Government Action and Loan Options Caused by Coronavirus (COVID-19)

What is the government doing?

Congressional Action

The Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (P.L. 116-123), was signed into law by the President on March 6, 2020. The bill provides $8.3 billion in emergency funding for federal agencies to respond to the coronavirus outbreak. Of the $8.3 billion, $6.7 billion (81%) is designated for the domestic response and $1.6 billion (19%) for the international response.

The House then passed – and, with Senate approval, the President signed – HR 6201, Public Law No. 116-127 (2020), titled the “Families First Coronavirus Response Act,” which provides for more middle- and working-class family assistance, including

Sick pay for certain workers ordinarily not eligible for same.

• Full-time employees would now receive 80 hours of sick leave at their regular rate of pay if unable to work because of quarantine order or Covid-19 symptoms;
• Full-time employees would now receive 80 hours of sick leave at 2/3rd of their regular rate of pay if unable to work because they need to care for an individual subject to quarantine order or to care for a child (under 18 years of age) whose school or child care provider is closed or unavailable for reasons related to COVID-19; and
• Part-time workers would be granted time off that is equivalent to their scheduled or normal work hours.
• Employers are prohibited from the following:
  1. Requiring a worker to find replacement coverage for their hours during their time off.
  2. Discharging or discriminating against workers for requesting such paid sick leave.

Modifications to certain provisions of the FMLA consistent with the sick pay provisions.

An employee may now receive up to an additional 10 weeks of paid family leave at two-thirds the employee’s regular rate of pay where an employee, who has been employed for at least 30 calendar days, is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.

Employer Tax Credit for Sick Leave.

• The measure provides a refundable tax credit to employers who cover wages that are paid to employees while they are taking time off under the bill’s sick leave and family leave programs.
  1. The credits would be against an employers’ payroll and retirement tax payments. The sick leave credit for each employee would be for wages of as much as $511 per day while the employee is in quarantine.
  2. Furthermore, employees would be given $200 if they are caring for someone else who has been quarantined or their child’s school has been closed due to coronavirus.
  3. The family leave credit for each employee would be for as much as $200 per day while also receiving paid leave, or an aggregate of $10,000.

However, the final version of the bill would only cover approximately 20% of the working public.

• Businesses employing over 500 persons are exempt from the bill (HR 6201, §5110(5)(b)(i)(I)(aa). [NB: some 54% of the working public is employed by such businesses, according to the New York Times (“There’s a Giant Hole in Pelosi’s Coronavirus Bill,” March 14, 2020).]
• Businesses with fewer than 50 employees can apply for hardship exemption from the bill; see HR 6201, §3102(b) (modifying Section 110(a)(3)(B) of Title I of the Family and Medical Leave Act of 1993 (29 U.S.C. §§2611 et seq.). [NB: some 26% of the working public is employed by such businesses, according to the New York Times (“There’s a Giant Hole in Pelosi’s Coronavirus Bill,” March 14, 2020).]

The Senate on March 19th proposed the “CARES Act”.

• The Act in part is intended to increase SBA loans up to a maximum of $10 million and provide more generous repayment terms, as well as to provide for the deferment of existing SBA loans.
• It also provides relief for citizens in the form of tax credits of up to $1,200/ individual and $2,400/married filing jointly, based on income up to $75,000/ annum, with a phase-out up to $99,000/individual or $198,000/married filing jointly.
  1. Steven Mnuchin, the Treasury secretary, said earlier Thursday that the administration wants to send two waves of $1,000 checks to each American, and another $500 per child — one in April and another in May should the coronavirus crisis continue. (New York Times, “Coronavirus Live Updates,” March 19, 2020.)
• This provision is a tax credit, and as such is based upon income level; thus, ironically, it adversely affects those least able to pay, i.e., the poor, who would likely see their credits capped at $600/individual and $1,200/married filing jointly.
• The emergency bill would also provide as much as $1 billion for emergency transfers to states to pay for unemployment benefits.
• As of today (March 23, 2020), the CARES Act has not yet been passed. It failed in the Senate last night due to concerns from Democrats that it favored big business too much at the expense of small businesses and workers.

Presidential Action

President Trump declared the coronavirus pandemic a national emergency, invoking powers under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Pub. Law 100-707, 102 STAT. 4689 [Nov. 23, 1988]), to allow substantially more federal aid to states and local governments.

