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COVID-19 Update: CARES Act for Small Businesses

Now is the time to evaluate how take advantage of Federal and City aid for your business. As you have probably already heard, Congress passed – and the President signed into law – the legislative package known as the CARES Act. This relief package is the long-anticipated response from the federal government to address the economic calamity created by the COVID-19 outbreak. New York City has also opened the application process for NYC Small Business Continuity Loans through the Department of Small Business Services.

With $349 billion in federal money and more than $75 million in city aid available for small businesses impacted by the pandemic, it is imperative that business owners understand their options. Let’s take a look at the benefits and requirements.

NYC Small Business Continuity Fund
As we discussed in our previous email update, NYC’s Small Business Services (“SBS”) is offering zero interest loans of up to $75,000 for businesses which can demonstrate at least a 25% decrease in revenue as a result of COVID-19. In order to be eligible, businesses must:

  • Be located within the five boroughs;
  • Demonstrate a 25% or greater decrease in revenue resulting from COVID-19;
  • Employ fewer than 100 employees;
  • Have been operating for at least 2 years;
  • Demonstrate the ability to repay the loan; and
  • Have no outstanding tax liens or legal judgments.

To calculate the revenue loss, NYC’s SBS will compare average revenue for two months in 2020 after the COVID-19 impact to both average revenue for the same two-month period in 2019, and average revenue based on 2019 totals. Financial documents and back-up information such as point of sales reports, bank statements, quarterly sales tax filings, tax returns, and profit & loss statements will be required at the time of application.

U.S. Small Business Administration (SBA) Paycheck Protection Program
Loans under the Paycheck Protection Program (“PPP”) are 100% federally guaranteed loans for small business. PPP loans are (a) unsecured, (b) do not require a personal guarantee, and (c) may be fully or partially forgiven. The loan term is up to 10 years and the interest rate will not be above 4%. The maximum amount of a PPP loan is the lesser of (a) $10 million, or (b) 2.5x its average total monthly payroll costs for a comparable period. To qualify for a PPP loan, a company must:

  • Be a small business concern under the SBA regulations having not more than 500 employees;
  • Have been in operation as of February 15, 2020;
  • Have had employees and/or independent contractors for whom the company paid salaries, commissions, etc.;
  • Certify that the loan is necessary to support ongoing operations; and
  • Certify that the funds will be used to retain employees.

Loans may only be used to cover the cost of:

  • Payroll (only for salaries of $100,000/year or less);
  • Health care benefits and employee related insurance premiums;
  • Mortgage interest obligations (not principal)
  • Rent and utilities
  • Debt interest obligations (not principal)

The major advantage of PPP Loans is that the full amount can be forgiven if the funds are used to retain employees (including employees who have already been terminated).

U.S. Small Business Administration (SBA) Economic Injury Disaster Loan
As we discussed in our previous email update, this program is available to small business owners in all U.S. states and territories and was expanded by the CARES Act to provide longer and more favorable terms. Economic Injury Disaster Loans (“EIDL”) are based on a company’s actual economic injury determined by the SBA (less any recovery from insurance proceeds) up to $2 million. To qualify, a business must:

  • Be a company with no more than 500 employees; or
  • Any individual operating under a sole proprietorship; or
  • An independent contractor; and
  • Prove substantial economic injury from COVID-19; and
  • Show ability to repay the loan;

Under the CARES Act, it appears that EIDLs still require collateral on amounts over $25,000. However, EIDLs will not require a personal guarantee for loans up to $200,000. For loans of $200,000 or more, the SBA will require the personal guarantee anyone beneficially owning more than 20% of the applicable company. Like the PPP, EIDL’s do not require the borrower to demonstrate inability to obtain credit elsewhere. The interest rate for EIDLs is 3.75% fixed for small businesses (2.75% for nonprofits) and will have a term of up to 30-years. EIDLs may be used for any business related purpose.

The CARE Act also permits applicants to request an advance of up to $10,000 to cover immediate working capital needs; this advance is expected to be paid by the SBA within 3 day of application. This advance will be considered a grant that is not required to be repaid, even if the EIDL application is denied. While there is no loan forgiveness for EIDLs, companies which have applied for an EIDL due to COVID-19 can refinance their EIDL with a PPP Loan to take advantage of the PPP’s loan forgiveness feature. While companies may be eligible for loans under both PPP and EIDL, they will be unable to seek recovery under the EIDL loan for the same costs that are covered by the PPP.

In some cases, we recommend applying for the EIDL and then refinancing through the PPP program.

We hope everyone is staying safe and healthy. If there are topics you want us to discuss, please email us at