🇺🇸 COVID-19: U.S. Business Guidance

Collection and explanation of U.S. resources and new policies for small business founders/owners and their employees affected by COVID-19.

(Image thanks to Patriot.)

While there were rumblings of a market correction and economic downturn, no one was expecting the extent of deceleration that Coronavirus disease 2019 (COVID-19) brought upon the global economy. And as confirmed cases continue to rise, it remains impossible to know how long this new norm will last. The general perspective: prepare for the worst.

At Northzone, we’ve been investing in early-stage ventures for almost 25 years. We are one of the few VCs that have first-hand experience scaling businesses across economic downturns and across cycles of technological disruption — from the dot com boom to the 2008 financial crisis. We sourced and led the first institutional funding into Spotify in 2008 at the heart of the Great Recession, before the company joined the ranks of Instagram, WhatsApp, Dropbox and Slack to become a recession-born unicorn.

We have also raised two of our most recent funds at the height of political uncertainty in Europe. Fundraising aside, these experiences give us a unique perspective on the opportunities to get product/market fit and business fundamentals right in the early stages of an economic cycle, and the areas to prioritize in challenging market conditions. The current situation is no exception to that.

Overall, the new, COVID-19-related policies focus on bolstering the public health response, mandating paid sick & family leave, expanding unemployment insurance, providing low-/no-interest loans, and offering tax relief. Hopefully this guide helps to navigate and understand what’s available.

This is part of Northzone’s larger, global list of country guides for business resources available here. We are also hosting a virtual event to share learnings from the 2008 economic crisis here.

*Federal government programs*

Coronavirus emergency supplemental spending bill

The first of three federal packages, this $8.3 billion bill (signed into law on March 6, 2020) includes $2.2 billion for health agencies to prepare for and prevent the spread of the virus as well as $3 billion for vaccine research.

Families First Coronavirus Response Act

The second federal package was signed into law on March 18, 2020 (full text). Provisions include:

Paid sick leave — requires employers with <500 employees to provide two weeks’ worth (or 80 hours) of paid sick leave if employees are unable to work because they’re subject to quarantine or isolation, are experiencing symptoms of COVID–19, are caring for someone who is in quarantine or isolation, and/or have children in schools that have closed

• Paid sick leave wages are capped at $511 per day (up to a total of $5,110 per employee) or, if the employee’s absence is necessitated by caring for others, the cap is $200 per day (up to $2,000 total); paid sick time does not carry over to the following year
• Self-employed workers will receive a tax credit equivalent to the sick leave amount
• Expires on December 31, 2020

Paid family and medical leave — requires employers with <500 employees to provide up to 12 weeks of job-protected public health emergency leave, ten weeks of which must be paid leave, to employees unable to work (or telework) because he or she is caring for their minor child if the child’s school closed or regular childcare provider is unavailable due to public health emergency

• Eligible to any employee employed for 30 or more days
• The first ten days (two weeks) is unpaid, but an employee may choose to apply PTO
• Paid leave wages for full-time employees is calculated as no less than 2/3 of regular pay and capped at $200 per day (up to a total of $10,000 per employee); pay for part-time employees is prorated based on average hours worked during the previous six months
• The Secretary of Labor is authorized to issue regulations that exempt businesses with <50 employees from paid family leave if providing it would jeopardize the viability of the business
• Expires on December 31, 2020

Tax write-offs — employers who are required to provide paid leave under this Act will receive a 100% credit against their quarterly payroll taxes

Unemployment aid — emergency funding to states for increasing access to unemployment benefits, including: online applications, no more one-week waiting period, no provision that employees need to be actively searching for other employment, and employers will not be responsible for benefits paid resulting from these changes

Health care worker protection — requires OSHA to develop and implement a comprehensive infectious disease exposure control plan to protect health care workers

Free testing — provides wavers, funding, and coverage aimed at making coronavirus testing free (without having to use deductibles or copayments)

Food and nutrition assistance — includes: $900 million to fund food programs for low-income Americans (WIC & TEFAP); emergency SNAP expansion for children and low-income jobless workers; and $250 million for additional home-delivered meals to low-income seniors (ACL)

Coronavirus Aid, Relief, and Economic Security (CARES) Act

The third federal package was signed into law on March 27, 2020. This is the largest financial assistance bill ever with $2.2 trillion allocated for businesses, individuals, federal agencies, and state and local governments (full text). It was designed to distribute capital quickly and broadly. Provisions include:

