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FGMK’s Overview of Small Business Assistance Programs

Posted by : on : March 30, 2020 | 8:00 am

Small businesses have been severely impacted by the outbreak of the COVID-19 coronavirus in the United States. In many cases, state and local government orders for shelter-in-place have required businesses to suspend partial or all operations. This alert provides information regarding federal, state and local government programs, including those established under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, that may assist small businesses.


Federal Loan Programs


SBA Economic Injury Disaster Loans (Section 7(b)(2) Loans)


Revised Guidelines


Prior to the CARES Act, many businesses sought to apply for an Economic Injury Disaster Loan (“EIDL”). Following the passage of the CARES Act, these loans remain available for small businesses, small agricultural cooperatives and most nonprofits in declared-disaster areas. Pursuant to the CARES Act, eligible entities may also apply. “Eligible entities” include startups, cooperatives and ESOPs with fewer than 500 employees, and any individual operating as a sole proprietor or an independent contractor during the covered period, which is defined as January 31, 2020 through December 31, 2020 for purposes of this grant provision in the CARES Act.


These loans are determined by actual economic injury and can provide up to $2 million. The interest rate is 3.75 percent for small businesses and 2.75 percent for nonprofits. These loans are long-¬term, with some providing a maturity term of up to 30 years. Loans that exceed $25,000 must be secured by collateral to the extent.


For EIDL loans made in response to COVID-19 before December 31, 2020, the SBA must waive any personal guarantee on advances and loans below $200,000 during the covered period. In addition, the SBA must waive the requirement that an applicant be in business for the one-year period before the disaster and the “credit elsewhere” requirement. However, an applicant must have been in operation on January 31, 2020 to receive a loan.


Funds may be used to pay:


  • Fixed debts;
  • Payroll;
  • Accounts payable;
  • Employee sick leave; and
  • Other bills that cannot be paid due to the disaster’s impact.


Funds may not be used to:


  • Refinance debts incurred prior to the disaster event;
  • Make payments on other loans owned by another federal agency or the Small Business Administration (“SBA”);
  • Pay tax penalties or non-tax criminal/civil fines;
  • Repair physical damage; or
  • Pay dividends or other disbursements to owners or partners except as related to their performance of services for the business.


Emergency EIDL Grants


An emergency grant established by the CARES Act allows an eligible entity that has applied for an EIDL loan to request an advance on that loan of no more than $10,000, which the SBA Administrator must distribute within three days after the Administrator receives the application. An applicant would not be required to repay such an advance payment, even if it is subsequently denied an EIDL loan. If an applicant later transfers into or is approved for a loan under Section 7(a) paycheck protection program (discussed below), the advanced amount shall be reduced from the loan forgiveness amount for a loan under that program.




The application for EIDL loans is available online. The application typically requires tax information authorization, recent federal income tax returns of the applicant business, personal financial statement of 20 percent or more owners of the applicant business, and a schedule of liabilities. However, pursuant to the CARES Act, the SBA Administrator may approve an applicant based solely on the applicant’s credit score without requiring the submission of a tax return.


Section 7(a) Loan Program – Paycheck Protection Program


The CARES Act adds the Paycheck Protection Program (“PPP”) as a loan program under Section 7(a) of the Small Business Act (“SBA”). The PPP provides a covered loan, defined as a loan made during the “covered period” of February 15, 2020 through December 31, 2020, to eligible borrowers.


Eligibility and Allowable Uses


Eligible borrowers include businesses, nonprofits, veterans’ organizations, and Tribal business concerns that employ 500 or fewer employees (unless the SBA Administrator establishes a different industry size standard). For this purpose, the term “employee” includes individuals employed on a full-time, part-time, or other basis. Sole proprietors, independent contractors and other self-employed individuals are also eligible borrowers. The SBA also looks at entity affiliation to determine employment number. Pursuant to SBA guidance, entities are affiliates of each other when one controls or has the power to control the other, or a third party controls or has the power to control both. The SBA will consider domestic and foreign affiliates in its analysis.


Businesses in the hospitality and restaurant industries (i.e., those with a NAICS beginning with “72”) with more than one physical location and with no more than 500 employees per physical location also qualify. During the covered period, affiliation rules are waived for businesses in these industries, as well as for franchises assigned a franchise code by the Administration and businesses that receive financing through the Small Business Investment Company program.


