By: Harsh Arora, Partner in Kelley Kronenberg’s Fort Lauderdale office and Nicholas Fiorello, Attorney in Kelley Kronenberg’s Fort Lauderdale office.
The coronavirus pandemic has thrown a wrench in the world’s economy, specifically impacting small businesses, where day-to-day operations have been stunted, if not completely halted. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, is an economic aid stimulus package which was formulated by the federal government and signed into law to minimize the economic effect of the health crisis.
In addition to the Small Business Association’s existing loan programs, including the Economic Injury Disaster Loan (EIDL), the CARES Act has created a new loan under the Paycheck Protection Program (PPP), which came into effect April 3. The spirit of the CARES Act is to prevent any further loss of revenue or other economic injury as a result of the ongoing pandemic by providing a lifeline to businesses who are finding themselves in the unfortunate position of considering laying off employees, if they have not already done so.
These rapid developments, though promising for small business owners, have led to confusion as to the specifics of how financial institutions are to deal with the influx of loan applications, thus making it more difficult for small business owners to traverse the landscape in order to sift through the possibilities and ultimately settle on a loan. Although the intention of the federal government was for quick turn-arounds by lenders to provide funding immediately upon receipt and review of a loan application, implementing such a grand program is a significant task. Lenders only had a mere couple of days to establish procedures for same-day approvals, and are not equipped to handle such an influx due to lacking the requisite manpower trained to process, close, disburse, and service these SBA-guaranteed loans on the same day. Many banks have notified customers that they will not yet launch their loan platforms until further process guidance is given by the federal government and/or the SBA. As the systems and processes are ironed out, more details are sure to be launched weekly, if not daily.
With the number of uncertainties floating around the SBA’s stimulus loan programs that have been offered to rescue small businesses from suffering further economic injury, small business owners and managers should brainstorm and decide the urgency for seeking a loan, because keeping funding options open may be more beneficial in the long-run. The following are some important items small businesses should consider before applying for the SBA stimulus loans:
Although the prospect of obtaining these loans may sound great in theory, it may not make sense for each and every business. Business owners and managers should not read one article or listen to one news story and arbitrarily decide on obtaining these loans. Business owners should consult with counsel before jumping at the false sound of free money because there are many requirements and conditions that must be met to receive the benefits under the SBA’s stimulus loan programs. Employment levels must be kept at par with a business’ pre-pandemic levels, and if your business has significantly cut back or even closed its doors, it may not be worth it to attempt to continue, or even resume business in the current economic environment. Additionally, there are other benefits within the CARES Act that a small business can leverage, such as tax credits on money used to pay wages and benefits, that may be foregone if a loan is obtained.
As more information will continually unfold regarding the SBA’s stimulus loan programs, businesses should do what they can to plan ahead and consult with their counsel to review the benefits of each of these programs, as well as the possible side-effects, in order to mitigate any further injury as a result of the current coronavirus pandemic.
Disclaimer: This article is intended to provide you with general information regarding the impact of a potential or actual coronavirus pandemic on obligations under many types of commercial contracts or arrangements. The contents of this article are not intended to provide specific legal advice.