Paycheck Protection Program — $349 billion to expand SBA 7(a) small business loans:

• Eligibility extended beyond businesses with <500 employees to sole proprietors, independent contractors, gig economy workers, and self-employed individuals as well as businesses with >500 employees in certain industries (use relevant NAICS code to determine eligibility)
• Amount equal to the lesser of (a) $10 million or (b) 2.5 times the average monthly payroll costs incurred during the prior one-year period, intending to cover any 8-week period between February 15 and June 30, 2020
• Forgiveness applies to portions used to cover payroll (incl. salaries up to $100K, wages, tips, paid leave, and health benefits) and existing interest payments on mortgage, rent, and utilities
• The amount of forgiveness will be reduced proportionately if total payroll expenses (capping individual compensation at $100K) decreases by >25% (existing layoffs can be forgiveness if businesses rehire by June 30, 2020)
• Max terms of unforgiven loans are 10-year payout (incl. 6–12-month deferment) with 4% capped interest (although any forgiven portions are not charged interest) and 100% federal guarantee
• Note: There is a legal precedent for venture-backed startups being eligible for these PPP loans (more info available here and a checklist for affiliation here). While there are a lot of concerns about PPP’s implementation (e.g. from banks), the general guidance is to seek legal counsel, to document a Board-level deliberation on the matter, and to apply to get into the PPP queue as soon as possible (either with your existing bank if it is an SBA preferred lender or via KYC process with one that is).

Emergency Economic Injury Disaster Loan Grants — $10 billion to provide emergency advances of $10,000 to small businesses that apply for an SBA economic injury disaster loan (EIDL) within three days of application (more info on EIDLs below).

Unemployment expansion — est. $260 billion to extend unemployment benefits to 39 weeks and to contribute an additional $600 per week. Definition expanded to include furloughed employees and gig workers.

Direct cash payments to individuals — est. $300 billion total to provide $600-$1,200 to Americans making <$100K in adjusted gross income, plus $500 per child

Tax relief provisions — provisions aimed at increasing liquidity and reducing costs of capital:

• Payroll tax credit for retaining employees equal to 50% of the first $10,000 in wages per employee (eligible to businesses that experienced full/partial closure due to gov’t restrictions or a 50%+ YoY reduction in gross receipts; not eligible to employers receiving assistance through PPP loans)
• Deferral of Apr-Dec 2020 employer payroll taxes until 2021–2022
• Expanded ability to use 100% of net operating loss carryovers for offset in 2018, 2019 and 2020
• Acceleration of corporate alternative minimum tax (AMT) credits, which can be claimed immediately for additional cash flow
• Expansion of net interest deduction limit from 30% to 50% of EBITDA for 2019 and 2020 tax years
• Allowing immediate write off of qualified improvement property costs instead of depreciating over the 39-year life of the building
• Suspension of 2020 excise tax for alcohol used to produce hand sanitizer
• Allowing employers to provide student loan repayment benefit to employees tax-free, up to $5,250 annually

Public health funding — directs various federal agencies and industries to marshal medical resources to address supply shortages, accelerate innovation, mobilize the healthcare workforce, and increase access to healthcare for COVID-19 patients (including requiring health insurers to fully cover cost of COVID-19 testing and of immunizations or preventive services for COVID-19).

Education provisions — including suspension of all principal and interest payments on federally held student loans through September 30, 2020 (representing ~92% of the $1.6 trillion total outstanding student loan debt).

Loans to industries decimated by the virus — $500 billion total to provide liquidity: $25b for passenger airlines (& related businesses including aircraft servicers and ticket agents), $4b for cargo air carriers, $17 billion for national security-related businesses, and $454b under discretion of the Federal Reserve. These loans include substantial restrictions on executive compensation and none are eligible for loan forgiveness.

Paycheck Protection Program and Health Care Enhancement Act

The fourth federal package was signed into law on April 24, 2020 (full text). Provisions include:

• $320 billion to revive the SBA’s depleted PPP loan program, with $60 billion set aside for smaller lending institutions
• $60 billion to add to the SBA’s EIDL funds, divided into $50 billion in loans and $10 billion in grants
• $75 billion for hospitals’ expenses or lost revenue and $25 billion for virus testing

U.S. ​Small Business Administration (SBA)

SBA provides a number of loan resources for small businesses to utilize:

Economic Injury Disaster Loans — loans issued directly by SBA for up to $2 million at a 3.75% interest rate (or 2.75% for nonprofits) with long-term repayments of up to 30 years offered to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). EIDLs over $200K require a personal guarantee from owners with 20%+ equity.

