Financial Assistance Options for Small Businesses impacted by COVID-19
As we work together to find a sense of normalcy amidst the COVID-19 pandemic, we recognize that many of our small business clients are facing challenges as they continue to operate and maintain their staff.
Below you will find a list of funding programs that can assist with your business if you have been financially impacted by COVID-19. We have also provided information about mortgage and credit card payments, federal and state taxes, student loans, and paid leave.
Please be aware that the federal economic relief legislation was signed into law on March 27, 2020, and federal regulators are charged with providing guidance on how to apply for the new funding. Paragon will share the new rules with you as soon as they are released.
New Paycheck Protection Program
The federal economic relief law includes almost $350 billion in funding to create a Paycheck Protection Program (PPP) that will provide small businesses with zero-fee loans of up to $10 million. If you retain your employees and salary levels, up to 8 weeks of average payroll and other costs will be forgiven. Principal and interest are deferred for up to a year and all borrower fees are waived. This temporary emergency assistance can be used with other COVID-19 financing assistance or any other existing SBA loan program. Additional details and guidance from the SBA are coming soon. This will need to be applied through a verified SBA lender, not through the SBA directly.
Existing Economic Injury Disaster Loan Program
The SBA’s Economic Injury Disaster Loan (EIDL) program provides small businesses with working capital loans to help overcome expenses and loss of revenue due to COVID-19. EIDLs are loans of up to $2 million that have interest rates up to 3.75% as well as principal and interest deferment for up to 4 years. The loans may be used to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.
Businesses that receive an EIDL between January 31, 2020, and June 30, 2020 are eligible to apply for a PPP loan or refinance their EIDL into a PPP loan.
New Economic Injury Disaster Loan Grant Program
The federal economic relief law includes $10 billion in grant funding to provide an advance of $10,000 to small businesses that apply for an SBA economic injury disaster loan (EIDL) within three days of applying for the loan. The new $10,000 EIDL grant does not need to be repaid, (even if the grantee is subsequently denied an EIDL) and may be used to:
- Provide paid sick leave to employees
- Maintain payroll
- Meet increased production costs due to supply chain disruptions
- Pay business obligations (including debts, rent, and mortgage payments)
Express Bridge Loans
The Express Bridge Loan Pilot Program allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000. These loans can provide economic support to help small businesses overcome the temporary loss of revenue. They can be term loans or used to bridge the gap while applying for a direct SBA Economic Injury Disaster loan.
Debt Relief for Existing and New SBA Borrowers
The federal economic relief law includes $17 billion in funding to provide immediate relief to small businesses with standard SBA 7(a), 504, or microloans. The SBA will cover all loan payments for existing SBA borrowers, including principal, interest, and fees for six months. This relief will also be available to new borrowers who take out an SBA loan within six months after the bill is signed. The measure encourages banks to provide further relief to small business borrowers by allowing them to extend the duration of existing loans beyond current limits. It also enables small business lenders to assist more new and existing borrowers by providing a temporary extension on certain reporting requirements.
While receiving the six months debt relief, you may also apply for a PPP loan that provides capital to keep employees. The six months of SBA payment relief cannot be applied to payments on PPP loans.
Small Business Finance Center
California IBank offers a Small Business Loan Guarantee Program for guarantees up to $1 million and a micro lending program for loans up to $10,000 with accommodations for disasters.
California Capital Access Program for Small Businesses
The California Capital (CalCAP) Access Program for Small Business encourages banks and other financial institutions to make loans to small businesses that have difficulty obtaining financing. CalCAP is a loan loss reserve program which may provide up to 100% coverage on losses as a result of certain loan defaults. With CalCAP portfolio support, a lender may be more comfortable underwriting small business loans. If your commercial lender or financial institution doesn’t currently participate in CalCAP, you can have your institution complete the Financial Institution Application and send the application to CalCAP.
Deferred Mortgage Payments:
On March 25, 2020, Governor Newsom announced that financial institutions would offer mortgage payment forbearances of up to 90 days to borrowers economically impacted by COVID-19.
- Provide borrowers a streamlined process to request a forbearance for COVID-19-related reasons, supported with available documentation
- Confirm approval of and terms of forbearance program
- Provide borrowers the opportunity to request additional relief, as practicable, upon continued showing of hardship due to COVID-19.
Borrowers will receive 180 days of forbearance for federally backed mortgage loans. The law prohibits foreclosures on all federally-backed mortgage loans for a 60-day period starting March 18, 2020.