Eligible borrowers must certify that the current economic conditions make the application for assistance necessary, and that they will use funds to retain workers and maintain payroll and other debt obligations. Further, they must certify that they have not submitted a duplicate application or received amounts under the PPP during the period of February 15, 2020 through December 31, 2020 for the same purpose. However, eligible borrowers may obtain an EIDL during the period of January 31, 2020 until the availability of PPP loans for a purpose other than those identified as allowable uses for a loan obtained under the PPP.


When evaluating an eligible borrower, a lender may consider whether the borrower was in operation on February 15, 2020, as well as whether the borrower paid salaries and payroll taxes or independent contractors.


A borrower that receives a covered loan may use it for the following purposes:


  • Payroll costs;
  • Insurance premiums;
  • Costs incurred for continued group health care benefits during periods of leave, i.e. sick, medical or family;
  • Employee salaries, commissions, or similar compensations;
  • Payments of interest on mortgage loans (but NOT prepayment of premiums on such loans);
  • Rent (including that under a lease agreement;
  • Utilities; and
  • Interest on any other debt obligation incurred before February 15, 2020.


Maximum Loan Amount and Allowable Uses


The maximum loan under the PPP equates to the lesser of:


  • $10 million; or
  • The sum of:
    • The product of:
      • The business’s average total monthly payroll costs incurred during the one-year period prior to the loan being issued (alternative date ranges are provided for seasonal and newer businesses),
      • multiplied by 2.5, and (or plus)
    • Any EIDL taken out after January 31, 2020 that has been refinanced into a PPP loan.


For purposes of determining the maximum loan amount, “payroll costs” include:


  • Wages, commissions, salary, or similar compensation paid to an employee;
  • Cash tips or the equivalent;
  • Payments for leave, i.e., vacation, parental, family, medical or sick;
  • Allowances for dismissal or separation;
  • Payments for group health care benefits, including premiums;
  • Payments of any retirement benefits; and
  • Payment of state or local tax assessed on the compensation of employees.


Since sole proprietors, independent contractors, and other self-employed individuals are eligible borrowers, the term “payroll costs” also includes wage, commission, income, net earnings from self-employment or similar compensation.


However, compensation for an individual (employee or contractor) does not include an amount in excess of $100,000 (as prorated for the covered period). This amount serves as a cap, as opposed to any exclusion of such compensation. Also excluded are certain payroll taxes on such compensation, compensation paid to an employee whose principal place of residence is outside the United States, qualified sick leave wages and qualified family leave wages for which credits are allowed under the Emergency Paid Sick Leave Act and Emergency Family Medical Leave Expansion Act, respectively.


Other Important Loan Attributes


The maximum interest rate a lender may charge is 4 percent. Any balance remaining after application of any loan forgiveness (discussed below) shall have a maximum maturity of 10 years. However, a borrower will not incur a prepayment penalty for any payment made on a covered loan.


During the covered period, the following Section 7(a) requirements are suspended or waived for a covered loan:


  • The “credit elsewhere” test;
  • Personal guarantees or collateral; and
  • Guarantee fees (payable by lender to the Small Business Administration and charged to the borrower).


The Small Business Administrator shall not have recourse against any partner, member, or shareholder of an eligible recipient of a covered loan for nonpayment, unless such individual utilizes the loan for unauthorized use.


The PPP requires lenders to provide impacted borrowers complete payment deferment relief for a period of not less than six months and more than one year. The relief shall apply to payments for premiums, interest, and fees. For purposes of this provision, an “impacted borrower” is a recipient in operation as of February 15, 2020 and that has an application for a covered loan approved or pending approval on or after March 27, 2020. An impacted borrower is presumed to have been adversely impacted by COVID-19.


Next Steps


Based on the CARES Act and initial discussion with banking institutions, it appears that while the SBA will provide funding and guarantees of loans, the lenders will administer the program at the borrower level. Interested borrowers should contact their banking representatives as soon as possible to understand their institution’s lending process. The SBA Administrators has authority to expand the pool of eligible lenders, as the federal government seeks to provide necessary capital infusion into the small business economy.


