April 9, 2020
Ted C. Ziemer IV
Member, Stoll Keenon Ogden PLLC
Samuel T. Reinhardt
Attorney, Stoll Keenon Ogden PLLC
Throughout the United States, restaurants, bars, entertainment centers, retail stores and other types of businesses are being ordered to close or drastically change their business model in an effort to limit the spread of COVID-19 (Coronavirus). In Indiana, Governor Eric J. Holcomb issued Executive Order 20-08 on March 23 mandating that all “non-essential businesses and operations” in Indiana cease all activities except for minimum basic operations, effective at 11:59 p.m. on March 24, 2020, and remain in full force and effect until 11:59 p.m. on April 6, 2020. This Order may be extended further if necessary. This new reality has left many business owners left to wonder how they will pay their rent, make payroll, and keep their small business alive.
In response to the economic turmoil caused by the COVID-19 pandemic, the United States Small Business Administration (“SBA”) has issued revised guidelines to expedite the process for issuing Economic Injury Disaster Loans (“EIDL”) to small businesses and non-profits in areas that have been declared a disaster, which now includes all Indiana counties and non-Indiana contiguous counties. These low-interest loans, which come directly from the United States Treasury, provide working capital to businesses to help it meet certain operational and financial obligations that cannot be met as a result of the pandemic.
To assist our valued clients and other friends of Stoll Keenon Ogden PLLC, we have developed the following “FAQs” to help summarize the Economic Injury Disaster Loan program as well as other financial relief that may be made available to small businesses.
What is an Economic Injury Disaster Loan?
Economic Injury Disaster Loans (EIDL) are intended to assist small businesses and most private, non-profit organizations with working capital loans to assist through a disaster-recovery period and provide financial support. Loans are limited to $2 million and the actual amount of the loan will depend on the severity of the economic injury to the business, as determined by the SBA. Note that the $2 million limit may be waived if the business qualifies as a “major source of employment.”
The interest rate on an EIDL is limited to 3.75% for small businesses and 2.75% for nonprofits. Loan terms are up to a maximum of thirty (30) years and payments may be deferred for 12 months from closing. There is no pre-payment penalty for early payments.
Is My Small Business or Non-Profit Eligible for an Economic Injury Disaster Loan?
The SBA granted Indiana’s application for an economic injury disaster loan declaration, which opened the door for most small businesses, small agricultural cooperatives, and private, non-profit organizations (public, non-profit organizations are not eligible) that are (1) physically located in Indiana or non-Indiana contiguous counties and (2) have suffered substantial economic injury as a direct result of COVID-19 to apply for an EIDL.
While the U.S. Small Business Administration’s definition of “small business” varies by industry, generally a “small business” is considered as one that typically makes a maximum of $750,000 to $38,500,000 in annual revenue and has fewer than 250 to 1,500 employees.
If you have questions as to whether your business qualifies as a “small business” and may be eligible to receive an EIDL, please do not hesitate to contact your trusted Stoll Keenon Ogden professional.
Are There Restrictions on the Use of EIDL Funds?
Yes. EIDL funds may be used to pay fixed debts, payroll, accounts payable, employee sick leave, and other bills that cannot be paid due to the impact of COVID-19. The funds cannot be used to refinance long term debts incurred prior to COVID-19, make payments on other loans owned by another federal agency or the SBA, pay tax penalties or non-tax criminal/civil fines, or repair physical damages.
How Can My Business or Non-Profit Apply for an EIDL?
Applicants may apply online at https://disasterloan.sba.gov/ela or download and print the application materials and mail it in to the SBA. There is no cost to apply and, if approved, you are not obligated to accept the funds.
Note that due to the surge in the volume of applications, you may encounter delays in accessing the SBA’s website and submitting your application.
Are There Any Other Resources Available to Help My Small Business?
Yes. On March 25, the United States Senate unanimously passed the third phase of Coronavirus-related relief legislation, the “Coronavirus Aid, Relief, and Economic Security Act” or “CARES Act.” The House passed the package by an overwhelming vote on Friday, March 27, and President Trump signed the bill into law that same day.
The CARES Act expands eligibility for access to EIDL’s for certain businesses with 500 or fewer employees as well as individuals operating as a sole proprietor or independent contractor. The CARES Act also waives a number of borrower-eligibility requirements for the EIDL program and allows an eligible entity who has applied for an EIDL to request an immediate advance on that loan of a maximum of $10,000. The SBA will be required to distribute the advance within three (3) days and the applicant would not be required to repay the advance even if the underlying EIDL loan is ultimately denied.
In addition to the modifications to the EIDL program, the CARES Act makes significant changes to the 7(a)-loan program, SBA’s primary program for offering financial assistance to small businesses. Among other things, the CARES Act increases the maximum loan amount on SBA’s 7(a) loans to $10 million, expands the permitted uses of the funds, and offer partial loan forgiveness. Specifically, borrowers may be eligible for loan forgiveness for an amount spent by borrower during the eight-week period following the loan origination date, so long as the amounts spent fall into one of the following categories: (1) payroll costs (which may include employees that make over $100,000 but prorated); (2) interest payment on any mortgage incurred before Feb. 15, 2020; (3) rent on any lease in force before Feb. 15, 2020; and (4) utilities for which service began before Feb. 15, 2020.
For those businesses that are not eligible for these new SBA loans there are numerous other forms of business assistance contained in the CARES Act, all designed to provide critical cash flow and liquidity to businesses during the COVID-19 emergency. These new programs include, amending prior returns to obtain additional refunds, tax credits for the employer’s share of the Social Security Tax, and tax deferrals for both Social Security and self-employment taxes. These tax benefits are not allowed where the employer has had a covered loan forgiven as discussed above.
Stoll Keenon Ogden understands that these are trying times for our clients and our country. Our firm operations have continued uninterrupted and our attorneys are equipped to serve as we always have – for over 120 years.
Attorneys with Stoll Keenon Ogden PLLC’s Bankruptcy and Financial Restructuring Group would be happy to help assist small businesses and their creditors.
Please also be sure to consult the Stoll Keenon Ogden Coronavirus Resource webpage for additional articles and information related to the latest information on new laws and directives enacted by federal, state, and local governments in response to the Coronavirus pandemic.