Under the current COVID-19 pandemic environment, the financial struggles that many businesses face are unprecedented. To help alleviate some of these struggles and stimulate the U.S. economy, the President signed into law the Coronavirus Aid, Recovery and Economic Security Act (CARES Act). The CARES Act provides a variety of economic relief opportunities to small businesses, but it can be difficult for employers and business owners to navigate the options and figure out exactly how to apply for these programs. This article will examine the various options for Colorado businesses and describe the steps required to take advantage of the CARES Act. Below is an outline of the prerequisites and the process for the Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDLs) and treasury-backed direct lending funds.

A Guide to the Paycheck Protection Program (PPP)

Who can apply?

• Small businesses with less than 500 employees (including sole proprietorships, independent contractors and self-employed individuals), eligible nonprofits, veterans organizations and tribal concerns.
• Businesses in certain industries may have more than 500 employees if they meet the Small Business Administration’s (SBA) size standards for those industries (e.g., the food industry).
• The PPP is on a “first come, first served” basis.

What do I need to apply?

A lender will dictate what documentation is required. Additionally, individual eligibility documentation will be required, including the following:

• Sole proprietorships will need to submit schedules from their tax return filed (or to be filed) showing income and expenses from the sole proprietorship.
• Independent contractors will need to submit Form 1099-MISC.
• Self-employed individuals will need to submit payroll tax filings reported to the Internal Revenue Service.

How do I apply?

The SBA itself doesn’t lend you the money, they just “back” the loan that the lender provides. You can apply for the PPP through any SBA-approved lender. Use the SBA’s Lender Match tool to find a lender (https://www.sba.gov/funding-programs/loans/paycheck-protection-program).

What can I use the funds for?

• Payroll and commission payments
• Group health care benefits/insurance premiums
• Mortgage interest payments
• Rent and lease payments
• Utilities
• Interest on any other debt obligations that were incurred before the covered period.

How much funding can I receive?

• The maximum amount you can receive from your SBA-approved lender is the lesser of 1) your average monthly payroll costs in the 1-year period preceding the loan application multiplied by 2.5, or 2) $10 million.
• If you are a seasonal employer, the monthly average payroll cost will be calculated differently. The SBA will use a 12-week period beginning either February 15, 2019 or March 1, 2019, and ending June 30, 2019.
• If your business did not exist before June 30, 2019, the SBA will look at your payroll costs in January and February 2020.

What certifications need to be made?

An authorized representative of the applicant must certify in good faith to the following statements:

• The applicant was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or paid independent contractors on Form 1099-MISC.
• The current economic uncertainty makes the loan necessary to support ongoing operations.
• Funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments or utility payments.
• Documentation verifying full-time equivalent employees on payroll expenses, mortgage interest payments, rent payments, utilities for the eight-week period following the loan will be provided to the lender.
• Loan forgiveness will be provided for the sum of documented payroll costs, interest payments, rent payments and utilities. No more than 25 percent of the forgiven amount may before non-payroll costs.
• During the period February 15, 2020 to December 31, 2020, the applicant has not or will not receive another loan under this program
• There may be additional certification at the time of the application process.

What expenses can be forgiven?

• Payroll (salary, wage, vacation, parental, family, medical or sick leave, health benefits)
• Mortgage interest (if the mortgage was signed before February 15, 2020)
• Rent (if as long as the lease agreement was in effect before February 15, 2020)
• Utilities (if as long as service began before February 15, 2020)
• No more than 25 percent of the loan forgiveness amount can be attributable to non-payroll costs.
• There are other limitations in the amount of the loan that can be forgiven.  For example, the amount towards wages or salary can only be forgiven if an employee’s salary or wages is less than $100,000 per year.  
• The SBA will be issuing additional guidance on loan forgiveness.
• Please see your lender, advisor or representative regarding the specific limitations and calculation of the amount that can be forgiven.

A Guide to the SBA Disaster Loan Program

Who can apply?

• Small businesses can apply for an Economic Injury Disaster Loan (EIDL) if your business has suffered severe economic hardship because of the pandemic.
• Independent contractors who work for a separate business (e.g., real estate brokers) can qualify if they are able to prove they are separate from that business (e.g., the brokerage).
• As of March 20, 2020, Colorado is a designated affected area.

What do I need to apply?

• General business information (name, location, EIN, contact information)
• Annual income statements for 2019, plus 2020 monthly income statements up to the present date
• Complete copies, including schedules, of the most recent federal income tax returns for the principals of your business (general partners or 20%+ shareholders in corporations)
• A completed copy of the application (SBA Form 5)
• A schedule of liabilities listing all debts (SBA Form 2022)
• A request for a transcript of your tax return (SBA Form 4506-T)
• A personal history statement (SBA Form 912)
• A personal financial statement (SBA Form 413)
• Copies of relevant business certificates or licenses
• A copy of any business leases
• A history of previous loan applications
• Information on collateral property (e.g., real estate, equipment) if needed.

How do I apply?

What can I use the funds for?

• The loan is meant to provide businesses with working capital for operating expenses.
• Funds can be used to cover payroll, interest payments, rent, etc.
• Borrowers may apply for PPP loans and EIDLs as well as other SBA loans and microloans. However, you cannot use your PPP loan for the same purpose as the EIDL or your other SBA loan(s). EIDLs can also be refinanced into a PPP loan.

How much funding can I receive?

• You may receive up to $2 million. The loan amount is based on company’s actual economic need as determined by the SBA.
• For loans more than $25,000, the lender can require you post collateral. For loans fewer than $25,000, you have the option of offering collateral if you believe it will increase the chances you will qualify for a loan.

What is the emergency grant under this program?

• Small business owners can apply for an advance up to $10,000 to provide relief due to a temporary loss of revenue. The funds will be made within three days of a successful verification that the applicant is an eligible entity. The funds can be used for payroll, increased cost due to interrupted supply chains, rent or mortgage payments or other obligations due to revenue loss. This loan advance will not have to be repaid even if the loan application is subsequently denied.

New Treasury-Backed Direct Lending Funds

At this point there is not much guidance about how a business would apply for these funds or what information would be required to obtain funds. As it currently stands, the bill directs the U.S. Treasury Secretary to “endeavor to seek the implementation of a program or facility” that would make direct loans to businesses and nonprofit organizations with between 500 and 10,0000 employees. The interest rates on those loans would be set at a two percent annual rate and borrowers would not need to pay principal or interest for the first six months.

Colorado Local Economic Relief Programs

Certain resources are available for local businesses. Businesses should check with their county and city government, chambers or economic development entities for locally-based resources. Below are relief programs provided by the city and county of Denver.

Denver Small Business Emergency Relief Program:

Who can apply?         

• Those industries most impacted by the coronavirus pandemic, such as the food industry, nail salons, barbershops, home childcare providers and retail shops.
• Those small businesses that may have had to temporarily close, have difficulty paying rent and utilities, or have had to lay off staff.
• Business owners within the City and County of Denver only.

How much is the grant?

• The program provides up to $7,500 in cash grants.

Where can a business apply?

In addition to the Small Business Emergency Relief program related to COVID-19, Denver continues to have existing financing programs available for startup and small businesses in the City and County of Denver. The financing can be used to grow, create jobs, and expand business operations. These loans can be found here:

https://www.denvergov.org/content/denvergov/en/denver-office-of-economic-development/build-your-business/financing.html

Interested businesses should consider contacting their lender and counsel for additional information on applying for the loans and grants discussed in this article.