Practice Areas

COVID-19 SBA Loans

Economic Injury Disaster Loans & Grants

The Senate Committee on Finance read the Bill (S. 3548) on March 19, 2020.  The CARES Act, “Coronavirus Aid, Relief and Economic Security Act,” provides various forms of relief.  With respect to businesses, the Act seeks to put cash in the hands of businesses in order to alleviate the economic pressures of the economy being frozen for at least thirty (30) days.  The CARES Act was signed into law by President Donald J. Trump on March 27, 2020.

Businesses in existence as of February 15, 2020 that were “substantially affected by COVID-19” (i.e., supply chain disruptions, staffing challenges, decrease in sales or customers, or shuttered businesses) are eligible to apply for Economic Injury Disaster Relief (“EIDR”) SBA Loans, or “Section 7(a) SBA Loans.”

Section 7(a) Loans may have a “deferment” of “payments” for up to one (1) year (from March 27, 2020) or up to six (6) months from the date the loan is approved.  The funds, however, may only be used for limited business purposes, including payroll support, employee salaries, mortgage payments, rent, utilities, and other debt obligations that were incurred before the covered period.

The SBA is granted the authority to “forgive” Section 7(a) Loans.  Further, the amount of debt forgiveness will not be includable in gross income for tax purposes. CARES Act, Sec. 1105(i).

Your business (including single-member LLCs and Schedule C sole proprietors actively operating and managing a rental property) may qualify for an SBA Section 7(a) Loan if:

  • Your business must be experiencing a business loss due to COVID-19 (including tenants unable to pay rent)
  • Entities may qualify for loans up to $10 million (Paycheck Protection Loan Program), $5 million (Standard 7(a) SBA Loan; Sec. 1102.7(a)(c)(2)), and $350,000 (Express 7(a) SBA Loan)
  • Maximum unsecured loan amount is $25,000 (collateral is required for loans in excess of $25,000)
  • Interest rates: 3.75% for small business;
  • Term – up to 30 years (2 years for PPP loans)
  • Use of funds: working capital, paying fixed debts (e.g., mortgage interest or leases), payroll, accounts payable, other bills that could have been paid had the disaster not occurred (Sec. 1102.7(a)(d)(1)).
  • Loans are not intended to replace lost sales or profits or for expansion
  • There is no obligation to take the loan if offered
  • Applicants can have an existing SBA loan or other SBA loan and still qualify for this disaster loan. Loans cannot be consolidated.

Note: In addition to SBA Loans under Section 7(a), the U.S. Department of Commerce has a parallel program: 15 USC 636(b), “Disaster Loans”.  If your geographic location has been designated by the President as a “disaster” zone, there exists parallel authority for the SBA to administer “Disaster Loans.”  These loans may be “in addition to” loans authorized and obtained through Section 7(a), but may not be for any “duplicative purpose” (e.g., seeking help with payroll expenses on a Section 7(a) application “and” simultaneously seeking help with payroll expenses on a 636(b) application). 15 USC 647(b)(1).  CARES Act, Sec. 1106(a)(1) only defines Section 7(a) and 636(a) loans as “covered loans,” but makes no mention of 636(b) loans.  Therefore, it is extremely important to make sure a borrower is applying for the correct type of loan if the borrower is interested in debt forgiveness and excluding debt forgiveness from gross income for tax purposes, and to avoid high interest and penalties.

Guidance offered by the SBA directly has stated:

“On March 27, 2020, President Trump signed into law the CARES Act, which provided additional assistance for small business owners and non-profits, including the opportunity to get up to a $1,000 Advance on an Economic Injury Disaster Loan (EIDL). This Advance may be available even if your EIDL application was declined or is still pending, and will be forgiven.” (emphasis in original).

On April 1, 2020, the SBA released the application form (updated April 6, 2020) for its Payroll Protection Program.  Unlike EIDL applications (which may be made directly to the SBA), PPP loan applications must be made through a bank and are not made directly with the SBA.

As of April 6, 2020, the SBA’s updated “Interim Final Ruling” (IFR) made changes to its April 2, 2020 IFR.  The most notable changes are that outside independent contractors (1099s) paid for by a business do not count as “employees” for purposes of the PPP.  Other important changes include the timing of the mandatory 8-week window, the use of funds, and the criteria for forgiveness of the PPP loan.  PPP applications must be made through the bank where the business has its primary checking/operating account and cannot be made directly through the SBA.

As of April 17, 2020, the SBA announcedLapse in Appropriations Notice: SBA is unable to accept new applications at this time for the Paycheck Protection Program or the Economic Injury Disaster Loan (EIDL)-COVID-19 related assistance program (including EIDL Advances) based on available appropriations funding.”

