The safety measures required by the coronavirus pandemic have had a huge impact on small businesses in Massachusetts. Many have been forced to close or are dealing with a major decline in revenue. If your small business has suffered during this crisis, you may want to consider taking the following steps:
Guide Assisting Small Businesses During the COVID-19 Crisis
Table of Contents
Look for Grants and Loans
There is a range of grant and loan programs for small businesses impacted by the coronavirus shutdown. Many of these are federal programs, and others are offered by private non-profits, corporations or other entities. Even if current funding for a program has been exhausted, additional monies may become available. For instance, lawmakers recently agreed to a second round of funding for certain Small Business Administration (SBA) programs after the initial $349 billion in funding was exhausted in less than two weeks. Loan and debt relief programs to consider include:
SBA COVID-19 Related Programs
Economic Injury Disaster Loan: An Economic Injury Disaster Loan (EIDL) and related Emergency Advance can provide up to $2 million to small businesses impacted by the coronavirus shutdown. The Emergency Advance, which can be up to $10,000, does not need to be repaid. Principal and interest payments on the EIDL can be deferred for the first year. On Friday, April 24, 2020, lawmakers approved an additional $60 billion in funding for the EIDL, including $10 billion for Emergency Advances and $50 billion to fund new EIDL loans. You can access more information about the coronavirus-related EIDL and Emergency Advance here.
Paycheck Protection Program (PPP): The PPP provides a short-term loan to cover certain payroll costs, mortgage interest, rent, and utilities. The maximum loan amount is generally 2.5 times the average of your last 12 months of certain payroll costs, up to $10 million. Payroll costs are capped at $100,000 per employee. The interest rate is 1%. These loans were originally due in two years, but recent legislation amending the PPP extended the loan term for loans made on or after June 5, 2020 to five years. However, payments are deferred for 10 months or until the date on which the loan forgiveness amount (if the loan is only partially forgiven) is remitted to the lending bank by the SBA. With some exceptions, this loan is eligible to be forgiven entirely if:
- the loan proceeds are spent during the 24-week period immediately after the loan is funded or by December 31, 2020, whichever is earliest;
- at least 60% is spent on payroll; and
- no more than 40% is spent on rent, mortgage interest, and utilities.
There are other restrictions, including limitations on the amount forgiven if you reduce salaries and/or the headcount of employees between the time the loan is issued and December 31, 2020 (and you do not rehire those employees by December 31, 2020).
The first round of funding for the PPP was quickly exhausted but Congress and the Executive Branch approved an additional $310 billion in funding. After temporarily halting the program when funds ran out, the SBA resumed accepting applications on Monday, April 27, 2020. Further details about PPP loans are available here. Please note, the SBA does not lend money directly. Instead, SBA approved lenders make the loans, so you must apply for a PPP loan with an SBA approved lender. A search tool to find eligible lenders is available here.The SBA also offers a lender match tool, available here, that helps connect small businesses with SBA-approved CDFIs (Community Development Financial Institutions) and small lenders.
If you have questions about the PPP, Massachusetts Growth Capital Corporation (MGCC) has compiled a list of organizations and contact information for individuals at those organizations helping businesses apply for PPP loans called the COVID-19 Small Business Stabilization Network. MGCC also has information about the PPP in numerous languages on its website. In partnership with the Massachusetts Association of Community Development Corporations (MACDC), MGCC is also providing application assistance and multilingual translation services for the SBA’s Paycheck Protection Program (PPP).
Employers with questions about PPP and unemployment benefits can find more information here.
SBA Express Bridge Loans: If your business currently has a business relationship with an SBA Express Lender, you may be able to access $25,000 quickly. These loans enable small businesses that currently have a business relationship with an SBA Express Lender to access these funds while awaiting a decision on an EIDL. Further details about SBA Express Bridge Loans are available here.
Other SBA Programs
Pre-coronavirus SBA loan programs: In addition to special programs dedicated to assisting small businesses during the pandemic, the SBA also offers several preexisting types of loans to support small businesses. Because these loan programs are not designed to meet the current emergency, some of their prerequisites and eligibility requirements can be more onerous than the EIDL and Emergency Advance, PPP, and Express Bridge Loan programs. Nevertheless, small businesses may wish to consider applying for loans through those programs, which include, among others:
- 7(a) Loans: These are loans for general business purposes and could be made to your business directly by the SBA, issued as a participation between the SBA and an SBA lender, or privately initiated and serviced but guaranteed in part by the SBA. Information about 7(a) loans can be found here.
