May 1, 2020
Updated May 1, 2020: On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act (HR 266) was signed into law. The Act contributed an additional $310 billion to the Paycheck Protection Program. Subsequently, the SBA announced, on April 27, 2020, that it would again begin to accept Paycheck Protection Program loan applications. To note, these funds continue to be disbursed quickly. Loan approvals from April 27, 2020 through May 1, 2020 amounted to 2,211,791 guaranteed loans, for a total of $175,743,247,908, offered through well over 5,000 lenders nationwide. 
Due to an overwhelming interest in the Small Business Continuity Loan Fund, New York City has paused application intakes for that program. The availability of funds for small businesses at the federal, state, and local level is quickly evolving. We closely monitor guidance issued by relevant agencies, departments, and government officials, and the article below is current as of today. However, due to the rapidly evolving situation, some information may not yet reflect the latest subsequent developments. We will provide more information about the loan programs and their rules and regulations as it becomes available.
Under the Coronavirus Aid, Relief, and Economic Security Act signed into law on March 27, 2020 (“CARES Act”), Congress empowered the Small Business Administration (“SBA”) to provide over $450 Billion to businesses through a wide range of economic programs in response to the COVID-19 pandemic. Some of the primary loan and relief programs offered by the SBA are the Express Bridge Loan (“EBL”), the Economic Injury Disaster Loan (“EIDL”), the Payroll Protection Program (“PPP”) and the Small Business Debt Relief Program. In addition to these federal programs, New York City is also offering a number of different loan programs. For employers with over four employees however, the primary loan option is the Small Business Continuity Loan. All of these programs, and some of their key terms, are described below.
- Express Bridge Loan (“EBL”) Pilot Program
Offered by the SBA, the EBL pilot program can provide up to $25,000 for small businesses which have a prior banking relationship with an SBA “Express Lender.” These loans are designed to provide a fast turnaround to help support small businesses that also apply for a larger SBA EIDL. The loans became available to those businesses impacted by COVID-19 on March 25, 2020, and can be filed anytime in the next six months. Some of the key terms of the EBL include:
Eligibility: (13 CFR §120.100) Only small businesses that meet the following requirements are eligible for EBLs:
- Were operational at the time of a Presidential Disaster Declaration (March 13, 2020, for COVID-19);
- Are located in an area covered by a Disaster Declaration (all New York counties are within the scope of the COVID-19 disaster as of March 19, 2020);
- Are organized for profit;
- Are able to demonstrate need for desired credit and certify as much on an SBA Form 1920; and
- Qualify as small under the North American Industry Classification System (“NAICS”) criteria mentioned in 13 CFR §121. 
Lenders: Only SBA lenders who meet the following requirements may offer EBLs:
- Qualify as an “Express Lender” with a valid “Supplemental Loan Guaranty Agreement SBA Express Program” (SBA Form 2424) in effect as of the date of the disaster; and
- Have “an existing banking relationship” with the small business applying for the loan. This does not include “affiliates.”
Payment: Payment terms must follow particular guidelines including:
- Maximum term of seven (7) years;
- Capped interest rates are at 6.5%;
- Funds cannot be repaid by sale in the secondary market (13 CFR § 120.612(a)(3)); and
- Proceeds are confined to use for survival and/or reopening of a small business distributed as working capital.
- Economic Injury Disaster Loan (“EIDL”) Program
Another of the primary loans provided by the SBA, the EIDL program is designed to give long-term economic support to small businesses by providing up to $2 Million in financial assistance due to loss of revenue stemming from the COVID-19 pandemic. These loans are provided at lower interest rates than the EBLs and provide for a much longer term. Like the EBLs however, these funds may only be used as working capital and come directly from the federal government. An application for this type of loan can be filed online at, https://disasterloan.sba.gov/apply-for-disaster-loan/index.html. A few key terms of the EIDL program include:
Eligibility: Only small businesses meeting these requirements will be eligible for an Economic Injury Disaster Loan:
- Has suffered a loss of revenue, as a direct result of a disaster mentioned in a Disaster Declaration (all New York counties are within the scope of the COVID-19 disaster as of March 19, 2020); and
- Qualify as small under the NAICS criteria mentioned in CFR §121.
Payments: Payment terms must follow particular guidelines including:
- Interest rates at 3.75% for eligible small businesses and 2.75% for nonprofit organizations;
- Maximum term of thirty (30) years;
- Proceeds are confined to use for survival of the business primarily by paying bills that could have been paid had the disaster not occurred. The proceeds are not designed to replace lost sales or profits and may not be used for expansion.
- Any funds distributed over $25,000 require collateral commitments by the borrower, which may include real property.
