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.
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: Minnesota business attorney Nathan R. Snyder provides general business advice, employment counseling, and representation to small and mid-sized businesses in a variety of industries, including, technology, real estate, construction, health care, finance, insurance, restaurants and breweries, transportation companies, government contractors, and retail businesses. Nate may be reached at 612.455.6218 or firstname.lastname@example.org. Trepanier MacGillis Battina P.A. is a Minnesota business law firm located in Minneapolis, Minnesota.