COVID-19’s Effect on Small and Medium-Sized Businesses

The outbreak and spread of COVID-19 (“coronavirus”) globally have caused the world’s economy to come to a screeching halt. While all business has been hit hard by this sudden halt, small and medium-sized businesses have been hit the hardest. It is anticipated that the economic harm caused by the coronavirus will last for months, and potentially even years. In an effort to assist small businesses during this unprecedented time, financial relief and support can be found from various sources. The following is a list of such resources. For additional information about qualifications and applications, please contact or our attorneys for further assistance.

Business Disruption Insurance

Some small and medium-sized businesses may carry some form of business interruption insurance. Business interruption insurance helps replace lost income and pay for extra expenses when a business is affected by a covered peril. Business interruption insurance typically is not a stand-alone policy, but part of an overall comprehensive insurance or property/casualty policy. Depending on the type of policy your business holds, coverage is limited to certain types of disruptions and exclusions. Unfortunately, some policies specifically exclude disasters related to communicable diseases. Therefore, you should refer to your insurance policy and insurance broker/representative for additional information about your specific policy.

Economic Injury Disaster Loan

In order to help small businesses survive the current economic decline, the federal government has increased the amount of small business loans available. The United States Small Business Administration (“SBA”) announced that it would offer disaster assistance loans of up to $2 million for small businesses that have sustained “substantial economic injury” due to the coronavirus. These loans, referred to as Economic Injury Disaster Loans (“EIDLs”), are working capital loans intended to help small businesses, small agricultural cooperatives, small businesses engaged in agriculture, and most private, non-profit organizations of all sizes to meet their ordinary and necessary financial obligations that cannot be met as a direct result of a disaster.

In order to be eligible for an EIDL, the applicant:

• Cannot have access to other credit

• Must have a credit history acceptable to SBA

• Must show the ability to repay the loan

In addition, collateral is required for all loans over $25,000 (SBA takes real estate as collateral when it is available). Although the SBA will not decline a loan if the applicant lacks a particular amount of collateral, the SBA must be reasonably sure the applicant can repay the loan.

If approved for an EIDL, the applicant can expect the following loan terms:

• Interest Rate – maximum of 3.75% (nonprofits have a maximum of 2.75%); rate fixed for the life of the loan

• Term of Loan –30 years

• Payment Schedule – SBA determines appropriate installment payment based on the financial condition of each borrower (which in turn will determine the loan term)

• Principal Amount Borrowed – each loan is limited to the economic injury (as determined by SBA) less business interruption insurance and other recoveries (SBA also considers potential contributions that are available from the business and/or its owner(s)); loan shall not exceed $2 million (if the business is a major source of employment, the SBA has the authority to waive the $2 million limit)

• Use of Loan Proceeds – can be used to pay off outstanding debts, payroll, and any other bills the business is unable to pay; however, the proceeds cannot be used to refinance long-term debts

On March 19, 2020, the SBA issued Disaster Declaration # 16346, an Administrative Declaration of an Economic Injury for the State of New York. A copy of the Declaration can be found at https://disasterloan.sba.gov/ela/Declarations/DeclarationDetails?declNumber=6063499&direct=false.

The deadline to apply for an EIDL is December 21, 2020. For additional information about EIDLs, please visit https://disasterloan.sba.gov/ela/Information/Index.

Federal Small Business Assistance

Unfortunately, federal plans to assist small businesses have not come to fruition as they continue to be debated amongst the administration and Congress. On March 16, 2020, the U.S. Chamber of Commerce submitted a letter to U.S. leaders providing recommendations intended to support employers. These recommendations include enacting legislation:

• Canceling the payment of all payroll taxes typically paid by employers for the months of March, April, and May

• Expanding and streamlining loan programs for small businesses with less than 500 employees experiencing revenue loss as a result of the coronavirus

• Enabling the creation of credit facilities to provide loans and loan guarantees to employers with more than 500 employees experiencing significant revenue loss as a result of the coronavirus

A complete copy of the letter to U.S. Leaders on Coronavirus Response can be found at https://www.uschamber.com/sites/default/files/us-chamber-covid-19-response-letter.pdf.

Grants and Other Assistance

Other companies and organizations have launched grant programs and are offering other assistance to small businesses, including:

• Facebook is offering $100 million in cash grants and ad credits to small businesses. For additional information, please visit https://www.facebook.com/business/boost/grant.

• Yelp is providing $25 million in funding relief to small businesses, particularly restaurants and nightlight businesses, affected by COVID-19 in the form of waived advertising fees, and free advertising, products, and services during this period. For additional information, please visit https://blog.yelp.com/2020/03/yelp-covid-19-response-and-support-for-local-businesses.

• JP Morgan Chase pledged $50 million to help businesses, nonprofits, and other organizations during this crisis. From the $50 million, $8 million will be specifically reserved for “small businesses vulnerable to significant economic hardships in the U.S., China and Europe.” For additional information, please visit https://www.jpmorganchase.com/corporate/news/pr/jpmc-makes-50mm-philanthropic-investment-to-address-impacts-of-covid-19.htm.

• Certain banks and credit card companies have issued statements indicating that they are willing to work with customers that experience financial difficulties. For example, Citi issued a statement that, effective March 9, 2020, for an initial 30 days, small business customers are eligible to have their monthly service fees waived. For more information, please visit https://online.citi.com/US/JRS/pands/detail.do?ID=covid19.

The ability to survive the coronavirus outbreak will depend on a number of factors for a business but no matter the strengths or weakness of an assessment of those factors, help is out there if you know where to look. The single comfort that can be taken for small and medium-sized business owners during this time of economic turmoil is that you do not have to figures things out on your own. Our attorneys and our contacts across the insurance and financial industries can be of assistance if you need us.

If you have any questions about this Legal Briefing, please contact any attorney in our Firm at (585) 730-4773. Please note that any embedded links to other documents may expire in the future.

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This Legal Briefing is intended for general informational and educational purposes only and should not be considered legal advice or counsel. The substance of this Legal Briefing is not intended to cover all legal issues or developments regarding the matter. Please consult with an attorney to ascertain how these new developments may relate to you or your business. © 2020 Law Offices of Pullano & Farrow PLLC

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