As businesses are required to remain shut down as a result of the COVID-19 pandemic, access to capital resources continues to be a pressing issue for our clients. This FAQ addresses many questions that businesses may have about governmental programs that can provide capital resource support in the wake of COVID-19. When reviewing the resources and information below, it is important to note that the current situation is obviously very fluid, and rules and facts change daily.
Q: Where can I find access to financial resources in response to COVID-19?
- On March 27, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted. The CARES Act allocated $349 billion to be allocated to small businesses through the Paycheck Protection Program (“PPP”), which enables small businesses to borrow 2.5 times their average monthly payroll to pay for payroll costs, rent or mortgage obligations, utilities, and interest on debt incurred prior to 2/15/2020 (the “covered payments”).
The PPP offers loan forgiveness for covered payments made in the eight-week period following the disbursement of the loan funds, provided that 75% of the amount forgiven must be attributed to payroll costs. The interest rate for PPP loans is 1% and loan payments are automatically deferred for six months. PPP loans are available from private lenders and are subject to approval by the Small Business Administration (“SBA”).
For an in-depth discussion of the PPP loan program, please see our FAQ and Supplemental FAQ on the topic. On April 23, 2020, Congress allocated an additional $310 billion in funding for the PPP loan program, and lenders began accepting loan applications again on April 27, 2020.
- The SBA also offers an Economic Injury Disaster Loan (“EIDL”) for businesses that have been negatively impacted by the COVID-19 pandemic. The SBA can provide up to $2 million in disaster assistance for each business, and the EIDL may be used to pay fixed debts, payroll, accounts payable, and other bills that can’t be paid because of the disaster’s impact Under the CARES Act, applicants for an EIDL may apply for an emergency grant of $1,000 per employee up to $10,000, which does not need to be repaid. The interest rate is 3.75% for small businesses, and collateral is required for all loans over $25,000. Businesses that applied for an EIDL between January 31, 2020 and April 3, 2020 are still eligible to apply for a PPP loan, and proceeds from the emergency grant under the EIDL will be deducted from the amount of loan forgiveness under the PPP. Applications for the EIDL are submitted directly to the SBA (and are not available through private lenders). Additional information about the EIDL loan program can be found here. The SBA currently notes that it is unable to process new EIDL applications because the funding from Congress has run out, but we expect that additional funding will be made available for the EIDL program in the future.
The SBA also has this link to help businesses find lenders to provide loans.
Please be wary of scammers looking to take advantage of the current high demand for SBA loans. Legal advisers and their clients should rely on information from governmental websites (ending in “.gov”), and check the Better Business Bureau (“BBB”) for businesses that are willing to assist in obtaining loans from the SBA. The SBA has this advisory for tips to avoid the common pitfalls of scammers.
- Prosper Portland has been offering grants and zero interest loans, but the application period closed on April 11 due to high demand. However, attorneys should continue to visit Prosper Portland’s Business Resource Center for information on capital resources and other relief.
- Gresham residents can contact the city’s technical assistance team for help accessing and applying for state, federal, and private aid. Clients can contact email@example.com or call 503-618-2115 for assistance. The Small Business Development Center at Mount Hood Community College can also help advise businesses on accessing federal loans and other resources as well. See this link for more information.
- The Clackamas Workforce partnership, along with Clackamas Community College, is offering support and resources to business owners to help them access funding. Information on this program is available here.
- The South Central Oregon Economic Development District, which includes Klamath and Lake counties, is offering relief loans up to $10,000 for businesses with 10 or fewer employees. Learn more here.
- The Entrepreneurial Development Loan Fund, administered by Business Oregon, offers direct loans of up to $75,000 to startups, micro enterprises and small businesses to expand or become established in Oregon. Lean more here.
- Facebook is currently offering $100 million in cash grants and ad credits to help businesses negatively impacted by COVID-19. To be eligible, businesses must (i) be for-profit, (ii) have between two and 50 employees, (iii) have been in business for over a year, (iv) have experienced challenges from COVID-19, and (v) be in or near a location where Facebook operates. More information on Facebook’s grant program can be found here.
- Some local businesses are also utilizing GoFundMe as another option to raise capital from friends and family. Although this is a less traditional way of raising capital, it does not hurt to call on the community for help in times of emergency.
Q: What other resources can I look to for helpful information?
- Oregon’s Small Business Resource Navigator provides information about federal, state, and local resources and offers support for business owners to help them access funding. The website and hotline are overseen by Business Oregon.
- PCC’s Small Business Development Center (SBDC) has a sample Business Adversity Response Plan that provides a useful strategy for planning out the next several months during this crisis.
- Business Oregon also has a list of items to think through for business owners and strategies to stay afloat.
- Bernoulli Finance has a very helpful online searchable database of relief programs for small businesses and nonprofits called the “Phoenix”. The database can be found here.
- Tonkon Torp client Micro Enterprise Services of Oregon provides entrepreneurial support to underserved individuals and maintains this list of capital and other resources available to small businesses.
- The Portland Business Journal has compiled this list of helpful resources for business owners.
- Greater Portland is also compiling resources for Portland businesses here.
Q: What is the Federal Reserve doing to aid the economy?
On April 9, the Federal Reserve took additional actions to provide up to $2.3 trillion in loans to support the economy. This funding will assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic.
The Federal Reserve’s statement notes that its programs will:
- Bolster the effectiveness of the PPP by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses. The PPP provides loans to small businesses so that they can keep their workers on the payroll. The Paycheck Protection Program Liquidity Facility (“PPPLF”) will extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.
- Ensure credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the Main Street Lending Program. The Department of the Treasury, using funding from the CARES Act will provide $75 billion in equity to the facility. For additional discussion on the Main Street Lending program see our note here.
- Increase the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities (“PMCCF” and “SMCCF”) as well as the Term Asset-Backed Securities Loan Facility (“TALF”). These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury.
- Help state and local governments manage cash flow stresses caused by the coronavirus pandemic by establishing a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities. The Treasury will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act.