What COVID-19 relief loans and grants can small businesses get federally, in New York, and in California?

The pandemic has walloped small businesses across America, because many operate on very little cash to begin with. Big firms tend to have large reserves to fall back on. With business disruptions, little cash, and often poor or no access to credit, mom-and-pop businesses are struggling to make ends meet. In a win for Main Street, the Coronavirus Aid, Relief, and Economic Security (CARES) Act - as well as initiatives at the state and city level - offer crucial financial relief. This article reviews COVID-19 programs to help small business owners impacted by the pandemic. The review shows that there is a patchwork of plans at the federal, state, and city levels. Some are still pending, but below is where things stand federally, in New York and in California, including New York City and Los Angeles.

SBA Loans Come in Two Flavors

The Small Business Administration (SBA), an independent federal agency, offers low-interest loans, as well as financial aid, such as the CARES Act’s paycheck protection plan, to help small-business owners in times of economic stress. SBA loans come in two flavors: the paycheck protection program (PPP) under Section 7(a) of the Small Business Act and economic injury disaster loans (EIDLs) under Section 7(b).

The primary source of aid for small businesses trying to weather the coronavirus crisis is the PPP. This program is for businesses with 500 or fewer employees and some nonprofits. (The number of employees may vary by industry.) Veterans groups, Tribal businesses, sole proprietors, independent contractors, and the self-employed can also take part. Applications are being taken through June 30, 2020. Parent companies and subsidiaries are often counted together when determining whether there are fewer than 500 employees. But there are a few exceptions to this rule, particularly for hotels, restaurants, franchises, and companies that receive money from a Small Business Investment Company. Hotels and restaurants with several sites can qualify for a PPP loan if they have no more than 500 employees per location. Affiliation can be complicated, so get guidance from a lawyer before determining whether or not your firm qualifies.

The most any business can borrow is the lesser of $10 million or 2.5 times the average monthly payroll from the previous year. Payroll covers more than just salaries. According to the SBA, you should also count items such as leave time, severance pay, compensation for dismissal, health insurance premiums, and state and local employment taxes. But any compensation above $100,000 per employee should be excluded from the calculation.

The PPP provides loans for use as working capital to cover rent, utilities, mortgage interest, payroll and benefits. The loan is repayable in two years, at an annual interest rate of just 1%. Monthly payments can be deferred for six months, but interest continues to accrue during that time. The best thing about PPP loans is that they do not require any collateral or a personal guarantee. Also, the lender cannot go after individual members, shareholders or partners in your company.

A big plus: the loan can be forgiven for as much as eight weeks of spending on payroll costs, rent, mortgage interest, and utilities. It is important to note that the forgiveness on non-payroll expenses - namely rent, mortgage, and utilities - is capped at 25 percent of the loan’s total forgiveness amount.

The catch is that if the headcount at your business falls at any time during the eight-week loan period compared to the period spanning February 15 to June 30, 2019 or the period spanning January 1 through February 29, 2020, the amount of loan forgiveness gets reduced in direct proportion. And if you reduce any worker’s pay by more than 25 percent versus the last full quarter (for staff earning $100,000 or less), the total amount of loan forgiveness gets scaled back. Say your business cut its staff or the pay of workers between February 15, 2020 and the 30 days after the CARES Act was signed. Certain such cuts will not count against you as long as you restore staffing and compensation by June 30, 2020.

Normally, EIDLs require firms to show that they have no other credit available. For the PPP, there is no such requirement. Also, you can receive both a PPP loan and an EIDL loan so long as the loans are used for different things.

To apply for a PPP loan, you will need to apply through an SBA-approved lender, which includes 7(a) lenders, participating banks, and non-bank lenders. Applications opened on April 3, 2020 for small businesses and sole proprietors and on April 10 for independent contractors and self-employed individuals.

Economic injury disaster loans under Section 7(b) are low-interest loans made available to small-business owners in each of the 50 states, the District of Columbia, and five territories. These loans can be used to pay for fixed debts, payroll, and operating bills such as payables. As well, the credit-elsewhere test is waived for applicants during 2020. The waiver opens EIDLs to a group of borrowers who could not qualify before.

You can apply online for an EIDL at the SBA Disaster Loan Assistance website.