• Businesses may apply for EIDL and PPP, however, the loans cannot be used for the same purpose within the same timeframes
• EIDL loans may be refinanced into a PPP loan

Lender Match — free online referral tool that quickly connects small businesses with participating SBA-approved lenders for federally guaranteed loans; SBA loan programs:

• 7(a) program — loans up to $5m; most common
• Express loan program — loans up to $350K for up to 7 years with an option to revolve; turnaround time of 36 hours for approval or denial of completed application
• Community Advantage loan pilot program — loans up to $250K from mission-based lenders for underserved markets
• 504 loan program — acquisition or eligible refinancing of fixed assets
• Microloan program — loans up to $50K made through nonprofit lending organizations to underserved markets

Exporting assistance — export loans for small businesses that export directly overseas or sell to a customer that then exports their products:

• Export Express loan program — financing lines of credit or term note of up to $500K for finalizing export sales or pursuing opportunities overseas
• Export Working Capital program — revolving lines of credit or transaction-based financing of up to $5 million to enable export orders and finance international sales
• International Trade loan program — helps with retooling, expansion, or re-shoring operations

Government contracting — a government-limited competition to award a target level of federal contracting dollars to small disadvantaged businesses each year:

• 8(a) Business Development program — 5%+ to economically and socially disadvantaged business owners
• HUBZone program — 3%+ to businesses located (i.e. principal office and 35%+ employees) in a HUBZone (defined here)
• Women-Owned Small Business program — 5%+ to women-owned/controlled/run businesses

Resources Partners and District Offices — works with a number of local partners to counsel, mentor, and train small businesses on changing market demand

Internal Revenue Services (IRS)

Federal income tax payment deadlines for C Corporations are automatically extended until July 15, 2020, for up to $10 million of their 2019 tax due. This relief also includes estimated tax payments for the tax year 2020. The filing deadline for federal tax returns remains April 15, 2020.

U.S. Center for Disease Control (CDC)

Interim guidance for businesses and employers to plan, prepare, and respond to COVID-19.

Federal Emergency Management Agency

The Emergency Planning Exercises web page offers free, downloadable tabletop exercises for the private sector to review, share, and use.

Telecommuting Guidance

The U.S. General Services Administration website provides an array of resources to help guide employers in offering and managing telecommuting or remote work.

Federal Reserve Bank Repo Loans

The New York Federal Reserve is currently providing up to $1 trillion a day in overnight repo loans (this has been announced for the week of March 20th).

A Repo loan is a repurchase agreement that provides immediate access to cash akin to a loan with securities as collateral; businesses (oftentimes large banks or other financial institutions) sell bonds or securities to the Fed and agrees to buy them back at a higher price (“repo rate” ≈ interest rate).

*State/Local government programs*

NY State Senate Bill 8091

Defines New York’s COVID-19 paid sick leave policy which applies to employees subject to a precautionary or mandatory order of quarantine or isolation. Requirements are based upon employer size as of January 1, 2020.

• Employers with <11 employees and net income <$1 million in the previous tax year → must provide job-protected leave for the duration of the quarantine order
• Employers with <11 employees and net income >$1 million in the previous tax year → must provide at least five days of paid sick leave and thereafter unpaid job-protected leave until termination of the quarantine order
• Employers with 11–99 employees → must provide at least five days of paid sick leave and job protection for the duration of the quarantine order
• Employers with 100+ employees → must provide at least 14 days of paid sick leave and guaranteed job protection for the duration of the quarantine order

After any Covid-related paid sick leave is exhausted, the employee is still eligible to apply for New York paid family leave and temporary disability benefits. Employees will be eligible for New York paid family leave to care for a minor dependent child who is subject to a mandatory or precautionary order of quarantine or isolation due to COVID-19.

