New York - Recent figures show that a record 6.6 million people applied for unemployment. While the fashion industry’s priority should be to keep workers on payroll, it is a tall order for retail workers whose jobs cannot be done from home. U.S. businesses, however, are not without options in terms of getting the financial help they desperately need to survive. Within the past week, the United States government, the State of New York and the City of New York adopted legislation intended to provide economic relief to businesses and individuals impacted by the COVID-19 emergency.
SBA Loans Under the CARES Act
On March 27, 2020, an approximately 2 trillion USD coronavirus response bill, the Coronavirus Aid Relief, and Economic Security Act (H.R. 748) (the CARES Act), was signed into law. Under the CARES Act’s Paycheck Protection Program, the Small Business Administration (SBA) will back loans of up to 10 million USD from banks to businesses with not more than 500 employees for those businesses to pay employee salaries, paid sick or medical leave, health insurance premiums, and basic immediate operating expenses like mortgage, rent, and utility payments.
There are very few borrower requirements to obtain a loan under the CARES Act. Those requirements include a good-faith certification that the borrower (a) needs the loan to continue operations during the COVID-19 pandemic, (b) will use the funds to retain workers and maintain payroll, or pay the other immediate operating costs, (c) does not have any other pending application under this program for the same purpose, and (d) has not received duplicative amounts under this program from February 15, 2020 until December 31, 2020.
The maximum loan amount is the lesser of (a) 2.5 multiplied by the average total monthly payroll costs incurred from the previous one-year period (plus the outstanding amount of any loan that the business received under the SBA’s Disaster Loan Program after January 31, 2020), or (b) for businesses that were not in existence from February 15, 2019 to June 30, 2019, 2.5 multiplied by the average total monthly payroll costs incurred from January 1, 2020 to February 29, 2020 (plus the outstanding loan amount mentioned above), or (c) 10 million USD. Payroll costs include compensation to independent contractors (including compensation based on commission) up to 100,000 USD in one year. In other words, the loan amount will float you for about 2.5 months of payroll costs.
A borrower is also entitled to loan forgiveness for amounts spent on expenses such as payroll, mortgage interest and utilities during the 8-week period after the loan was made. Forgiveness is subject to reduction based on a business’ reduction of employees, wages and salaries during the most recent full quarter before the loan was made.
It is therefore really important for businesses to document the use of funds received under the CARES Act because businesses that do not properly document their use may be ineligible for loan forgiveness.
Businesses can apply for the loans through private sector lenders authorized by the SBA who can use their own paperwork to process the loans. It is estimated that it will take about two weeks for the SBA to approve each loan, and to guarantee it against default. Business owners are not required to provide personal guarantees or use their assets as collateral for the loan. There are no fees associated with obtaining the loan, and interest rates are capped at 4%.
CARES Act Emergency EIDL Grants
The CARES Act provides, in certain circumstances, emergency Economic Injury Disaster Loan (EIDL) grants of up to 10,000 USD from the SBA to small businesses for providing paid sick leave for employees, maintaining payroll, meeting increased costs due to an interrupted supply chain, and making rent or mortgage payments. It is currently uncertain as to what impact, if any, obtaining an emergency grant under this provision may have on applications made under the Paycheck Protection Program.
CARES Act Provides Unemployment Benefits for Independent Contractors and Others Under the CARES Act’s temporary Pandemic Unemployment Assistance Program, workers not usually eligible for state and federal unemployment benefits—such as independent contractors, and people who are self-employed or who have a limited work history—may receive unemployment benefits if they are unable to work because of the COVID-19 pandemic. Anyone who self-certifies that they are able and available to work but is unemployed or partially unemployed because of the COVID-19 pandemic is considered a “covered individual.” If workers have the ability to work remotely with pay, they are not eligible for these benefits.
Under the CARES Act, unemployment benefits are available for the weeks of unemployment, partial unemployment, or inability to work caused by COVID-19 beginning from January 27, 2020 until December 31, 2020, for up to 39 weeks. Individuals can receive the amount that would be calculated under state law plus 600 USD each week for up to four months, as opposed to the usual three months. Additionally, the standard one-week waiting period is waived, so laid off employees immediately qualify for benefits.
CARES Act Provides Refundable Payroll Tax Credit to Employers
For businesses whose operations were fully or partially suspended by a government entity due to the COVID-19 pandemic or had a decrease in gross receipts of 50 percent or more compared to the same quarter last year, the CARES Act provides for a refundable payroll tax credit equal to 50 percent of the first 10,000 USD in wages per employee. This payroll tax credit can be claimed for employees who are retained but who do not work during the COVID-19 pandemic. Businesses with 100 or fewer full-time employees can claim the payroll tax credit for all employees’ wages—whether the employer is open for business or has been ordered to close. Businesses with more than 100 full-time employees can claim the credit for employees who are retained but who do not work due to the COVID-19 pandemic.
New York City and New York State Laws
Employers that employ at least two employees in New York State seeking to avoid layoffs should also know about the Shared Work Program, which provides partial unemployment benefits to employees who are working reduced hours. To participate, employers must design a “Shared Work Plan” and apply to participate at least one week before the proposed effective date. After an employer’s plan is approved, participating employees must file unemployment insurance “Shared Work” claims to be able to benefit.
Under New York City’s Employee Retention Grant Program, small business in New York City (including nonprofits) that have been in operation for at least six months, with one to four employees that can demonstrate at least a 25 percent decrease in revenue as a result of the COVID-19 pandemic may be eligible to receive a grant covering up to 40 percent of their payroll for two months, for a maximum of up to 27,000 USD. This program was implemented to help New York City businesses retain employees.
Under New York City’s Small Business Continuity Loan Program, businesses in New York City with fewer than 100 employees that can demonstrate at least a 25 percent decrease in revenue as a result of the COVID-19 pandemic, and that it has the ability to repay the loan, may be eligible for an interest-free loan up of up to 75,000 USD to help retain employees and continue business operations.
Given the amounts at issue, it is worth spending the time to see whether any of these loans and grants qualify for your business. While it does not make the crisis go away, it may help to ease somewhat the financial strain caused by the pandemic.
Olivera Medenica is an attorney at Dunnington Bartholow & Miller LLP whose practice covers the fashion industry. Dunnington Bartholow & Miller is a New York City law firm with domestic and international practices spanning several sectors, including in the areas of intellectual property, advertising, art and fashion law. Dunnington’s Fashion Law Group represents domestic and foreign businesses, individuals and estates in fashion, retail, media and entertainment, transactional, data privacy and technology, litigation and arbitration matters.