As of April 20, 2020, numerous reports exposed large borrowers with large cash reserves and access to funding (e.g., publicly traded companies) being the largest beneficiaries of the emergency relief program created by the CARES Act (intended to provide much needed emergency relief to small businesses).

As of April 21, 2020, the Senate announced an approved version of a CARES Act supplemental bill that would make additional funding available for small businesses.  The bill remains to be reviewed and approved by the House and is not yet law.

As of April 24, 2020, our clients have been approved and funded for more than $3.97 million in Payroll Protection Program (PPP) loans.

On April 24, 2020, H.R. 266 the Paycheck Protection Program and Health Care Enhancement Act was signed into law. Among other technical changes, the new Act (referred to as the “Additional Emergency Appropriations for Coronavirus Response”) added an additional $310 billion into the funds available for COVID-19 relief.

Payroll Protection Program Application Documents

  • Completed PPP from (PPP Form as of April 6, 2020).
  • Payroll “Register” for the past (12) months.
  • IRS Form 941 for Q1-2019, Q2-2019, Q3-2019, Q4-2019 and Q1-2020.
  • Invoices from health insurance provider.
  • NYS and NYC tax filings on the compensation of employees for the prior four (4) quarters (from the date of the application).
  • Retirement plan administrator records (e.g., 401k match) or other retirement plan benefits.
  • Copies of drivers license(s) (front and back) for: (a) applicant’s authorized representative, (b) all persons who own 20% or more of an interest in the applicant, and (c) authorized signers for new deposit accounts.
  • Although not a hard requirement, it is strongly recommended you include a copy of your complete property insurance policy or any insurance policy for your business that includes business income or business interruption coverage (even if the terms of said insurance policy purport to exclude such coverage for the circumstances of the COVID-19 pandemic).

SBA Loan Application Documents

The basic forms needed for filing are:

  • Completed SBA loan application (SBA form 5)
    (for sole proprietors/home-based businesses, fill out Form 5c)
  • IRS Form 4506-T completed and signed by Applicant business, each principal owning 20% or more of the applicant business, each general partner or managing member and, for any owner who has more than a 50% ownership in an affiliate business. (Affiliates include parent company, subsidiaries, and/or businesses with common ownership or management).
  • Completed copies of the most recent Business Federal Income Tax return – all pages
  • Schedule of Liabilities (SBA form 2202)
  • Personal Financial Statement (SBA form 413D) – each principal owning 20% or more of the applicant business, each general partner or managing member.
  • Completed copy, including all schedules, of the most recent personal Federal income tax returns for each principal owning 20% or more of the applicant business, each general partner or managing member, and each affiliate (affiliates include parent company, subsidiaries, and/or businesses with common ownership or management).
  • If you do not have completed 2019 business tax returns, submit year-end profit and loss statement and balance sheet for 2019.
  • Current year-to-date profit and loss statement
  • Monthly Sales Figures (SBA form 1368)

NYC Employee Retention Grant Program

The City is offering small businesses with fewer than 5 employees a grant to cover 40% of payroll costs for two months to help retain employees.

Businesses must:

  • Be located within the five boroughs of New York City
  • Demonstrate that the COVID-19 outbreak caused at least a 25% decrease in revenue
  • Employ 1-4 employees in total across all locations
  • Have been in operation for at least 6 months
  • Have no outstanding tax liens or legal judgements

NYC Small Business Continuity Loan Fund

Businesses with fewer than 100 employees who have seen sales decreases of 25% or more will be eligible to apply for zero interest loans of up to $75,000 to help ensure business continuity.

Businesses must:

  • Be located within the five boroughs of New York City
  • Demonstrate that the COVID-19 outbreak caused at least a 25% decrease in revenue
  • Employ 99 employees or fewer in total across all locations
  • Demonstrate ability to repay the loan
  • Have no outstanding tax liens or legal judgements

As part of the applications, you will be required to demonstrate a revenue decrease by providing documentation such as: point-of-sales reports, bank statements, quarterly sales tax filings, 2019 tax returns, or CPA-certified profit & loss statements. You can begin to gather these documents in preparation.

Please note: NYC has paused and suspended its Small Business Continuity Loan Fund, effective April 8, 2020, due to overwhelming demand and number of requests.  Any requests already submitted will be processed on a first come first serve basis.

DISCLAIMER: Both SBA & NYC economic relief programs are currently fluid and constantly changing almost daily.  The information on this page is only current as of April 27, 2020 at 5:48 P.M. EST.

If you are a small business interested in applying for any of the economic relief programs offered by the SBA or NYC, call us for a confidential and free consultation.

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