Loan Forgiveness Relief


The CARES Act provides loan forgiveness for PPP loans for qualified expenses paid or incurred, during the 8-week period beginning on the date of origination of the PPP loan. These qualified expenses would include those paid or incurred for:


  • Payroll costs as defined by the PPP (discussed above);
  • Payments of interest on mortgage obligations incurred by the borrower in the ordinary course of business on real or personal property before February 15, 2020 (does not include prepayments or principal payments);
  • Rent payments under a leasing agreement in force before February 15, 2020; and
  • Payments for the distribution of electricity, water, gas, transportation, telephone, or internet access for which service began before February 15, 2020.


Employers with tipped employees may receive additional forgiveness for additional wages paid to such employees.


The amount of loan forgiveness may not exceed the principal amount. Cancelation of indebtedness income due to forgiveness of the loan is excluded from gross income for income tax purposes.


Importantly, the forgiven loan amount will be reduced by any reduction in payroll by the employer during the covered period. Reduction in payroll is determined by dividing the average monthly number of full-time equivalent employees on payroll during the covered period by the average monthly number of full-time equivalent employees from February 15, 2019 to June 30, 2019 (an alternative date range of January 1, 2020 through February 29, 2020 may also be used; and seasonal employers may use a period of February 15, 2019 through June 30, 2019).


Additionally, the amount of loan forgiven will be reduced by any reduction in total salary or wages of any employee who has his or her compensation reduced by 25 percent or more, if such employee did not receive an annualized rate of pay of more than $100,000 of annualized income in 2019.


Borrowers may avoid the reduction in loan forgiveness if they rehire those laid off and/or eliminate the reduction in applicable salaries that occurred between February 15, 2020 and 30 days post enactment of the CARES Act and do so by June 30, 2020. The SBA Administrator may prescribe regulations granting de minimis exemptions from such requirements.


Borrowers applying for loan forgiveness must apply to their lender with documentation verifying the number of full-time equivalent employees and their compensation during the covered period, as well as other qualified expenses. Such documentation may include payroll tax filings, cancelled checks, payment receipts, etc. An authorized representative must certify the documentation and that the requested forgiveness amount was used to cover qualified expenses. The lender must issue a decision on such request within 60 days of receipt of the application for forgiveness.


Additional Loan Relief


Due to the recognition that all borrowers are adversely affected by COVID-19, the CARES Act provides that the SBA Administrator shall pay the principal, interest, and any associated fees owed on a covered loan, which for this purpose is a loan guaranteed by the Administrator under Section 7(a) of the Small Business Act (excluding those under the PPP) or title V of the Small Business Investment Act of 1958 or one made by an intermediary to a small business concern using loans or grants under Section 7(m) of the Small Business Act. The Administrator shall start making such payments within 30 days of the first payment due date.


The payments apply to covered loans made before the enactment of the CARES Act whether or not such loan was on deferment, as well as to a covered loan made during the period beginning on March 27, 2020 (date of CARES Act enactment) and ending on the date that is six months after the enactment date. The payment relieves the borrower of the obligation to pay such amount. It does not appear the forgiven amount would be excludable from gross income.


Other SBA Loan Resources


The SBA also provides loans under the Express Loan Program, which are loans made by a lender based on its own loan analyses, procedures, and documentation. The CARES Act increases the maximum loan under this program from $350,000 to $1 million through December 31, 2020 (maximum loan amount reverts to $350,000 effective January 1, 2021).


The Community Advantage is a pilot program that allows mission-based lenders to assist small businesses in underserved markets with a maximum loan size of $250,000. The uses of proceeds are the same as the standard 7(a) loan.


The 504 Loan Program is designed to foster economic development and job creation and/or retention. The eligible use of proceeds is limited to the purchase of an existing building, land acquisition and ground-up construction, expansion of an existing building, financing building improvements, or the purchase of equipment.


The Microloan Program involves making loans through nonprofit lending organizations to underserved markets. Authorized use of loan proceeds includes working capital, supplies, machinery and equipment, and fixtures (does not include real estate). The maximum loan amount is $50,000 with the average loan size of $14,000.


State & Local Loan Programs


Illinois Small Business Emergency Loan Fund


This $60 million fund will support low-interest loans for small businesses in every industry outside of Chicago. Loan funds must be used for working capital, and at least 50 percent of loan proceeds must be applied toward payroll or other eligible compensation, including salaries, wages, tips, paid leave, and group healthcare benefits.


