Summary of Federal, State of Illinois and City of Chicago Grant and Loan Programs to Assist Small Businesses Affected by COVID-19

Mar 31, 2020

Businesses around the world are facing significant adverse consequences due to government-mandated shutdowns and loss of business arising from coronavirus disease 2019 (COVID-19). Small businesses, including those in the hospitality, food, and retail industries, and non-profit organizations, are especially vulnerable to the full economic and financial consequences of COVID-19. In response to the COVID-19 crisis, governments at all levels have introduced new initiatives to address the economic suffering faced by businesses and their employees.  The following summarizes federal, state of Illinois and city of Chicago loan and grant programs that are available for small businesses.  As this is a rapidly developing area, we will provide continuing updates as these programs evolve, rules are promulgated and other programs are introduced.

Federal

CARES Act 7(a) Loan Program

On the federal level, Congress has passed, and the President has signed, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which, among other things, has established the Paycheck Protection Program to expand and modify the Small Business Administration’s (“SBA”) existing small business loan programs. Specifically, the CARES Act provides up to $349 billion to expand the SBA’s 7(a) loan program for small businesses through December 31, 2020. These loans are made through private financial institutions but are 100% federally guaranteed by the SBA. All current SBA lenders are immediately eligible to make loans under the new program. Loan money can be used for operating expenses including payroll costs, continuation of health care benefits, insurance premiums, rent, employee compensation (up to $100,000 per employee) and mortgage interest payments (but not principal).

General terms of the 7(a) loan program, as amended by the Paycheck Protection Program, are as follows:

• Maximum loan amounts based on a formula equaling 250% of certain average monthly payroll costs (including wages up to $100,000 per employee or contractor, tips, and costs of benefits and state and local employment taxes), but no greater than $10 million.
• Maximum interest rates of 4% for loans not forgiven at the end of one year, per the loan forgiveness program discussed below. Payments may be deferred for up to one year.
• Maximum terms of 10 years.

These terms will be effective until at least December 31, 2020.

7(a) loans are typically available to small businesses as defined by the SBA, but the CARES Act expands such eligibility (through June 30, 2020) to any business concern, 501(c)(3) nonprofit, 501(c)(19) veterans’ organization, or tribal business concern with not more than 500 employees, or, if greater than 500, the applicable size standard for the industry. Visit the SBA’s size standards tool to determine whether there is a greater size standard for your industry:  Certain businesses in the accommodation and food services industries (NAICS Code 72) may also be eligible if they have 500 or fewer employees per physical location.

The CARES Act also provides for a new loan forgiveness program for new SBA 7(a) loans made under the Paycheck Protection Program. Generally, loan recipients will be eligible for forgiveness of indebtedness in an amount equal to the sum of certain costs incurred and payments made during the 8-week period following origination of a loan.

Those costs and payments are:

• Payroll costs
• Rent on leases entered into before February 15, 2020
• Interest payments on mortgages granted before February 15, 2020
• Utilities for services begun before February 15, 2020

Loan forgiveness may be reduced in the amount of layoffs or salary/wage reductions, although loan recipients can mitigate such reductions by re-hiring employees or restoring salaries/wages by June 30, 2020. Any forgiven debt would be excluded from income for tax purposes.

For more information on, and to see a list of documents required for an SBA 7(a) loan application, please visit this page.

Economic Injury Disaster Loans and Grants

Congress has also separately made a total of $7 billion in loans directly available through the SBA’s Economic Injury Disaster Loan (“EIDL”) program. These loans may be used to pay fixed debts, payroll, accounts payable and other bills that are not able to be paid because of the impact of the COVID-19 crisis.

General terms of the Economic Injury Disaster loans are as follows:

• Maximum loan amounts up to $2 million.
• Interest rates of 3.75% for small businesses, and 2.75% for non-profits.
• Maximum terms of 30 years, depending on each borrower’s ability to repay.

