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As of April 6, 2020
Subject to Change as Program is Developed and Implemented
The $2 trillion COVID-19 package includes federally-guaranteed loans and grants for qualifying medium-size and small companies.
For Medium-Size Companies (generally 500 to 10,000 employees), the CARES Act provides loans at a two-percent interest rate, with no payments due for the first six months.
Companies receiving the benefit cannot “outsource or offshore” jobs for two years after the loan has been repaid.
Small Companies (generally less than 500 employees, though some larger companies may also qualify)[1], may take advantage of the “Paycheck Protection Program” (PPP) and the “Economic Injury Disaster Loan” (EIDL). Small Companies can apply for both loans but not to cover the same expenses.
Paycheck Protection Program. Under the PPP, a Small Company can get a loan of up to $10 million, which is automatically forgiven (doesn’t need to be repaid) if the Small Company can show that the amount was spent on business expenses such as payroll, rent or utilities during a specified eight-week period between February 15 and June 30, 2020. The interest rate is 1%. The amount of the loan depends on how many employees the Small Company has (with compensation no more than $100,000).
For full eligibility of forgiveness, the Small Company must show that it has not recently laid off employees.
Any forgiven amount would be reduced if employees are laid off during the eight-week period after the loan is originated.
Forgiveness for payroll amounts will not apply to compensation of over $100,000.
Limitation for Venture-Backed Companies. Currently the PPP does not apply to Small Companies that have VC investment, if the VC investor is an “affiliate” of the Small Company under IRS rules. However, there is an effort underway to remove or revise this restriction.
Economic Injury Disaster Loan. Under the EIDL, a Small Company can borrow up to $2 million for working capital, such as fixed debt and payroll. A Small Company applicant may be able to obtain an $10,000 grant paid up front as part of the loan arrangement. The interest rate is 3.75% and the term can be up to thirty years. No payment will be due for a year, although interest will accrue during this period.
Employee Retention Tax Credit. The CARES Act provides for a one-year employee retention tax credit, allowing companies to take a tax credit against employment taxes equal to 50 percent of qualified wages for each employee, up to $10,000 total per employee, if the company can show that it was adversely affected by COVID-19. “Qualified wages” means wages for employees who are unable to work due to “shelter in place” or similar restrictions, or for whom the employer has furloughed due to decline in revenue because of COVID-19. For companies that have less than 100 employees, all wages are eligible for the tax credit, not just “qualified” wages – even if the employees continue to work.
Other Programs. Other programs for small and medium-size companies may be available at the state and city level.
As examples, in San Francisco, the Office of Economic and Workforce Development (OEWD) will issue emergency grants of up to $10,000 for affected small businesses. In New York City, zero-interest loans are offered with the funding limit of $75,000.
Facebook announced a $100 million grant program for small businesses. Google announced a program of over $800 million, some of which is supposed to go to support small and medium-size businesses.
Local Chambers of Commerce are a good place to learn what local programs are being implemented and connect with other business owners in the area.
Gamma Law is a San Francisco-based firm supporting select clients in cutting-edge business sectors. We provide our clients with the support required to succeed in complex and dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.
[1] – Small Companies includes select types of companies with fewer than 1,500 employees if they meet a “small business size” standard. SBA offers a calculating tool whether a business is small, thereby qualifying for loans. See https://www.sba.gov/size-standards/.