At the state level, New York State does not yet have a program to help small businesses struggling because of coronavirus. Relevant legislation is pending. This article will be updated as needed if and when the situation changes.

New York City has two new initiatives to help local businesses overcome the financial setbacks of COVID-19, offering grants and interest-free loans.

The first is a small-grant program that covers 40 percent of payroll costs, up to $27,000 total. To apply, your firm must have between one and four employees, and show a 25 percent or more drop in revenue. In addition, applicants must show at least six months in business, have no outstanding tax liens or judgments, and be in the five boroughs. If you expect to meet the 25 percent revenue test, ask your accountant to run two quick financial reports: average sales for two post-impact months in 2020 and the same months in 2019. You must also provide average monthly sales for all of 2019. Examples of proof include sales-tax filings, POS reports, or bank statements. You will upload payroll information, which you can get from your payroll provider or personal records, to calculate the grant.

You apply for the grant online at the NYC Employee Retention Grant Program website.

The second new initiative for local small businesses is the Continuity Loan Fund, which will offer zero-interest loans to small firms of up to $75,000. The program is not yet open. Your firm would have to be in the five boroughs, have 99 or fewer employees, show a revenue loss of 25 percent or more, and be able to repay the loan. In addition, you must have no outstanding tax liens or legal judgments. One of the most crucial steps is to prove the decline in revenue. You can use point-of-sale records, bank statements, sales-tax returns or 2019 tax filings, or CPA-certified profit and loss statements.

Anyone interested in applying for a loan through the Continuity Loan Fund can already do a pre-application. It can be done at the City of New York Small Business Services website.

California Businesses

California runs ongoing programs to help local small-business owners hurt by disasters in the state.

The California Infrastructure and Economic Development Bank (IBank), under the state’s Governor’s Office of Business and Economic Development (GO-Biz), has two loan-guarantee programs. IBank’s Small Business Loan Guarantee Program uses partner financial-development corporations (FDCs) in local areas to underwrite loans. IBank also runs a disaster-relief loan guarantee program that covers the COVID-19 crisis. Businesses in designated disaster areas - and even nonprofits - can receive guarantees of up to $1 million with IBank.

This state program helps California businesses that have 750 or fewer employees. Loans go up to $20 million. The length of guarantee is up to seven years, and the size is 80 to 95 percent. The loan itself may run longer. Interest rates are negotiated between the business owner and the lender. Whether you are eligible, and how much you can borrow, depends on your lender’s criteria.

Want to see if you qualify? Contact one of the Financial Development Corporations listed at the IBank Small Business Finance Center website.

IBank also offers Jump Start loans of $500 to $10,000 to small businesses in designated disaster areas. These loans can run up to five years and have to be fully amortized. These loans are for low-wealth entrepreneurs in disaster areas to pay startup costs, or for real estate, equipment, inventory, or leasehold improvements.

To apply for Jump Start loans, visit the website for IBank’s Small Business Finance Center and look at the Jump Start program. Your lender will be an FDC listed there.

Whatever state you are in, check with your governor’s website and any local authorities, and also read the SBA fact sheets about declared disasters in your state.

The City of Los Angeles created the Small Business Emergency Microloan Program for small businesses in the city that have been hurt by the coronavirus crisis.

The loans must be used to cover working capital. The city is allowing businesses with low-income employees - or businesses owned by low-income individuals - to apply. Also, if you want to apply, be sure you have acceptable credit and no bankruptcies or write-offs from the past year. If there are late payments or other problems, be ready to offer solid reasons why. You also need to show that the COVID crisis hurt your company, and that past earnings were strong enough to pay your business debts. Lenders determine what sort of collateral they want case by case. You may be able to find a co-signer with enough reasonable credit and income to cover the loan for you. Keep in mind that owners of 20 percent or more of a company must also personally guarantee the loan.

To apply, expect to hand over the firm’s tax return (one year, where available), an interim financial statement, the personal financial statement of the loan applicant, and a personal tax return. Also gather three months bank statements for the company and a completed statement of the sources and uses for the funds you are requesting.

Borrowers can get $5,000 to $20,000 in loans at zero percent interest for six months to a year or 3 to 5 percent for up to five years. There are no fees.

You apply for the microloan online at the Los Angeles Economic and Workforce Development Department website.