The loan terms include:


  • Up to $50,000;
  • Six month deferred payments; and
  • Five-year term loan with fixed interest rate of three percent.


To be eligible, a business must meet the following requirements:


  • Has been in operation at least one year;
  • Located in Illinois (but outside of Chicago);
  • Fewer than 50 employees (based on average employment from October 2019 to December 2019);
  • Less than $3 million in 2019 gross revenue; and
  • Business has experienced at least 25 percent decrease in revenues as a result of COVID-19.


Applications are available on the DCEO’s website. Applicants will need to provide bank statements dating back to October 2019 and most recent tax returns.


Downstate Small Business Stabilization Program


This new $20 million program redeploys Community Development Block Grant funds to support local small businesses in suburban and rural counties across Illinois by providing grants of up to $25,000 in working capital. Local governments can apply on behalf of businesses with 50 or fewer employees. The Department of Commerce and Economic Opportunity (“DCEO”) encourages business in eligible areas (as identified on DCEO”s website) to work with local governments to submit applications.


Applications will soon be available on DCEO's website. The grants will be offered on a rolling basis.


Hospitality Emergency Grant Program


This new $14 million grant program aims to help small hospitality businesses by providing up to $25,000 to eligible bars and restaurants and up to $50,000 for eligible hotels.


These grants are available to support working capital, such as payroll, rent, and other accounts payable, as well as job training and technology to support shifts in operations, e.g., increased pick-up and delivery. Hotels may use such funds to support retention of employees.


The amount of funds available depends on the applicant’s 2019 revenue:


  • Bars and restaurants with 2019 revenue of less than $500,000 are eligible for up to $10,000;
  • Bars and restaurants with 2019 revenue between $500,000 and $1 million are eligible for up to $25,000;
  • Hotels with 2019 revenue of less than $8 million are eligible for up to $50,000


Applications are available on DCEO's website. Importantly, applications and are due by Wednesday, April 1st at 5:00 pm Central. All valid, eligible applications received by the deadline will be entered into a lottery, and grant winners will be notified on Saturday, April 4th.


Chicago Small Business Resiliency Fund


The fund is seeded through $25,000,000 from the City of Chicago, $50,000,000 from the Chicago Community Catalyst Fund, $10,000,000 through Goldman Sachs Urban Investment Group, $1,000,000 from Fifth Third, $250,000 from Clayco and $15,000,000 from other sources.


The loan terms include:


  • Repayment – low-interest loans for a term of up to five years
  • Loan amount – up to $50,000 but sized based on revenues before the COVID-19 outbreak
  • Loan proceeds – required to be used for working capital. At least 50 percent of proceeds should be applied to payroll and commitment to retain the workforce at 50 percent of pre-COVID-19 levels.


To be eligible, businesses must meet the following requirements:


  • Suffered more than 25 percent revenue decrease due to COVID-19
  • Employ fewer than 50 employees and have gross revenues of less than $3,000,000 in 2019
  • Provide a City business address or City business license
  • No pre-existing tax liens or legal judgements


Interested businesses should apply online HERE. Loan applications will be accepted starting March 31, 2020.


Other State Programs


Many states and localities have existing or are creating new business assistance programs during these challenging financial times. As these programs vary by local government, we encourage our clients to reach out to their FGMK team to discuss assistance available outside of Chicago and Illinois.

The summary information in this document is being provided for education purposes only. Recipients may not rely  on this summary other than for the purpose intended, and the contents should not be construed as accounting, tax, investment, or legal advice. Taxpayers' positions may vary. We encourage any recipients to contact the authors for any inquiries regarding the contents. FGMK (and its related entities and partners) shall not be responsible for any loss incurred by any person that relies on this publication.


About FGMK


FGMK is a leading professional services firm providing assurance, tax and advisory services to privately held businesses, global public companies, entrepreneurs, high-net-worth individuals and not-for-profit organizations. FGMK is among the largest accounting firms in Chicago and one of the top ranked accounting firms in the United States. For over 50 years, FGMK has recommended strategies that give our clients a competitive edge. Our value proposition is to offer clients a hands-on operating model, with our most senior professionals actively involved in client service delivery.