended to provide relief for service industries such as the restaurant, retail, hospitality and child care industries. The deadline for the first cycle of loans has unfortunately already closed as of March 20 due to high demand, but the application portal will reopen as additional funds become available. For nonprofit organizations, the Sacramento Regional Community Foundation has activated a Regional Disaster Fund to provide grants to regional nonprofits. The Sacramento Metro Chamber of Commerce is also providing assistance and resources for local businesses completing the application process, which can be accessed at on their Rapid Response page here.
  • San Diego-based business can visit the City’s website for emergency relief funds information or the City’s quick reference business resources guide. The City’s website and business resources guide provide additional information regarding San Diego’s Small Business Relief Fund, which provides grants and forgivable or low- to zero-interest-rate loans to eligible small businesses with 100 or fewer employees. Approximately $6.1 million has been made available through the Relief Fund, which will be distributed in the form of grants and loans ranging from $10,000 to $20,000.
  • Los Angeles’ micro-loan program information can be found on the City’s Economic & Workforce Development Department website. These loans range from $5,000 to $20,000, with interest rates between zero and three percent depending on the term and period of deferred payments. The loans are available to small businesses with 100 or fewer employees and may only be used for working capital.
  • San Francisco has information on its Office of Economic and Workforce Development website. The website provides information regarding various grant and loan programs, including a loan program administered through a partnership with Main Street Launch for loans up to $250,000 with interest rates between 3.5 - 7.75 percent. The City has also established a relief fund to offer emergency grants of up to $10,000 for businesses with 1-5 employees, and allocated $1 million to the Arts Loan Fund (ALF) of Northern California Grantmakers for low-interest loans to small- to mid-sized arts organizations.

Businesses can locate programs specific to their region by consulting the COVID-19 Resources Map published by the Governor’s Office of Economic Development. The map provides information regarding regional financial development organizations across the state that offer no-cost consultations to small businesses seeking emergency funding. The Resources Map additionally allows businesses to sort resources based on relevant criteria such as industry-specific organizations or organizations that support minority-owned businesses. We encourage businesses to explore these resources as they potentially provide uniquely tailored relief programs for small businesses.

New relief measures are being implemented by federal, state and local government agencies on a daily basis, so it is important that businesses monitor the above resources closely to track changes in available funding and eligibility requirements. Given the anticipated increase in requests for emergency loans and the possibility of administrative delays due to the volume of requests, businesses are encouraged to act promptly to take advantage of available programs.

Best Best & Krieger will continue to provide updates on COVID-19 related loan, grant and emergency financing programs as new programs are announced. 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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