• The Act empowers the Federal Emergency Management Agency (FEMA) to direct how the U.S. government responds to disasters and to assist state and local governments during “natural catastrophes.”
• If Trump had made an emergency declaration under the separate National Emergencies Act, that would have given him sweeping executive powers—from controlling the Internet to suspending laws altogether. The Stafford Act declaration deals with FEMA only, however.
• The U.S. Treasury Department and Internal Revenue Service on March 18th issued guidance allowing all individual and other non-corporate tax filers to defer up to $1 million of federal income tax (including self-employment tax) payments due on April 15, 2020, until July 15, 2020, without penalties or interest. The guidance also allows corporate taxpayers a similar deferment of up to $10 million of federal income tax payments that would be due on April 15, 2020, until July 15, 2020, without penalties or interest. This guidance does not change the April 15 filing deadline for any such parties.

State Intervention. Governor Northam has taken the following actions:

• Applying for Economic Injury Disaster Loans from the U.S. Small Business Administration (see Section II.A.2., below).
• Activating regional workforce teams to support employers that slow or cease operations. Employers who do slow or cease operations will not be financially penalized for an increase in workers requesting unemployment benefits.
• Authorizing rapid response funding, through the (federal) Workforce Innovation and Opportunity Act, for employers eligible to remain open during this emergency. Funds may be used to clean facilities and support emergency needs.
• Suspending the usual one-week waiting period and job search requirements for applications for unemployment compensation. (See Virginia Employment Commission, www.vec.virginia.gov last accessed at 11:45 a.m., March 21, 2020.)

Government and Commercial Loans

SBA – The U.S. Small Business Administration is offering designated states and territories low- interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Upon a request received from a state’s or territory’s Governor, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration.

• Any such Economic Injury Disaster Loan (EIDL) assistance declaration issued by the SBA makes loans available statewide to small businesses and private, non-profit organizations to help alleviate economic injury caused by the Coronavirus (COVID- 19). This will apply to current and future disaster assistance declarations related to Coronavirus.
  1. SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
  2. These 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. The interest rate for non-profits is 2.75%.
  3. SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by- case basis, based upon each borrower’s ability to repay.
  4. For additional details, see the SBA’s Fact Sheet on this program, which is attached to the end of this presentation.
  5. You can access forms on the SBA website at https://disasterloan.sba.gov/ela/Information/PaperForms, which also has a link to online applications.
  6. For questions, please contact the SBA disaster assistance customer service center at 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail disastercustomerservice@sba.gov.
  7. As of this printing, Virginia has been added as one of the states that qualifies for SBA help as described above. On Thursday, March 19, the Small Business Administration implemented an Economic Injury Disaster Loan declaration applicable to all of Virginia (see Fact Sheet, below).
• Commercial loans. The ordinary manner is which the SBA funds loans is by guaranteeing the debt issued by commercial lenders. That program is still in place, but has been superseded in importance by the EIDL.
  1. Although the SBA funds disaster loans directly, the problem, according to the New York Times, is that “the S.B.A. is itself small, and banks are not staffed to handle an emergency program. The federal government’s reliance on banks to modify mortgage loans during the last financial crisis ended in disaster. In recent weeks, the banking industry’s struggles to handle a modest increase in mortgage refinancing applications has offered a timely reminder of its limitations.” (The Editorial Board, “How to Avoid Complete Economic Destruction,” New York Times March 20, 2020.)
  2. “The Federal Reserve is better equipped to manage the process than the S.B.A., but it’s unlikely to be much faster. It has the legal authority to create a lending program, and it could create the money, too. But it would also need to create a new bureaucracy, or else rely on the banks. (Id.)
  3. Another potentially huge issue is that many of the businesses that most need disaster assistance are loathe to take on additional debt, given that it must be repaid and collateral or insurance procured to obtain it.
     1. The SBA’s reputation for assistance in such matters is less than stellar. In the aftermath of the 2008 financial crisis, Congress ordered the S.B.A. to partner with banks on zero-interest loans of up to $35,000 to “viable” small companies hurt by the recession. The program was laden with complex rules, and fewer than 9,000 companies took the loans. Nearly half of the applications approved did not meet all of the agency’s rules, auditors estimated. (See Stacey Cowley and Tiffany Hsu, “Small Businesses Seek a Crisis Lifeline Beyond Loans,” New York Times March 23, 2020.)
     2. Compounding that, access to credit has dwindled in recent days as creditors, reacting to the crisis, have tightened borrowing limits. “‘Many of the businessowners that are seeking capital are those that have been the most affected by the coronavirus — restaurants, event centers, bars,’ said Brock Blake, Lendio’s [a leading online lender] chief executive. ‘Those are the exact businesses that the lenders are removing from their credit box.’” (Tiffany Hsu and Emily Flitter, “Businesses Face a New Coronavirus Threat: Shrinking Access to Credit,” New York Times March 16, 2020.)