However, note the following limitations:

• An employee is not eligible for COVID-19 paid sick leave if deemed asymptomatic or has not yet been diagnosed with any medical condition and is physically able to work while under a mandatory or precautionary order of quarantine or isolation, whether through remote access or other means
• An employee is not eligible for COVID-19 paid sick leave if the employee is quarantined due to (1) traveling to a Level 2 or Level 3 country as determined by the CDC; (2) the travel was not in the scope of employment, and (3) the employee had notice of the travel health notice, and this limitation in the COVID-19 paid sick leave. However, the employee may use other paid leave provided by the employer or otherwise is entitled to unpaid leave

The COVID-19 paid sick leave is provided in addition to an employee’s accrued sick leave, if any, provided by the employer.

NYC Small Business Service Package

Relief for small businesses in NYC that are seeing a reduction in revenue because of COVID-19:

• Employee retention grants — 40% payroll cost coverage for two months to NYC businesses that: have <5 total employees, experienced 25% reduction in revenue, have operated for 6+ months, and are in good tax standing
• Small business continuity fund — zero interest loans of up to $75,000 to NYC businesses that: have <100 total employees, experienced 25% reduction in revenue, can repay the loan, and are in good tax standing

CA State Resources for Employers

Helpful information compiled by the Governor’s Office of Business and Economic Development as it relates to the COVID-19 outbreak:

California Employment Development Department (EDD):

• Work Sharing Program — alternative to layoffs that allows employers to retain their trained employees by reducing hours & wages and offsetting with up to 60% of weekly UI (unemployment insurance) benefits amount (see link for detailed eligibility requirements)
• Rapid Response Program — for employers planning a closure or major layoffs, get help averting potential layoffs and immediate on-site services to assist workers facing job losses
• Payroll tax extension — 60-day extension to file state payroll reports and/or deposit state payroll taxes without penalty or interest

IBank loan programs — businesses with <750 employees can apply for the Disaster Relief Loan Guarantee Program (loan guarantees up to 95% of loans up to $1 million) and/or Jump Start Loan Program ($500-$10k loans for low-wealth entrepreneurs in low-income communities)

California Capital Access Program (CalCAP) for Small Business — favorable loan terms (e.g. 100% coverage on losses as a result of certain loan defaults) for loans up to $5 million

California Franchise tax extension — an extension to file 2019 California tax returns and make certain payments until June 15, 2020

California Department of Tax and Fee Administration — taxpayer assistance (e.g. granting extensions for filing returns and making payments, relief from interest and penalties, and filing a claim for refund)

SF City Resources for Employers

Resources and measures to alleviate the pressure facing employers as a result of COVID-19:

• Deferred business taxes for small businesses — nine-month deferred payment of quarterly business taxes from April 2020 to February 2021 for businesses with <$10M in gross receipts
• Deferred business licensing fee — three-month deferred collection of annual Unified License Bill to June 30, 2020
• Small business resiliency fund — OEWD-sponsored emergency grants of up to $10,000 for micro-businesses
• Leasing and legal assistance — small business assistance with lease negotiation, legal consultation, and related services
• Small business revolving loan fund — access to capital, including loans (from $10k-$250k) and technical assistance
• Emerging business loan fund — loans (from $50k-$250k to qualifying commercial projects)
• Paid sick leave — contribution of up to 40 hours (or 5 days) of additional paid sick leave time to employees, beyond existing available policies

Colorado Health Emergency Leave with Pay (HELP)

HELP provides paid leave to employees of certain employers that: engage in leisure and hospitality, food services, child care, education (including related services such as cafeterias and transportation), and home health care, in addition to employers operating a nursing home or community living facility.

• Covered employers must provide up to four (4) days of paid sick leave for employees with flu-like symptoms who are being tested for COVID-19. If the employee has already exhausted other employer-provided paid leave, this emergency paid sick leave must still be provided. The paid leave ends if an employee receives a negative COVID-19 test result.
• No employer may terminate an employee who cannot provide documentation for this particular type of leave

Expires when the State of Disaster Emergency ends or July 9, 2020, whichever occurs later.

*Other resources*

Facebook Small Business Grants

Program offering $100M in total cash grants and ad credits. Facebook also offers guidance tools including a resilience toolkit, quick action guide, and customer support courses.

Silicon Valley Bank Debt Relief

Provides certain venture debt borrowers with loans up to $10 million an opportunity to defer their principal payments for six months. Clients that qualify for this program will be notified directly.

Hello Alice Business Resource Center

Resources and $10,000 in emergency grants.

Updated as of April 2, 2020.