While we wait for the 3rd and largest stimulus package from congressional leaders, hopefully coming soon, there are currently a few different relief programs for businesses and nonprofits. The majority of these are currently in the form of loans from different governmental agencies. This biggest relief is expected to be passed as part of the 3rd stimulus package that is believed to include grant programs, tax credits, and increased lending facilities.
SBA Economic Injury Disaster Loans (EIDL)
The SBA has, for a long time, offered loans related to economic injury for Federally declared disasters, such as hurricanes. With the COVID-19 outbreak, the entire US was declared a disaster area and congressional actions have made these slightly easier to begin the process.
An EIDL is a loan for up to $2,000,000 from the SBA at a 3.75% interest rate (2.75% for private nonprofits) with long term repayments, up to 30 years. The loans can be used for:
1. Working capital
2. Paying Fixed Debts (such as mortgages)
4. Accounts Payable
5. Other bills
These loans cannot be used to refinance or consolidate other SBA (such as a 7A or 504) loan.
These loans have a lengthy application process, and further, it has been communicated these are NOT a quick process.
The loans will undergo an underwriting process, which will assess the borrower’s ability to repay the loan. EIDL applicants will need to have an acceptable credit history, a proven ability to repay the loan and collateral for loans over $25,000. New York’s Empire State Development has indicated that loans may not be turned down for lack of collateral but requires borrowers to pledge what is available. Other typical SBA lending requirements are expected to apply, meaning having Federal tax liens or similar collections may make getting these loans difficult.
The application to start requires:
1. SBA Loan Application – SBA Form 5
2. A completed 4506-T for each owner who owns more than 20% of the applicant business.
3. 2 most recently completed years tax returns – for most businesses, this is likely 2019 and 2018 but may be earlier if 2019 is on extension.
4. Schedule of Liabilities – SBA Form 2202
5. Personal Financial Statement – SBA Form 413D – for anyone owning more the 20% of the business, and any managing member.
6. Personal Federal Income Tax returns for anyone who is required to submit a personal financial statement.
7. If your 2019 return is on extension or not filed, a 2019 Balance Sheet and Profit and Loss
8. A year-to-date 2020 Balance Sheet and Profit and Loss
9. Monthly Sales Figure – Form SBA 1368
During the process, the SBA will ask for a supplemental loan information form (P-019), which will ask for the prior 12 months Gross Sales, Cost of Goods Sold, Rents, any compensation from other sources as part of the disaster, and a certification you do not exceed the size standard. A size standard is based on your NAICS code and confirms you are a small business based on SBA guidelines. The limits can be found here.
Again, the SBA has emphasized, and our experience with other SBA Loans, that these are not quick processes and may require more information after the initial application.
New York City Employee Retention Grant and Small Business Continuity Loan Fund
To date, New York City has established 2 programs to help businesses who have been impacted by the COVID-19 outbreak.
New York City Employee Retention Grant
The NYC employee retention grant program was launched to help small businesses, with 1-4 employees and a demonstrated 25% decrease in revenue from COVID-19, with up to 40% of their payroll for 2 months, capped at $27,000. Also, note the business must have been in operation for at least 6 months. This includes private businesses and nonprofits.
Employers will need the following documents:
1. 2020 year to date financial statements
2. 2020 (January & February) revenue, 2019 (January & February) revenue and 2019 total revenue. These can be bank statements, sales tax returns, point-of-sales returns, sales tax filings, internal financial reports, or profit and loss statements.
3. Payroll records the first 2 months of 2020
4. Supporting documents
a. A signed affidavit, with a list of employees you certify you will be paying for up to 2 months.
b. Voided check for where you want the grant paid.
c. Copy of lease or tax return for proof of NYC location.
New York City Small Business Continuity Loan Fund
This program will provide a loan to eligible NYC businesses that are impacted by COVID-19. This loan fund can be used by businesses with up to 100 employees that have seen revenues decline by 25% or more because of the COVID-19 outbreak. The loans will be for up to $75,000 at a 0% interest rate.
After completing the pre-application, NYC says businesses will need the following data:
1. 2020 (January & February) revenue, 2019 (January & February) revenue and 2019 total revenue. These can be bank statements, sales tax returns, point-of-sales returns, sales tax filings, internal financial reports or profit and loss statements. While not confirmed, this may, given the time it has taken to implement, be expanded to March 2020 data.
2. Payroll documentation showing the number of employees
3. Organizational Documents
4. Names of officers, owners, directors and shareholders/owners.
5. Details on existing debts and operating account
6. Prior two-year tax returns.
We stress that at this point there is no official application, but rather just a pre-application survey which will give an email thanking you for your interest and what documents are required.
Edward McWilliams, CPA
Ed is a Partner in the firm’s tax and business advisory practice focusing on providing services to middle market private companies across different industries as well as to early stage startups. Ed has over a decade of experience providing tax and business consulting services to these companies of different sizes and across different industries, bringing a broad and diverse knowledge base and strategic solutions to the many complex issues that businesses face.