- SBA Microloans: Under the SBA’s microlending program, the SBA makes loans and provides loan guarantees to non-profit intermediaries that in turn issue short-term loans of up to $50,000 to eligible small businesses. The loans can be used for most general business purposes (not to pay personal debts). In addition to the loan, your small business can benefit from management assistance and counseling that the intermediaries can provide. To apply for an SBA microloan, contact one of the lenders listed here.
- 504 Loans: Projects involving 504 loans require long-term fixed-asset financing for small businesses. A certified development company provides the final portion of this financing with a 504 loan made from the proceeds of a debenture issued by the certified development company, guaranteed 100% by SBA, and sold to investors. A list of certified development companies can be found here.
SBA Debt Relief: The SBA will pay the principal, interest, and fees of current SBA 7(a), 504, and microloans for a period of up to six months. The SBA will also pay the principal, interest, and fees of new 7(a), 504, and microloans issued before September 27, 2020.
Local and State Based Private Grant and Loan Programs: Various organizations are creating programs to help small businesses and others. You should consider applying to programs that fit the profile of your business and your business needs. For instance, the U.S. Chamber of Commerce has created a Save Small Business Grant site and is accepting applications for $5,000 grants for small businesses that have fewer than 15 employees.
Employee Retention Tax Credit: The IRS will give a tax credit to eligible businesses that continue to employ their workers. The credit is applied against the Social Security payroll tax, is equal to 50% of qualified wages paid after March 12, 2020, and is capped at $5000 per employee. If the credit exceeds the Social Security portion of the payroll tax, the excess amount can be paid to the business directly. The credit is not available on salaries paid to business owners or their relatives and cannot be used by businesses that obtain PPP loans (if you use the credit and later get a PPP loan, you will need to pay back the credit). More information is available here. There are also other tax credits available related to the pandemic, such as a payroll tax credit on paid sick leave and expanded childcare leave.
Additional Private Market Bank Loans: You may also be able to obtain a regular additional business loan to bridge your current financial needs. Local lenders have indicated they are available to work with business borrowers.
Crowdfunding: You may also want to consider using a crowdfunding site to obtain additional money for your business. These sites allow you to raise money from investors or contributors with certain limitations as to the size of the overall investment. You should carefully consider whether this type of investment is what you need; crowdfunding can come with many obligations for small businesses and is in many ways more complicated for you than a traditional loan.
If you apply for a grant or loan, you will need to provide financial and/or personal information, so beware of scams. Make sure you are on the real government or bank website when applying by following these simple steps. Finally, you should confirm that any non-profit claiming to operate in Massachusetts is legitimate. For instance, you can check if a charitable organization is registered and in compliance with the Attorney General’s Office annual filing requirements.
Review Your Insurance Coverage
Many commercial business policies have so-called Business Interruption or Business Income insurance coverage. While these policies often have a virus exclusion, you should review your policy, talk to your insurance agent, and submit a claim if your loss may be covered. You may also have specialized provisions to cover certain occurrences such as event cancellation. Similarly, you may have a performance bond or surety and/or credit insurance to protect you from delivery failures or another business’ inability to accept your product. Ask your insurance or business agent if you are not sure what coverages you have.
Look to Your Lease
Some leases have specific provisions apportioning the harm that accompanies a shutdown or reduction in foot traffic, so you may be entitled to a reduction in your rent. Even if there is no rent abatement provision in your lease, you may be entitled to assert a Frustration of Purpose defense against your landlord if the public health restrictions have prevented you from opening or otherwise operating your business. The recently passed statewide moratorium on foreclosures and evictions prohibits the eviction of small commercial tenants.
Massachusetts Eviction Moratorium
The Massachusetts Eviction Moratorium forbids landlords from evicting small business tenants for the duration of the moratorium in most circumstances. However, the moratorium does not relieve a small business tenant from the obligation to pay rent or restrict a landlord’s ability to evict a small business tenant for failing to pay past due rent after the moratorium ends.
- To qualify as a small business tenant, the tenant may engage in either for-profit or not-for-profit work but may not: 1) operate in multiple states, 2) operate in multiple countries, 3) be publicly traded, or 4) have 150 or more employees.
