The public health and economic crisis posed by the COVID-19 pandemic will have a substantial impact on small business.
As this pandemic causes a strain on small businesses, their owners, and their employees, the US Congress and state officials are working to provide assistance to those in need.
The United States Small Business Administration (the “SBA”) and the Pennsylvania Department of Economic Development are establishing Covid-19 specific loan programs to help small businesses.
As of March 19, 2020 the SBA declared Pennsylvania eligible for loans for economic disaster as a result of COVID-19. Any business may apply for a loan of up to $2,000,000 for physical damage. Additionally, a small business may apply for loans of up to $2,000,000 for economic injury. These loans have interest rates of 3.75% for for-profit businesses and 2.75% for non-profit businesses. The term of these loans can be up to 30 years. Applications for Covid-19 SBA loans are available online. Loan officers will be assigned to each applicant. The estimate time required to process an application is approximately 2 – 3 weeks following submission.
Beyond the programs currently in place, the U.S. Congress is negotiating a Phase Three Proposal to provide additional financing for businesses and individuals. The proposal currently calls for an additional $1 trillion in appropriations for the following uses:
- $50 billion for secured lending to U.S. passenger and cargo air carriers;
- $150 billion for secured lending or loan guarantees for “other critical sectors of the U.S. economy experiencing severe financial distress” caused by the outbreak;
- $500 billion for two identical rounds of direct payments to individual taxpayers, with amounts fixed and tiered based on income level and family size (the first $250 billion would be issued beginning April 6, and the second beginning May 18); and
- $300 billion for the creation and administration of a small business interruption loan program. Employers with 500 employees or less would be eligible to borrow amounts equal to 100% of 6 weeks of payroll (capped at $1540 per week per employee).
Late last week Senate Majority Leader Mitch McConnell released the Senate GOP’s Phase Three Proposal.
The proposal, if passed in current form, could help small businesses and their employees through the following programs:
Small Business Loans:
Companies with under 500 employees will be able to apply for loans of up to $10 million, with the size of the loan based on a business’s payroll, mortgage payments, rent payments, and other already existing debts. The loans can be used to cover up to four months of payroll (up to an annualized salary for each employee of $100,000), mortgage, rent, and existing debt payments, and incentivizes companies to rehire staff that has been laid off. The proposed legislation offers loan forgiveness, although the forgiveness only covers funds spent on payroll expenses used to maintain the same level of employees and existing debt payments. The bill appropriates $300 billion for these loans and delegates authority to banks approved as Small Business Administration lenders to expedite the transmission of funds to small businesses.
Tax Credits for Businesses:
Notably, the tax proposals allow companies to postpone estimated tax payments due until October 15, 2020. Additionally, employers would be able to defer payment of the employer share of Social Security taxes and pay such deferred tax over the following two years. Limitations on a company’s net operating losses would be lifted to allow companies (including pass through entities) to carry a loss from 2018, 2019, or 2020 back 5 years and removes the taxable income limitation to allow NOL to fully offset income.
Direct Payments to Individuals:
The bill would provide Americans checks of up to $1,200 per individual tax filer, with an additional $500 per child. The payment would start phasing out over $75,000 for individuals based on their 2018 tax filings.
The hope is that this bill passes the Senate in late March, however, if debate lingers, it could result in a 2 – 3 week delay.
We at Metz Lewis are closely monitoring Congress and the Trump Administration’s efforts to provide loans and other financial assistance to business impacted by the sudden economic instability.