No Negative Credit Impacts
Under the new federal law, financial institutions may not report derogatory tradelines (for example: late payments) to credit reporting agencies, consistent with applicable guidelines, for borrowers utilizing COVID-19-related relief.
Student Loans and Continuing Education
Under the federal economic relief law:
- Student loan payments, principal, and interest are deferred through September 30, 2020. Involuntary collection related to student loans will also be suspended.
- Students who withdraw from school as a result of COVID-19 are not required to return Pell grants, other grant assistance, or loans. The current academic term would be excluded from counting toward lifetime subsidized loan or Pell grant eligibility for students who withdraw from school as a result of COVID-19.
- Schools are allowed to use Supplemental Educational Opportunity Grants as emergency financial aid grants to assist graduate students with unexpected expenses and unmet financial needs that arise as the result of COVID-19.
- Institutions are allowed to transfer unused work-study funds to be used for supplemental grants.
- Institutions also have the ability to issue work-study payments to students who are unable to work as a lump sum or in payments.
Unemployment, Paid Sick and Medical Leave, and Child Care
Under the economic relief law:
- The Child Care Block Grant provides $3.5 billion to allow child care programs to remain open and meet priority emergency staffing needs for health care workers and first responders.
- Unemployment benefits are expanded for employees who remain unemployed after unemployment benefits are no longer available.
Paid Sick and Paid Family and Medical Leave has been expanded for those impacted by COVID-19, including:
- Up to two weeks of paid sick leave for those who work for the government or employers with 500 employees or less.
- 12 weeks of job-protected paid family and medical leave for government employees and those who work for employers with less than 500 employees.
- Tax credits to employers to offset the costs of emergency sick and medical leave.
Tax Relief (State and Federal)
The IRS has extended the deadline to file and pay federal income taxes to: July 15,
2020. There are also two new refundable payroll tax credits designed to fully reimburse small businesses for providing COVID-19 related leave to their employees.
Tax filing and payment deadlines to the CA Franchise Tax Board have also been extended to July 15, 2020.
The California Department of Tax and Fee Administration (CDTFA) can assist businesses impacted by COVID-19 through May 11th. This assistance includes granting extensions for filing returns and making payments, relief from interest and penalties, and filing a claim for refund. To request assistance, contact the CDTFA.
Governor Newsom’s Executive Order from March 30, 2020 also includes:
- The filing deadline for small businesses has been extended up to three months for tax returns that are less than $1 million. This is effective for payment of taxes that are due on or by July 31, 2020.
- The filing deadline to receive tax refunds has been extended by 60 days for individuals and businesses. This is for all claims for refunds that must be filed by July 31, 2020.
- The deadline for tax appeals for businesses and individuals has been extended by 60 days through July 31, 2020.
Tax Relief for Employers
The federal package allows the following:
- Advance refunding of tax credits for employers to offset the costs of the additional paid sick and medical leave for employees.
- Refundable Employer Payroll Tax Credits for 50% of wages during the crisis. The credits are for employers whose operations were fully or partially suspended due to a COVID-19 related shut-down order, or gross receipts are down by more than 50%. Credit is provided for the first $10,000 in compensation per employee from March 13, 2020 to December 31, 2020.
- Employers and self-employed individuals to defer payment of the employer share of the Social Security tax. It requires the deferred employment tax to be paid over the following two years with half of the amount paid by December 31, 2020 and the other half by December 31, 2022.
- Modifications for business net operating losses to allow businesses to use losses and amend prior year tax returns which will provide critical cash flow. A net operating loss arising in the tax year beginning in 2018, 2019, or 2020 can be carried back five years.
- Businesses to temporarily increase the amount of interest expense they are allowed to deduct on their tax returns by increasing the 30% limitation to 50% of taxable income for 2019 and 2020 with adjustments.
- Waives the 10% penalty on early withdrawal of distributions up to $100,000 from qualified retirement funds and allows more flexibility for loans from certain retirement plans. Such distributions may be made for individuals, spouses or dependents diagnosed with COVID-19, quarantined, furloughed, laid off, having work hours reduced, unable to work because of lack of child care, and closing or reducing hours of business owned by the individual.
How Paragon Can Help:
State and Federal action has been taken to provide economic relief to individuals impacted by the COVID-19 pandemic. More relief is expected to be approved as the crisis progresses, and we are committed to keeping you updated on regulations and funding as they become available. We also recommend consulting with one of our trusted financial advisors to plan ahead. Please contact us with any questions.