03/24/2020 by Ray W. King, Esq.
On a daily basis it is becoming more evident that businesses will be significantly affected by the Coronavirus (“COVID-19”). Businesses now have a growing number of resources and programs that can ease some of the financial burden. Below is a list of federal, state and lender-specific programs that may be available to your business.
SBA Disaster Assistance Loans
The U.S. Small Business Administration (“SBA”) is offering designated states and territories low-interest federal disaster loans for working capital to small businesses (including sole-proprietorships) and non-profit organizations suffering substantial economic injury as a result of COVID-19. Small businesses and non-profit organizations in Virginia are now eligible to apply for the low-interest SBA Economic Injury Disaster Loans (“EDIL”) for up to $2 million in assistance. These loans are intended to provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. The loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses and 2.75% for non-profit organizations. In order to keep the payments affordable, the term of the loans will be for 30 years. The amount of each loan will be capped at an amount equal to six months of operating expenses of the borrower company or $2 million, whichever is lower.
Applicants may apply online, receive additional disaster assistance information and download applications here. Applicants may also call SBA’s Customer Service Center at (800) 659-2955 or email email@example.com for more information on SBA disaster assistance. Individuals who are deaf or hard‑of‑hearing may call (800) 877-8339. Completed applications should be mailed to U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.
For a detailed explanation of SBA’s Disaster Loans, please see SBA’s Three Step Process Factsheet. That can be accessed here.
Items Required for Applications:
- Loan application (SBA Form 5), completed and signed (this is electronic/online in the portal). To see what the form looks like, an example can be found here.
- Tax Information Authorization (IRS Form 4506-T), completed and signed by each applicant, each principal owning 20 percent or more of the applicant business, each general partner or managing member; and, for any owner who has more than 50 percent ownership in an affiliate business. Affiliates include, but are not limited to, business parents, subsidiaries, and/or other businesses with common ownership or management.
- Complete copies, including all schedules, of the most recently filed Federal income tax returns for the applicant business; an explanation if not available.
- Personal Financial Statement (SBA Form 413) completed, signed, and dated by the applicant, each principal owning 20 percent or more of the applicant business, and each general partner or managing member.
- Schedule of Liabilities listing all fixed debts (SBA Form 2202 may be used).
At this time the SBA estimates that approval of an EDIL will take approximately 21 days after a complete application is submitted and funding will occur within 30 – 45 days after the loan package is signed and returned to the SBA.
Federal Tax Filing and Payment Deferral
On Friday, March 21, 2020, the Treasury Department and Internal Revenue Service announced that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020. Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax. Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses who need additional time must file Form 7004.
The full announcement is located here.
The IRS has created a special page on their website focused on Coronavirus Tax Relief, where individuals and businesses can see the latest news and guidance provided. That page can be accessed here.
On March 23, 2020, the Federal Reserve Board announced technical changes to support the U.S. economy and allow banks to continue lending to creditworthy households and businesses. The Federal Reserve release stated:
The Federal Reserve Board on Monday announced a technical change to support the U.S. economy and allow banks to continue lending to creditworthy households and businesses.
The interim final rule will phase in gradually, as intended, the automatic restrictions associated with a firm’s “total loss absorbing capacity,” or TLAC, buffer requirements, if the levels decline. TLAC is an additional cushion of capital and long-term debt that could be used to recapitalize a bank if it is in distress. The change will facilitate the use of firms’ buffers to promote lending activity to households and businesses.
Over the past decade, U.S. banks of all sizes have built up substantial levels of capital and liquidity in excess of their minimum requirements. The technical change mirrors an interim final rule announced last week by the bank regulatory agencies that applies to a firm’s capital levels.
Lender and Corporate Small Business Assistance Programs
On March 22, 2020, the Board of Governors of the Federal Reserve System, Conference of State Bank Supervisors, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration and Office of the Comptroller of the Currency issued a joint release encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications. The agencies encourage financial institutions to work with borrowers, will not criticize institutions for doing so in a safe and sound manner, and will not direct supervised institutions to automatically categorize loan modifications as troubled debt restructurings (TDRs). The joint statement also provides supervisory views on past-due and nonaccrual regulatory reporting of loan modification programs. The agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk.
In light of this guidance many banks are now offering deferment and forbearance to business loan customers having trouble making payments. Check Forbes’ list of banks offering relief. You can also search for your bank on the American Bankers Association’s ongoing A-Z list of coronavirus response programs.
Banks are continuing to work with regulators for a relief package which would delay the payment of principal and interest during the crisis.
We recommend communicating with your lender and carefully document and confirm any agreement.
State and Local Government Small Business Assistance
States and municipalities are adding programs by the day. Check your state’s website for up-to-date information about relief available in your area. The National Governors Association offers a list of governors’ websites.
At this time, we are not aware of any legal relief from the requirement to pay installments due on commercial insurance. We recommend communicating with your agent and carefully document and confirm any agreement.
About the Author
Ray W. King focuses his practice on commercial real estate, real estate litigation and commercial foreclosures. His commercial real estate practice encompasses all aspects of commercial real estate transactions including representing clients in the purchase, sale, ﬁnancing and defeasance of high rise ofﬁce buildings, ofﬁce parks, shopping centers and apartment complexes in the eastern United States. For more information, please contact Ray at firstname.lastname@example.org.