Summary of Legislation and Rulemaking Impacting Small Businesses Affected by COVID-19
The impact of COVID-19 has affected everyone in the United States. In response to the widespread economic consequences suffered by small businesses and their employees, the federal government and state and local governments have taken measures to mitigate the impact, including, on the part of the federal government, enacting the 880 page Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Below is a brief summary of the various more significant measures adopted in the last thirty days impacting small businesses, together with links to more detailed summaries we have prepared addressing items of particular interest. It is also expected that the administrative agencies responsible for implementing the measures will adopt administrative rules providing clarity and guidance. We will continue to provide updates as details become available.
If you have further questions or are dealing with specific challenges related to the effects of the coronavirus, please reach out to your Fox Swibel attorney.
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CARES Act 7(a) Loan Program
On the federal level, the Cares Act, which, among other things, 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, ease the eligibility requirements and provide for loan forgiveness under certain circumstances. 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. Money can be used for operating costs 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).
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.
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 here.
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.
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.
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Paid Sick Leave
The Families First Coronavirus Response Act includes a number of provisions that will directly impact employers, in addition to public health measures. One section of the new law requires employers to provide two weeks of paid sick leave to an employee who is unable to work or telework due to certain COVID-19 related circumstances. The paid sick leave provisions in the law apply only to private sector employers with fewer than 500 employees, and certain public sector employers. The amount of pay for the mandated sick leave is limited. In addition, the Department of Labor has issued a notice that must be posted by employers.
Family Leave Act (“FMLA”)
The new law also expands the circumstances that qualify for FMLA leave to address the current coronavirus health threat. Like the paid sick leave provisions, the new FMLA expansion applies only to private sector employers with fewer than 500 employees, plus covered public employers. However, employers with fewer than 50 employees (which is the threshold for the traditional FMLA requirements) will be able to apply for an exemption if compliance would jeopardize the viability of the business as a going concern. The legislation provides for leave to care for minor children due to closure of the child’s school or unavailability of a regular child care provider and provide for paid leave after the first two weeks at a reduced rate of pay.
For further information on employment related COVID-19 matters please see our two articles on how COVID-19 legislation will affect leave policies [(1) and (2)] and our article regarding the Department of Labor’s guidance on the FFCRA or contact Fox Swibel’s employment law department leaders, Steve Brenneman or Kelly Smith-Haley, or the Fox Swibel attorney with whom you regularly work.
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Small and medium sized employers “who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS. The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees. If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS.” For the IRS notice, please see here.
In addition, an employer that is forced to suspend or close operations due to COVID-19, or otherwise has a significant revenue decrease, and continues to pay its employees while not currently working will be able to claim a refundable tax credit, known as the Employee Retention Credit, against Social Security taxes or Railroad Retirement Tax Act taxes equal to 50% of qualified wages up to $10,000 paid to each employee, beginning in the first 2020 calendar quarter in which the employer’s gross receipts declined by greater than 50 percent of the corresponding calendar quarter of the prior year, and ends with the calendar quarter following the calendar quarter in which the gross receipts exceed 80 percent of the corresponding calendar quarter of the prior year. An eligible business who receives a “7(a) loan” is not eligible for the credit.
The CARES Act postpones the due date for the employer’s share of payroll taxes (6.2 percent) related to Social Security and Railroad Retirement for businesses. The deferred amounts would be payable over the next two years, with 50 percent due on December 31, 2021, and the remaining 50 percent due on December 31, 2022.
For further information on tax related COVID-19 matters please contact Fox Swibel’s tax department leader, Terry Stein or the Fox Swibel attorney with whom you regularly work.
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These measures are likely the first of a number of measures to address the coronavirus emergency. Fox Swibel will continue to monitor these changes and stands ready to advise clients during this unusual time. If you have questions about employers’ obligations and best practices in light of COVID-19, please contact any of the Fox Swibel attorneys listed above or the Fox Swibel attorney with whom you regularly work.