Legal Bulletins

Editor's note: This article was updated with financial assistance deadlines and lending information on Monday, April 27, 2020.

COVID-19 is having growing impact on the operations of businesses across the country. As a result, the federal government, along with a number of state and local governments, have announced several loan and grant programs to help businesses weather the economic downturns of the COVID-19 crisis. This article is intended to provide a list of financial assistance programs available through the federal government and the State of Maryland, highlighting the main features of each such program.

Federal Programs

U.S. Chamber of Commerce “Save Small Business” Initiative

The U.S. Chamber of Commerce launched the Save Small Business Initiative on April 15, 2020. It is a nationwide program that consists of four pillars: supplemental financial assistance, resources and guidance, advocacy and research. With regard to the financial aid component of the program, the U.S. Chamber of Commerce Foundation (Foundation), which is a private sector 501(c)(3) charity affiliated with the U.S. Chamber of Commerce, in partnership with Vistaprint, will provide $5,000 supplemental grants to small businesses in economically vulnerable communities. The grants, which are funded by contributions from corporate and philanthropic partners, must be applied toward business expenses.

To be eligible, your business must employ between three and 20 people (not including independent contractors), have been harmed financially by the COVID-19 pandemic, and be located in an economically vulnerable community. An economically vulnerable community is defined as the bottom 80% of the most economically distressed ZIP codes in the United States, as ranked by the Distressed Community Index. You can go online  to determine whether your business is located in an economically vulnerable community by entering the ZIP code where you are registered by the Internal Revenue Service (IRS) as doing business and you can sign up to receive an email notification for when the application goes live on April 20, 2020. The application will be linked to this page. The application is expected to be short and only requires your business’s W-9 form and basic supporting information about the business. The grants will be awarded weekly on a rolling basis until all funds have been exhausted. Once the grantee has been notified of the award and has submitted payment information, it is expected to take 3-5 days to process the payment of the grant. According to the Foundation, it will send a follow-up survey to all grantees to learn how the money was spent and the impact that it made.

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law by President Donald Trump on March 27, 2020. The CARES Act is a $2.2 trillion stimulus package that includes a number provisions to help businesses impacted by the COVID-19 crisis. Below is a discussion of new or expanded lending programs available to businesses under the CARES Act. 

SBA Economic Injury Disaster Loan Program

Small businesses and nonprofits in all U.S. states and territories are eligible to apply for low-interest Economic Injury Disaster Loans (EIDLS). The SBA’s program provides loans of up to $2 million, which may be spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue loss.

The CARES Act, which expands the SBA’s disaster loan program, permits the SBA to approve EIDLS based solely on an applicant’s credit score and waives the requirement that an applicant is “unable to obtain credit elsewhere.” EIDLS less than $200,000 may also be approved without a personal guarantee. Applicants awaiting EIDL approval may request the SBA to advance up to $10,000 in funds, in addition to any other amount being sought. The SBA will make advances within three days of receiving the application. Applicants do not need to repay any advanced amounts spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue loss, even if the SBA subsequently denies the business an EIDL. Businesses can apply here.      

SBA Express Bridge Loans

The Express Bridge loan program allows SBA Express lenders to provide expedited financing to small businesses located in declared disaster areas. Express Bridge loans are intended to be interim loans. Businesses use these funds for disaster-related purposes while they apply for and await long-term financing. Only lenders that were already participating in the SBA Express program at the time of the disaster can issue Express Bridge loans. These lenders may issue Express Bridge loans only to eligible small businesses that had an existing banking relationship with the lender at the time of the disaster. The maximum bridge loan amount is $25,000 and the maximum maturity is seven years. Lenders may require a borrower to pay down or pay off the Express Bridge loan if the borrower is approved for long-term disaster financing that may be used to reimburse the Express Bridge loan. The loan must be used to support the survival and/or reopening of the small business within the affected county. Read the program guide here for complete details about the Express Bridge loan program. The program expires September 30, 2020.

SBA Small Business Paycheck Protection Program

Additional funding for the Paycheck Protection Program was approved on April 24, 2020, and the SBA began taking applications again on April 27, 2020.

