The spread of COVID-19 has rocked the
economy on a global scale and significantly affected Minnesota small
businesses. As the lifeblood of many communities,
small-business owners may be wondering how they will meet payroll, pay rent,
and stay afloat during these turbulent times. Thankfully, both the federal
government and State of Minnesota have enacted legislation to assist small
businesses in weathering this storm. If a business qualifies, applies, and is
approved these programs can provide money to maintain operations and in some
cases the money may not need to be paid back.
If your company is having difficulty making payroll because of cash flow,
but you have confidence in its long-term viability, this may be something you
should take advantage of. Lenders are able to begin processing applications as
of today.
Minnesota Small
Business Loan Programs
The Minnesota Department of Employment
and Economic Development (“DEED”) has implemented the Minnesota Small
Business Loan Guarantee Program (the “MSBLG Program”). Under the MSBLG Program, Minnesota Governor
Tim Walz has authorized “loan guarantees [to] help Minnesota’s small businesses
access the capital they need to keep operating” during the COVID-19. Under the MSBLG Program, the state government
will guarantee portions of loans issued by third-party lenders to small
businesses that qualify for funding. The State estimates that with the $10
million set aside under the MSBLG Program, small businesses throughout the
state may be able to leverage approximately $20 million to $25 million in
additional financial aid.
To qualify for the MSBLG Program, a
small business must have fewer than 250 employees. The MSBLG Program will guarantee 80 percent
of a business loan, up to a maximum of $200,000, for an approved applicant. The maximum loan amount available to an applicant
under the MSBLG Program will be $250,000. The loans will not come directly from
DEED, but from lenders enrolled in the MSBLG Program. Qualified lenders will include banks and
other commercial lenders, public entities, or private, non-profit economic
development organizations whose headquarters are in Minnesota.
The MSBLG Program was rolled out one week after Governor Walz signed a separate executive order that allows small businesses to apply for loans ranging from $2,500 to $35,000 from a special revenue fund of $30 million (“First Program”) (The MSBLG Program and First Program are collectively, the “Minnesota Small Business Loan Programs“). Under the First Program, any approved loan carries no interest, remains in effect for five years with no payments due until after the first six months, and is 50 percent forgivable, if certain conditions are met. The First Program, however, is narrowly limited to specific industries including hospitality, entertainment, recreation, and food-service and includes other additional eligibility requirements, including (A) that the borrower is an existing small business that can demonstrate it has been in business long enough to demonstrate financial viability, (B) that it was current on its financial obligations through March 1, 2020, (C) that it can provide a personal guarantee or provide collateral for at least 20% of the loan, and (D) that the business has been unable to obtain financing through other lenders. More information about the Minnesota Small Business Loan Programs and a list of qualified lenders can be found at www.mn.gov/deed.
Federal Small
Business Loan Program
In addition to the Minnesota Small
Business Loan Programs, the federal government’s historic $2 trillion federal
stimulus relief package, known as the CARES Act, includes nearly $350 billion
for a small business loan program called the “Paycheck Protection Program“. The Paycheck Protection Program, operated by
the Small Business Administration (“SBA”) provides small business loans
of up to $10 million to cover payroll and certain other expenses, or 2.5 times
a business’s total payroll expenses for the loan period. Other SBA loan
programs, including the federal disaster relief program, offer smaller loans as
well.
The Paycheck Protection Program is
designed to provide funding to suffering small businesses more quickly (and
with less restrictions) than pre-existing SBA loan programs. The primary goal is
to ensure businesses can keep employees on their payroll by providing them access
to cash. The Paycheck Protection Program
is separate from the SBA’s other relief programs, such as disaster relief
loans, which can also still be accessed during these times under their own
terms and conditions.
The Paycheck Protection Program is open
to any small business with fewer than 500 employees (including sole
proprietorships, independent contractors and self-employed persons), private
non-profit organizations, or 501(c)(19) veterans organizations affected by
coronavirus/COVID-19. Some businesses with more than 500 employees in certain
industries may also qualify. For example, small businesses in the hospitality
and food-service industries with more than one location may be eligible at a
“store” or “location” level, if the store or location employs less than 500
workers.
The SBA will forgive loans under the
Paycheck Protection Program if all employees are kept on the payroll for eight
weeks and the money is used for payroll, rent, mortgage interest, or utilities,
but at least 75% of the forgiven amount must be used for payroll. Payroll costs
include salaries, wages, commissions, and tips capped at $100,000 for each
employee. It also includes benefits for
vacation, parental leave, medical leave, sick leave, and some other limited
benefit categories. Forgiveness is based on the employer maintaining or quickly
rehiring employees and maintaining salary levels. The amount of the forgiveness will be reduced
if full-time headcount declines, or if salaries and wages decrease.
Loan payments will also be deferred
for six months. No collateral or personal guarantees are required. Neither the federal
government nor lenders will charge small businesses any fees. These loans will have a maturity of two years
and an interest rate of 1.0%.
There are several disqualifying
factors that will prevent a small business from qualifying for the Paycheck
Protection Program. A business cannot
receive a Paycheck Protection Program loan if the business or any of its owners
have previously been suspended, debarred, proposed for debarment, declared
ineligible, or were voluntarily excluded from any loan program by a federal
agency, or are presently involved in any bankruptcy. Likewise, a business will
be excluded from the program if it has ever taken a loan from the SBA that
subsequently caused a loss to the government, is currently delinquent, or
resulted in default. An applicant will also be excluded if any 20 percent owner
is an individual who is currently subject to criminal charges, or who has
previously been convicted or otherwise punished for a crime against a minor.
The Paycheck Protection Program starts April 3, 2020 and applications will be accepted through June 30, 2020. To access the Paycheck Protection Program’s loans, small businesses can complete the application posted on the Treasury Department’s CARES Act resource page. Once a small business owner has completed the application and gathered the necessary information and documentation, it must contact a bank or another approved lending institution to submit the application for approval. SBA-approved lenders can be found at its website. The U.S. Department of Treasury has also issued additional guidance and a fact sheet.
Conclusion
While COVID-19 has devasted the global
and local economy, both the federal and state government have taken steps to
support and assist small businesses to remain in operation and afloat during
these turbulent times. Trepanier
MacGillis Battina P.A. is committed to standing alongside its clients and
providing guidance and assistance during these times.
If you need assistance with examining
your qualification for the Minnesota Small Business Loan Programs, or require real
estate, employment, or general business or corporate advice, contact one of the
Minneapolis business attorneys of Trepanier MacGillis Battina P.A. The firm can
assist with coordinating corporate records and other documents, completing an
application, and answering questions that the loan officer may have.
About the
Author: Trepanier MacGillis Battina P.A. is a Minnesota business law firm located in Minneapolis, Minnesota. Their business law attorneys can be reached at 612.455.0500.