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Law360 (March 30, 2020, 5:16 PM EDT )
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| Christopher Hennessy |
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| Jeremy Glenn |
As Illinois hunkers down to ride out COVID-19, many business owners are searching for emergency assistance to maintain their operations and pay their employees.
Considering the sheer size of the Coronavirus Aid, Relief, and Economic Security, or CARES, Act ($2.2 trillion), much focus has been placed on this legislation, which includes federal assistance for businesses nationwide to survive the COVID-19 pandemic. Yet, even before this legislation was signed into law on March 27, the city of Chicago and the state of Illinois had already announced significant programs to help businesses navigate these interesting times.
Any Illinois business — particularly those in the hospitality industry — should consider all options available for emergency funding, particularly where certain options come in the form of grants as opposed to loans.
The City's Response
On March 19 — the same day the CARES Act was introduced in the Senate[2] — Chicago Mayor Lori Lightfoot launched the Chicago Small Business Resiliency Fund, a $100 million program that will help provide certain small businesses with emergency cash flow to support rent and payroll expenses.[3] The city is working with a network of community development financial institutions to screen applications, underwrite credit and disburse and service the loans.
Eligible businesses can start the process by completing an interest form, after which they will be contacted for next steps.[4] The admitted aim of the resiliency fund is to assist the most severely impacted businesses.
As such, in addition to the small business qualification that mirrors that of the state of Illinois (fewer than 50 employees and gross revenues of less than $3 million in 2019), to be eligible for the resiliency fund, a business must have suffered more than a 25% revenue decrease due to COVID-19. The city will provide additional information regarding the loan partners in the application process[5] and has created an entire resource center for Chicago businesses, consumers and employees impacted by COVID-19.[6]
The Illinois Response
On March 25, while the CARES Act was still being discussed and debated in the U.S. Senate, Illinois Gov. J.B. Pritzker announced a number of measures to assist small businesses through the Illinois Department of Commerce & Economic Opportunity, or DCEO.[7] The measures include the Hospitality Emergency Grant Program, the Illinois Small Business Emergency Loan Fund, and the Downstate Small Business Stabilization Program. Notably, businesses in the city of Chicago are excluded from the latter two measures, considering their similar options under the resiliency fund.
The most time-sensitive of these is the Hospitality Emergency Grant Program, which sets aside $14 million to assist eligible businesses.[8] As suggested by its name, the grant program is focused on the hospitality industry, including bars, restaurants, hotels, motels and other lodging establishments. Bars and restaurants with less than $500,000 in annual revenue for 2019 can receive up to $10,000. Bars and restaurants with annual revenue for 2019 between $500,000 and $1 million can receive up to $25,000. Hotels with less than $8 million in annual revenue can receive up to $50,000.
Owners of eligible restaurants and bars can use the funds to support working capital (rent, payroll and other accounts payable), job training (e.g., new practices like takeout and delivery as well as sanitation) and technology for new operations. Hotels can use the funds as working capital that allows them to retain employees.
As opposed to a loan to be paid back (or forgiven, as discussed below), these funds are in the form of a grant. Grant awards will be decided by a lottery with application accepted until 5 p.m. on April 1, with recipients notified on April 4 and funds made available hopefully within two days.
The second program is the Illinois Small Business Emergency Loan Fund, established by the DCEO and the Illinois Department of Financial and Professional Regulation. Eligible small businesses (using the same criteria as the resiliency fund, but for businesses outside Chicago) can apply for low-interest loans (3% simple interest) of up to $50,000.[9]
Payments on the five-year loans are deferred for the first six months. Interested businesses can submit an expression of interest now[10] with official loan applications being accepted starting April 1. Loan proceeds can be used for working capital but at least 50% of the loan proceeds must be applied toward payroll or other eligible compensation such as salaries, wages, tips, paid leave and group health care costs.[11]
The focus of the third DCEO program is the support of small businesses in downstate and rural counties, for which the DCEO is repurposing $20 million from the Community Development Block Grant Disaster Recovery program to fund the Downstate Small Business Stabilization Program. Businesses have an opportunity to partner with their local government — counties, cities and villages — provided the local government is not already a recipient of entitlement funds.[12]
Businesses can receive grants up to $25,000 for working capital. Applications should be available soon on the DCEO website, and funds are expected to be accessible within 30 days of the receipt of the application.
The Federal Government Response
Finally, on March 27, President Donald Trump signed the CARES Act into law after voice-vote approval from the U.S. House of Representatives earlier the same day, and unanimous approval by the U.S. Senate on March 25. At $2.2 trillion, it is the single largest emergency relief bill ever passed and it covers far more areas than direct payments to employers for payroll costs and other business expenses.