- Paycheck Protection Program (“PPP”)
The loan offered under the PPP is designed to help employers cover payroll for their employees and other related expenses. Like the EBL and EIDL, the PPP also uses the NAICS size standards to determine whether a business qualifies as “small.” The most attractive aspect of this loan however, is its debt forgiveness feature. This aspect of the loan allows a large percent of certain eligible expenses to act as a grant from the government, as opposed to a loan with repayment obligations. Some of the key terms of the PPP are highlighted below:
Eligibility: A business must meet the following requirements in order to be eligible for the PPP:
- Have 500 or fewer employees; or
- Qualify as “small” within the NAICS employee-based or revenue-based size standards; or
- Meet both tests in the SBA’s “alternative size standard” as of March 27, 2020; and
- Have been in business since at least February 15, 2020.
Funds: Funds distributed under the PPP must follow strict criteria including:
- Maximum available funds of $10 Million;
- Interest rate fixed at 1%;
- Maturity of 2 years;
- Deferment of 6 months on all payments will apply, however interest will still accrue during this period; and
- No personal guarantees or collateral commitments are required for an application.
Use of Funds: The use of funds are limited to defined categories.
- Eligible uses:
- Compensation including, salary, wage, commission, tips;
- Vacation, parental, family, medical, or sick leave pay;
- Benefits including health and retirement; and
- State and local tax assessed on employee compensation.
- Ineligible uses:
- Compensation over $100,000;
- Certain IRC taxes (imposed under chapters 21, 22, and 24);
- Payment for employees with residences outside the US; and
- Payments which are otherwise eligible for a credit under the Families First Coronavirus Response Act.
Forgiveness: Up to eight weeks of payroll can be forgiven. The forgiveness amount calculation however, is tied to a physical location.
- Calculation: Maximum PPP loan forgiveness = Average of Payroll costs over the course of the eligible 8 week period in 2020 (February to June) and the same 8 week period from 2019 + any payment of interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation) + any payment on any covered rent obligation + any covered utility payment.
- Post-forgiveness considerations- Any funds not forgiven will take on applicable interest rates and term lengths, but principal and interest payments can be deferred for up to a year.
Cutoff: Applications to the PPP are available until June 30, 2020.
Interplay with other SBA Loans: If employer applies for an Economic Injury Disaster Loan, and wants to refinance to a PPP, the SBA will add the outstanding loan amount to the payroll sum.
- Small Business Debt Relief Program
The Small Business Debt Relief Program, unlike the other relief programs, is not a loan, but rather a direct payment option which provides relief from certain debts already due. The program allows small businesses with pre-existing non-disaster SBA loans (i.e. the EIDL and EBL are excluded) may apply for and receive loan payments from the SBA including principal, interest, and fees, for six months on qualifying loans. The essentially point, when considering whether to apply for this program, is understanding which loans are eligible for direct repayment by the government. The eligible and ineligible loans are listed below:
- 7(a) Loans;
- 504 Loans; and
- PPP loans; and
- Disaster loans.
- Small Business Continuity Loan Fund
Offered by New York City, “businesses with fewer than 100 employees who have seen sales decreases of 25% or more will be eligible to apply for zero interest loans of up to $75,000 to help ensure business continuity.” More information is available at https://www1.nyc.gov
/nycbusiness/article/nyc-small-business-continuity-loan-program. Generally however, a business applying for this loan must:
- Be located within the five boroughs of New York City;
- Demonstrate that the COVID-19 outbreak caused at least a 25% decrease in revenue;
- Calculated by comparison of average revenue of two months in 2020 (after COVID outbreak), to either: (1) the same two months in 2019; or (2) the average monthly revenue based on total 2019 revenue
- Employ fewer than 100 employees in total across all locations
- Have been in operation for at least 2 years;
- Demonstrate ability to repay the loan; and
- Have no outstanding tax liens or legal judgments.
- Bankruptcy Reorganization under the Small Business Reorganization Act
As an alternative, if your commercial or business activities have less than $7,500,000 in total debt, inclusive of all secured and unsecured debt, the new federal Small Business Reorganization Act (the “SBRA”) may provide a valuable tool to deal with creditors, save your business and preserve your ownership from the aftermath of the coronavirus (COVID-19) pandemic. Click here for a recent article in which we have explained the provisions of this new Act.
This article is current as of May 1, 2020 and reflects the state of the relevant laws, regulations, and guidance to that point. Any subsequently issued, legislation, rules, and guidance by Congress, the United States Treasury, the Small Business Administration and other various government agencies may change the information contained herein. While this article is meant as a useful resource concerning matters arising under the Paycheck Protection Program, it should not be considered legal advice for any specific situation.
Applicants for all these programs should bear in mind that there are some delicate questions to consider about how these different programs will interact. For example, your participation in one program, and how the loan proceeds are applied, may affect your eligibility for others. It will likely be important for applicants to consider carefully which program is best for their particular business, and to apply strategically.
 The SBA’s updated Paycheck Protection Program (PPP) Report: Second Round, is available at, https://www.sba.gov/sites/default/files/2020-05/PPP2%20Data%2005012020.pdf.
 New York City also offers the “NYC Employee Retention Grant Program,” which can provide up to “40% of payroll costs for two months to help retain employees” for employers with “fewer than 5 employees.” More information on this loan is available here.