The CARES Act established, among many other things, a SBA lending program providing for 100% federally backed low-interest loans through SBA-approved lenders. The lending program, which is an expansion of the SBA’s 7(a) loan program, increases the maximum 7(a) loan amount to $10 million per business and expands the allowable uses of 7(a) loan proceeds to include payroll costs, such as compensation to employees, payments required for the provisions of group health care benefits (including insurance premiums), payments for vacation, parental, family, medical or sick leave, severance payments, and payments of any retirement benefits, interest on mortgage obligations or any other debt obligations incurred prior to February 15, 2020, rent payments, and utilities. Pursuant to Section 1102 of the CARES Act, payroll costs do not include “the compensation of an individual employee in excess of an annual salary of $100,000, as pro-rated for the covered period.” According to the U.S. Department of Treasury’s Paycheck Protection Program Information Sheet for Borrowers, this means that payroll costs are capped at $100,000 on an annualized basis for each employee. This program is open until June 30, 2020, or until the funds are exhausted.

Eligible businesses include

• Small businesses with up to 500 employees or, if applicable, the size standard in number of employees for the industry in which the business concern operates;
• Businesses in the Accommodation and Food Services Sector (NAICS Code 72) with up to 500 employees at each location;
• 501(c)(3) nonprofits that do not receive Medicaid funding and have up to 500 employees and some 501(c)(19) veteran organizations; and
• Sole proprietors, the self-employed and independent contractors.

Eligible borrowers must certify that they will use the funds to maintain employees at levels close to where they were prior to the social-distancing shutdowns, which may entail rehiring laid off or furloughed employees in order to be eligible for this assistance. These businesses must have been operational on February 15, 2020. Businesses will also be required to submit other documentation to establish eligibility, such as payroll processor records, payroll tax filings, Form 1099-MISC, or income and expenses from a sole proprietorship. If such documentation is unavailable, the business applicant must provide other supporting documentation sufficient to demonstrate the qualifying payroll amount, such as bank records. Recipients of an SBA Economic Injury Disaster Loan after January 31, 2020 (other than those made for purposes permitted under the Paycheck Protection Program) may also receive assistance under the Paycheck Protection Program.

Under the SBA’s Interim Final Rule issued on April 2, 2020, loans will bear interest at 1% and will become due in two years. Loan payments will be deferred for six months although interest will continue to accrue over this period, and the SBA will waive the “no credit elsewhere” test, as well as collateral and personal guarantee requirements. Further, non SBA-lenders approved by the Treasury and also approved by the SBA may provide loans. Loan recipients will be eligible for total or partial forgiveness of the loan in an amount equal to their eligible payroll costs, interest payments on mortgages or other debt obligations, rent payments, and utility payments over the eight-week period after the loan is made. However, not more than 25% of the forgiven amount may be attributable to nonpayroll costs. The loan forgiveness amount will be reduced in proportion to any reduction in the number of full-time employees and any reduction in salary of certain covered employees between February 15 and June 30, 2020 that exceeds 25%.

Beginning April 3, 2020, small businesses and sole proprietorships can apply for and receive covered loans, and beginning April 10, 2020, independent contractors and self-employed individuals can apply for and receive covered loans. Businesses can apply through any SBA 7(a) lender or through any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution. Businesses will need to complete and submit the Paycheck Protection Program loan application, along with required documentation, to any approved lender that is available to process the application by June 30, 2020. Business owners should contact an SBA lender to begin the application process. 

Main Street Business Lending Program

The CARES Act encourages the Federal Reserve to establish the Main Street Business Lending Program, which will support lending to eligible small and midsize businesses. This program will likely depend on the availability of additional funds from the Treasury Department. Though the Federal Reserve has announced its intentions to roll out the program soon, it has not yet provided any details about the program.

Treasury’s Exchange Stabilization Fund

The CARES Act provides $500 billion to the Treasury’s Exchange Stabilization fund for loans, loan guarantees and investments in Federal Reserve credit facilities. The loans are to support states, municipalities and businesses that have not received adequate relief under other provisions of the bill. The $500 billion is to be allocated as follows:

• $50 billion in loans and loan guarantees for air carriers,
• $8 billion in loans and loan guarantees for cargo air carriers, and
• $17 billion in loans and loan guarantees for businesses critical to maintaining national security.

These loans must be secured and for a maximum term of 5 years. Further, recipients of such loans may not participate in any stock repurchases while the loan or loan guarantee is outstanding and must maintain existing employment to the extent practical. The remaining $425 billion is to be allocated to loans, loan guarantees and investments in support of Federal Reserve credit facilities that have been established to support lending to eligible businesses, states, or municipalities. Similarly, recipients of such loans are prevented from participating in any stock repurchases while the loan or loan guarantee is outstanding. Notably, in order for eligible borrowers to participate in CARES Act funding programs, the borrower must agree to certain restrictions imposed on executive compensation.