EIDL loans are separate from 7(a) loans, and a borrower cannot receive both loans for the same purpose. EIDL loans therefore do not qualify for the loan forgiveness program discussed above. However, the CARES Act also permits the SBA to award emergency EIDL advance grants of up to $10,000 to any EIDL loan applicants, within 3 days of receiving the application. So long as a business or non-profit applies for an EIDL loan and uses the $10,000 for eligible expenses, the $10,000 advance does not need to be repaid, even if the applicant does not ultimately receive an EIDL loan.

To determine whether your business would qualify as a small business based on industry-specific size and revenue criteria, visit the SBA’s size standards tool. There is no size limit for non-profits.

To apply for an Economic Injury Disaster Loan, apply online at the SBA’s dedicated website.

State (Illinois)

Department of Commerce & Economic Opportunity

At the state level, the Illinois Department of Commerce & Economic Opportunity (DCEO) has launched a Hospitality Emergency Grant Program available to hospitality businesses. Grant funds are available for payroll and rent, as well as job training, retraining, and technology. Bars and restaurants that generated $500,000 – $1 million in revenue in 2019 are eligible for up to $25,000, while bars and restaurants that generated less than $500,000 in revenue in 2019 are eligible for up to $10,000. Hotels that generated less than $8 million in revenue in 2019 are eligible for up to $50,000.

Applications for awards will be accepted until 5 PM on April 1 and winners will be chosen by lottery.

DCEO, in partnership with the Illinois Department of Financial and Professional Regulation (IDFPR) is also establishing an Illinois Small Business Emergency Loan Fund for small businesses located outside of Chicago (City of Chicago loan programs are discussed below) to offer low-interest loans of up to $50,000. To qualify, businesses must employ fewer than 50 employees and have had less than $3 million in revenue in 2019. Loans may be used to support working capital, and will have loan terms of 5 years with no payments due for the first 6 months.

For more information on, and to apply for the above DCEO programs, please visit this page.

State Treasurer

The Illinois State Treasurer has also made up to $250 million available to financial institutions (at near-zero deposit rates) to make loans to small businesses and non-profits in Illinois. The loans would have to be used by small businesses and non-profits to provide bridge funding, pay fixed debts, payroll, accounts payable and other bills.

Terms and requirements for these loans are as follows:

• Interest rates not to exceed 4.75%.
• Eligible businesses or non-profits must (a) have been shut down or limited due to COVID-19, (b) have less than $1 million in liquid assets or $8 million average annual receipts, and (c) be headquartered in Illinois or agree to use the funds in Illinois.

More information can be found here.

A list of currently approved financial institutions that are participating in the state’s small business loan programs can be found here.

City (Chicago)

Finally, at the city level, the City of Chicago, together with public and private partners, has established a $100 million Chicago Small Business Resiliency Fund, which will provide small businesses with low-interest loans. Applications for the fund will begin to be accepted on March 31, 2020.

The Chicago Small Business Resiliency Fund’s loan terms will follow the following guidelines:

• Loan terms of up to 5 years.
• Loan amounts of up to $50,000, sized based on revenues before the COVID-19 outbreak.
• Loan proceeds are required to be used for working capital, with at least 50% of proceeds applied toward payroll
• Businesses must retain workforce at 50% of pre-COVID-19 levels
• To be eligible, businesses must have (a) suffered more than a 25% revenue decrease due to COVID-19, (b) 50 or fewer employees, (c) gross revenue of less than $3 million in 2019, (d) a Chicago business address or Chicago business license, and (d) no pre-existing tax liens or legal judgments.

Businesses interested in a loan should complete the form found here.

This situation is continuing to evolve.  Fox Swibel will continue to monitor developments and stands ready to advise clients in connection with financing available to businesses and non-profits. If you have questions about qualifying for or applying for emergency funding, please contact David Morris or the Fox Swibel attorney with whom you regularly work.