- After being extended by Governor Baker on July 21, 2020, the eviction moratorium is now set to expire at 11:59 pm on October 17, 2020.
Landlords may only evict small business tenants during the moratorium under narrow circumstances.
- Where there is criminal activity or a lease violation that may impact the health and safety of other persons lawfully on the premises.
- Where the lease or tenancy has expired or where a small business tenant defaulted on its lease or tenancy prior to Governor Baker’s March 10th COVID-19 Emergency Declaration.
In all other circumstances––including the non-payment of rent––landlords will be unable to evict their small business tenants.
- Courts will not accept filings, enter judgments, issue executions for possession of the premises, deny a tenant’s request for a stay of execution or continuance of a summary process, or schedule court events.
- Sheriffs and deputies will not execute possession of small business premises.
During the moratorium, landlords may terminate the tenancies of their small business tenants or send notices requesting that small business tenants vacate the premises. Even so, a landlord will not be able to evict a tenant until the moratorium ends.
- Landlords and small business tenants are encouraged to work together on flexible payment plans for missed rental payments and to maintain the tenancy where both parties are willing to do so.
To avoid late fees and negative credit reporting, small business tenants must provide their landlords with notice and documentation of a COVID-19 financial hardship within 30 days of each rental payment’s due date. Notice is an ongoing obligation. Tenants must send notice and documentation for each missed rental payment. The Executive Office of Housing and Economic Development (“EOHED”) has created forms that small business tenants may use for these purposes:
- A small business tenant may provide notice of financial hardship to their landlord using EOHED’s “Form of Notice – Covid-19 Hardship – Small Business Tenant”.
- A small business tenant may provide documentation of financial hardship to a landlord using EOHED’s “Documentation of Financial Hardship – Small Business Tenant”. This spreadsheet is located at the bottom of the page under “Downloads” as an Excel file here.
If a landlord collected a small business tenant’s last month’s rent in advance, the landlord may not 1) use it for expenses unrelated to the small business tenant’s premises, or 2) deduct any unpaid rent from the advanced rent, unless agreed to in writing. However:
- A landlord may use the advanced last month’s rent for mortgage payments, utilities, maintenance, and other expenses related to the leased premises.
- If a landlord uses the last month’s rent, the landlord must notify the small business tenant within five days using EOHED’s “Notice to Tenant – Use of Advanced Rent Payment”.
- A landlord is still obligated to apply the last month’s rent for its intended application.
A landlord is still obligated to pay interest to the small business tenant on the last month’s rent as if the funds had not been prematurely used.
Many lenders are following the guidance from federal regulators and allowing a 90-day forbearance period on mortgage loan collections. Other lenders are also offering even longer no-pay periods, though various restrictions may apply. You should talk to your bank about your options.
Consider Cutting Expenses
You may have other expenses you can reduce during this public health crisis. For instance, you can ask your workers compensation insurance carrier to recalculate your premium based on how many employees are currently working and what they are now doing. Similarly, you should explore whether your insurer will let you remove out-of-service or reduced-use vehicles from coverages under your commercial automobile insurance policy, and re-rate other commercial policies. If you have liquor liability coverage, you should discuss with your city or town whether you need to have that policy in place in order to maintain your liquor license while you are closed. Finally, if you are having trouble making timely payments on your commercial premiums or debts, you should speak to your insurer, lender, or agent about options to postpone payments.
Report Your Experiences and any Unfair Practices You Encounter to the Attorney General
The Massachusetts Consumer Protection Act protects you from unfair or deceptive business practices. If you have encountered difficulties with landlords, mortgagees, creditors, debt collectors, suppliers, insurers, or other businesses you deal with, we want to know about it. We are also interested in hearing about your general experiences and what you have done to keep your business operational during the shutdown. Please provide us with your information on the Small Business Experience form.
Free Legal Assistance for Small Businesses
You can also receive help from the COVID Relief Coalition, a group of Massachusetts non-profits, law firms, and governmental agencies of which the Attorney General’s Office is a part. The Coalition helps small businesses and non-profit entities in the greater Boston area with one-on-one advice about access to emergency loans and other sources of relief. The Coalition will also provide you with free pro bono legal advice from an attorney and should respond to your request for help within 24 hours. Complete a form at this link to receive this service.