Business owners can learn more about the federal lending programs by visiting the U.S. Senate Committee on Small Business & Entrepreneurships’ Small Business Owner’s Guide to the CARES Act.

Maryland Programs

As of April 6, 2020, the Maryland Department of Commerce is no longer accepting new applications for its Small Business COVID-19 Relief Grant and Loan Programs. All applications that have been submitted are currently being reviewed in the order received. If you have already started an application, it must be completed and submitted by 5 p.m. on April 7, 2020, in order to be considered. As of April 21, 2020, the Maryland Department of Commerce is no longer accepting new applications for its Maryland COVID-19 Emergency Relief Manufacturing Fund.

On March 23, 2020, Governor Hogan announced that Maryland has authorized more than $175 million in loan and grant funding for small businesses, nonprofits and manufacturers that have been impacted by the Coronavirus. Below are the highlights of each loan and grant fund program:

Maryland Small Business COVID-19 Emergency Relief Loan Fund

This $75 million loan fund offers working capital loans of up to $50,000 (not to exceed three months of cash operating expenses) to for-profit businesses only with fewer than 50 employees. The loans provide for 0% interest for the first 12 months, and 2% for the remaining 36 months. Among other requirements, businesses must have been established prior to March 9, 2020 and have W-2 employees. There is no collateral requirement and businesses in any industry can apply. Eligible entities include, C-corp, LLC, sole proprietorship, joint venture, local government, general partnership, S-corp and LLP. Applicants must demonstrate financial stress or disrupted operations to be eligible for these loans. Businesses can apply here or visit the Maryland Department of Commerce’s frequently asked questions on the Maryland COVID-19 Emergency Relief Fund Programs for Businesses for more information.   

Maryland Small Business COVID-19 Emergency Relief Grant Fund

This $50 million grant fund offers up to $10,000 in grants to businesses and nonprofits with fewer than 50 employees. Among other requirements, businesses must have been established prior to March 9, 2020 and have W-2 employees. There is no collateral requirement and businesses in any industry can apply. Eligible entities include, C-corp, LLC, sole proprietorship, joint venture, local government, general partnership, S-corp and LLP. Additionally, the annual revenue of the business or nonprofit cannot be more than $5 million. Businesses can apply here or visit the Maryland Department of Commerce’s frequently asked questions on the Maryland COVID-19 Emergency Relief Fund Programs for Businesses for more information.  

Maryland COVID-19 Emergency Relief Manufacturing Fund

This $5 million incentive program helps Maryland manufacturers produce personal protective equipment (PPE) for hospitals and health care professionals. Grants of up to $100,000 will be made available to manufacturers to facilitate the quick production of PPE. Recipients will receive 50% of the grant upon notice of the award and the remaining 50% upon completion of manufacturing with proof of expenses.

COVID-19 Layoff Aversion Fund

The $7 million “layoff aversion” fund is designed to help small businesses prevent or minimize the duration of unemployment resulting from layoffs. As of March 30, 2020, the Maryland Department of Labor is no longer accepting applications for this fund. Businesses should monitor the department’s website for any updates regarding applications.

Additionally, another $40 million in emergency funds has also been made available to small businesses through existing programs:

• Advantage Maryland. Funds grants, loans and investments to support economic development initiatives in Priority Funding Areas.
• Maryland Industrial Development Financing Authority and Fund. Private activity revenue bonds and credit insurance in the form of loan guarantees for projects located in Priority Funding Areas.
• Maryland Small Business Development Financing Authority. Financial assistance to economically and socially disadvantaged businesses. Uses include working capital, supplies and materials, land acquisition or real estate improvements, etc.
• Non-Profit, Interest-Free, Micro-Bridge Loan Account. Interest-free, micro-bridge loans to nonprofits to support ongoing operating costs while waiting on future government grants or contracts.

Should your business encounter dilemmas due to the COVID-19 pandemic, please contact us for assistance.

For additional information on the impact of the coronavirus, visit our COVID-19 information hub for a list of up-to-date content.

Abba David Poliakoff
410-576-4067 • apoliakoff@gfrlaw.com

Michele Bresnick Walsh
410-576-4216 • mwalsh@gfrlaw.com

Christopher R. Rahl
410-576-4222 • crahl@gfrlaw.com