U.S. Small Business Administration Fact Sheet – Economic Injury Disaster Loans

Virginia Declaration 16359 (Disaster VA-00087)

Incident: Coronavirus (COVID-19)

Occuring: January 31, 2020 & Continuing

All counties and independent cities within the Commonwealth of Virginia; and contiguous District of Columbia; the contiguous Kentucky counties of: Bell, Harlan, Letcher and Pike; the contiguous Maryland counties of: Charles, Frederick, Montgomery, Prince Georges, Somerset, Washington and Worcester; the contiguous North Carolina counties of: Alleghany, Ashe, Camden, Caswell, Currituck, Gates, Granville Hertford, Northampton, Person, Rockingham, Stokes, Surry, Vance and Warren; the contiguous Tennessee counties of: Claiborne, Hancock, Hawkins, Johnson and Sullivan; and the contiguous West Virginia counties of: Berkeley, Greenbrier, Hampshire, Hardy, Jefferson, McDowell, Mercer, Mingo, Monroe, Morgan, Pendleton, Pocahontas and Summers

Application Filing Deadline: December 21, 2020

Disaster Loan Assistance Available:

Economic Injury Disaster Loans (EIDLs) – Working capital loans to help small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, non-profit organizations of all sizes meet their ordinary and necessary financial obligations that cannot be met as a direct result of the disaster. These loans are intended to assist through the disaster recovery period. Credit

Requirement:

• Credit History – Applicants must have a credit history acceptable to SBA.
• Repayment – Applicants must show the ability to repay the loan.
• Collateral – Collateral is required for all EIDL loans over $25,000. SBA takes real estate as collateral when it is available.

SBA will not decline a loan for lack of collateral, but SBA will require the borrower to pledge collateral that is available.

Interest Rates:

The interest rate is determined by formulas set by law and is fixed for the life of the loan. The maximum interest rate for this program is 3.750 percent.

Loan Terms

The law authorizes loan terms up to a maximum of 30 years. SBA will determine an appropriate installment payment based on the

financial condition of each borrower, which in turn will determine the loan term.

Loan Amount Limit:

The law limits EIDLs to $2,000,000 for alleviating economic injury caused by the disaster. The actual amount of each loan is limited to the economic injury determined by SBA, less business interruption

insurance and other recoveries up to the administrative lending limit. SBA also considers potential contributions that are available from the business and/or its owner(s) or affiliates. If a business is a major source of employment, SBA has the authority to waive the $2,000,000 statutory limit.

Loan Eligibility Restrictions:

Noncompliance – Applicants who have not complied with the terms of previous SBA loans may not be eligible. This includes borrowers who did not maintain required flood insurance and/or hazard insurance on previous SBA loans.

Note: Loan applicants should check with agencies / organizations administering any grant or other assistance program under this declaration to determine how an approval of SBA Disaster Loan might affect their eligibility.

Refinancing:

Economic injury disaster loans cannot be used to refinance long term debts.

Insurance Requirements

To protect each borrower and the Agency, SBA may require you to obtain and maintain appropriate insurance. By law, borrowers whose damaged or collateral property is located in a special flood hazard area must purchase and maintain flood insurance. SBA requires that flood insurance coverage be the lesser of 1) the total of the disaster loan, 2) the insurable value of the property, or 3) the maximum insurance available.

Applicants may apply online, receive additional disaster assistance information and download applications at https://disasterloan.sba.gov/ela. Applicants may also call SBA’s Customer Service Center at (800) 659-2955 or email disastercustomerservice@sba.gov 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.