Within the CARES Act, the corollary to the city and state programs is the Keeping Workers Paid and Employed Act. Employers with fewer than 500 employees can apply for low-interest loans (not to exceed 4%)[13] as part of the Paycheck Protection Program, an amendment to the Small Business Act.[14]
Employers do not have to establish that they were unable to obtain credit elsewhere and no personal guarantee is required for the loans. An employer must certify that the loan is necessary due to the uncertainty of current economic conditions (there is no 25% revenue decrease threshold like the city or state funding); that the funds will be used to retain workers and maintain payroll or to make mortgage, lease or utility payments; and that there is not already a pending application for the same funds.[15]
The maximum loan amount is the lesser of 2.5 times average monthly payroll costs plus the balance of any outstanding SBA disaster loan made after Jan. 31, or $10 million.[16] Although the loan amount is calculated using payroll costs, loan proceeds can be used for payroll costs, group health insurance costs, medical and family leave payments, salaries, commissions, and other compensation, payment of interest on mortgage obligations, rent, utilities and interest on other debt.[17] In addition, the loan is retroactive to Feb. 15.[18] At least $350 billion has been set aside to fund these loans.[19]
Unlike the city and state loan funds, the CARES Act includes criteria for loan forgiveness. Generally, paycheck protection loans may be forgiven in an amount equal to the sum of costs incurred for payroll, interest on mortgages, payment of rent and covered utility payments made during the covered period (the eight-week period beginning on the origination date of the covered loan).[20]
Forgiveness may be reduced if the employer reduces the number of employees between Feb. 15 and June 30, unless the employees are rehired before June 30. In addition, forgiveness may be reduced by anything more than a 25% reduction in an employee's salary for any employee who did not earn more than $100,000 in 2019.[21] The criteria are spelled out in greater detail within the CARES Act, but the opportunity to have some or all of the loan forgiven should be a significant incentive for businesses to apply.
Next Steps for Illinois Businesses
After consultation with an attorney and possibly an accountant, qualifying restaurants, bars and hotels should consider an application for the Hospitality Grant Program. The deadline for the online application is 5 p.m. on April 1, and decisions are to be made by April 4. Funds should be available within two days.
Unlike a loan, a grant does not require repayment. At the same time, among the various forms of relief being offered, the grant program has the most limited funding and is a lottery.
Downstate businesses should monitor the DCEO website for application information for the grant program. Once the applications are accepted, funds are expected to be available within 30 days, and can provide up to $25,000 in a grant that does not require repayment.
The city/state loan programs (the resiliency fund, the emergency loan fund) and the federal loan program (paycheck protection) have their differences but are not mutually exclusive for an eligible business — there is no language in the respective programs that a business is ineligible if it has also applied for and received emergency funds from a different source. Certainly, a key difference on eligibility is business size.
The city and state programs are for small businesses of fewer than 50 employees and gross revenues of less than $3 million, whereas the federal program is for businesses of fewer than 500 employees with no gross revenue limitation. Of course, the biggest key difference is the forgiveness program for the paycheck protection loans. Covering payroll costs is a permissible use for both the state/city programs and the federal program but may be entirely forgiven under the CARES Act.
While certainly recognizing that, from the perspective of a borrower, a loan that is forgiven is better than a loan that needs to be repaid, there is also the issue of timing. According to the city's press release announcing the resiliency fund, "the average Chicago small business has only 28 days of cash on hand."[22] Applications for the city and state programs are already available online.
While the federal government moved quickly in passing the CARES Act, the process to obtain funds through that program is still a work in progress. For many small businesses and their employees, relief cannot come quickly enough.
Christopher Hennessy and Jeremy Glenn are members at Cozen O'Connor.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] https://quoteinvestigator.com/2015/12/18/live/.
[2] For those who recall Schoolhouse Rock, fondly or otherwise, the CARES Act started as Senate Bill 3548 and ended up as Senate Amendment 1578 to House Bill 748.
[3] https://www.chicago.gov/city/en/depts/mayor/press_room/press_releases/2020/march/SmallBusinessReliefPackage.html.
[4] https://www.surveymonkey.com/r/COVID19Chicago.
[5] https://www.chicago.gov/city/en/sites/covid-19/home/chicago-small-business-resiliency-fund.html.
[6] https://www.chicago.gov/city/en/depts/bacp/supp_info/covid19resources.html.
[7] https://www2.illinois.gov/dceo/SmallBizAssistance/Pages/EmergencySBAIntiatives.aspx.
[8] https://us.accion.org/news/covid-19-hospitality-business-grant-program/.
[9] https://www2.illinois.gov/dceo/SmallBizAssistance/Pages/IllinoisSmallBusinessEmergencyLoanFund.aspx.
[10] https://app.smartsheet.com/b/form/c75a9b0557564704a73a0afc1eba81b2.
[11] https://www2.illinois.gov/dceo/SmallBizAssistance/Pages/IllinoisSmallBusinessEmergencyLoanFund.aspx. According to DCEO, "Eligible uses will exclude compensation in excess of $100,000," which is not a particularly clear exclusion. Considering that the maximum amount of the loan is $50,000, that can reasonably be interpreted as excluding paying towards salaries above $100,000.
[12] Eight urban counties and 33 metropolitan cities are not eligible for these funds. https://www.hud.gov/states/illinois/working/cities.
[13] CARES Act. Sec. 1102(a)(2); 15 U.S.C. §636(a)(36)(L).
[14] The "Paycheck Protection Program," Sec. 1102 of the CARES Act, is actually an amendment to a portion of the already-existing Small Business Act, 15 U.S.C. §636(a).
[15] CARES Act Sec. 1102(a)(2); 15 U.S.C. §636(a)(36)(G)(i).
[16] CARES Act Sec. 1102(a)(2); 15 U.S.C. §636(a)(36)(E).
[17] CARES Act. Sec. 1102(a)(2); 15 U.S.C. §636(a)(36)(F)(i).
[18] CARES Act. Sec. 1102(a)(2); 15 U.S.C. §636(a)(36)(M)(i)(1).
[19] CARES Act. Sec. 1102(b).
[20] CARES Act Sec. 1106(a)(3)
[21] CARES Act Sec. 1106(c)(3)
[22]https://www.chicago.gov/city/en/depts/mayor/press_room/press_releases/2020/march/SmallBusinessReliefPackage.html.
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