Several states and cities are offering loans, grants and other incentives to help businesses weather the harsh economic environment created by COVID-19. At the same time, states struggling to contain budget deficits, such as California, are moving to scale back an important business deduction and impose a limit on the amount of credits that may be claimed.
The COVID-19 global pandemic has severely impacted the global economy. To help keep businesses afloat, many state governments have created programs that offer various loans, grants and tax incentives. The programs implemented to date are generally on a first-come, first-served basis and have proven to be extremely popular with application periods sometimes closing within days of opening. However, with continuous demand for relief and federal offerings, states continue to create programs, expand programs and reopen application periods for a second phase of funding. This article highlights a few of the programs offered by some states to provide cash infusions in response to this unprecedented pandemic. The article will also briefly highlight some states’ responses to COVID-19 and potential actions to raise taxes associated with existing tax incentives that were secured by businesses prior to the COVID-19 pandemic.
The California Small Business Loan Guarantee Program’s $50 million initiative is intended to provide relief to businesses with less than 750 employees that sustained economic injury as a result of the pandemic. Loans would be guaranteed for up to seven years and 95% of the loan amount. Along with other tax filing and payment relief offerings, California also allowed businesses with less than $5 million in taxable annual sales to pay up to $50,000 of sales and use tax liability over a 12-month interest-free payment plan. Additionally, there are cities in California that have developed their own programs to aid businesses. San Francisco, for example, created a COVID-19 Small Business Resiliency Fund which allowed businesses with (1) less than five employees, (2) less than $2.5 million in gross receipts, and (3) revenue loss of 25% or more to access up to $10,000 for employee salaries and rent. San Francisco also created the Small Business Emergency Loan program providing small businesses with annual revenue under $2.5 million and a 25% drop in revenue since January 1, 2020, with zero-interest loans up to $50,000 with flexible repayment schedules.
San Francisco recently announced an expansion of the financial relief for small businesses impacted by COVID-19 and created a second phase of funding, which includes an additional $6.5 million to support small businesses. The $6.5 million includes $1.5 million for the Small Business Resiliency Fund and $5 million for the Hardship Emergency Loan Program (SF HELP) in the form of grants and 0% interest loans to support over 300 small businesses. San Francisco also announced the award of $800,000 in Neighborhood Small Business Mini Grants. These grants are to be provided to 276 small independently owned businesses in underserved commercial corridors in various San Francisco neighborhoods. Additionally, $200,000 is currently being processed as part of the Women Entrepreneurship Fund.
As a result of COVID-19, California and other states are facing economic consequences and forthcoming budgetary shortfalls. In order to address budgetary shortfalls and increase tax revenues, California recently enacted a budget, which imposes a $5 million credit utilization limit. This credit limitation applies to the total of all business credits otherwise allowable, including prior year carryovers. Corporations filing combined returns are also limited to a $5 million credit total for all taxpayers included in the combined report. The credit limitation will cover taxable years beginning on or after January 1, 2020, and before January 1, 2023. Other states may follow suit by introducing policies intended to sustain revenue.
New Jersey released one of the most comprehensive packages of various credits and incentives when it rolled out a Small Business Emergency Assistance Grant Program, a Small Business Emergency Assistance Loan Program, an NJ Entrepreneur Support Program, and a Small Business Emergency Assistance Guarantee Program. The Small Business Emergency Assistance Grant Program is a $5 million program that provided grants of up to $5,000 to small businesses. The Small Business Emergency Assistance Loan Program is a $10 million program that provided working capital loans of up to $100,000 to businesses with less than $5 million in revenues. The NJ Entrepreneur Support program is a $5 million program that provides 80% guaranteed loans (not to exceed $200,000 per entrepreneurial company) to New Jersey entrepreneurs through private investors. The Small Business Emergency Assistance Guarantee Program is a $10 million program that provides 50% guarantees on working capital loans made by private lenders. New Jersey also created a Community Development Finance Institution (CDFI) Emergency Loan Loss Reserve Fund and the CDFI Emergency Assistance Grant Program, that are only available to New Jersey CDFI’s. The two programs allow for low interest loans to New Jersey businesses and have the $10 million capital reserve fund take the first loss positions.
The New Jersey Small Business Emergency Assistance Grant Program began Phase 2 with $45 million of additional funding for grants of up to $10,000, with applications opening on June 9. To support diversity and inclusion, $15 million is reserved for businesses in Opportunity Zone-eligible tracts. New Jersey passed legislation reducing severance pay requirements for COVID-19 layoffs, providing businesses with relief from a state law that requires employers to pay employees one week’s severance for every year of service. New Jersey also currently has two bills pending with the Budget Committee and the Assembly that could provide small business tax credits of up to $1,000 for each employee and tax deferrals for remitting taxes they collect on behalf of the state, including sales and use taxes, temporary disability leave benefits contributions, family temporary leave contributions, and unemployment compensation contributions.
New York recently launched its first relief program, the $100 million New York Forward Loan Fund. The economic recovery loan program supports New York state small businesses, nonprofits and small landlords as they reopen following the COVID-19 outbreak. The initial funding of over $100 million will reserve 5% for nonprofit organizations, 30% for small landlords and 65% for small businesses. The fund is for businesses with 20 or fewer full-time equivalent employees, nonprofits, and small landlords who did not receive a federal Paycheck Protection Program or Economic Injury Disaster loan. The fund provides loans of up-to-$100,000 to be paid back over a five-year term with interest. There are geographic proportionality goals around the state. Applications are now being accepted and will be reviewed on a rolling basis as regions and industries reopen.
New York City
In response to the pandemic, New York City introduced a Small Business Continuity Loan Fund. The fund provided zero-interest loans of up to $75,000 to businesses with less than 100 employees who had sales decreases of at least 25% due to the pandemic. Note, due to “overwhelming interest,” New York City has temporarily paused application intake on this program. Instead, New York City is directing businesses to various federal and private relief offerings.
Additionally, to assist businesses on the verge of collapse due to the COVID-19 pandemic, the Renaissance Economic Development Corporation has created an Emergency Small Business Relief Loan Fund. The fund will provide restaurants, retail stores, service businesses and wholesalers in specified communities with low-interest loans up to $50,000. Businesses must be for-profit entities operating in NYC only and must be located in these neighborhoods: Flushing, Jackson Heights, Elmhurst, Murray Hill, Woodside, College Point, Bayside, Manhattan Chinatown and Lower East Side, Manhattan East 32nd Korean Town and Brooklyn Sunset Park, Bensonhurst, Bay Ridge, and Sheepshead Bay.
New York continues to assess options to mitigate hardships on New York businesses and has directed businesses towards private grant and funding resources at the national and state level, as well as resources that target businesses in New York City.
Pennsylvania offered the COVID-19 Working Capital Access Program to assist businesses through the pandemic. The program offered loans of up to $100,000 to businesses with 100 or less employees with no principal payments or interest due in the first year (of three years). Unfortunately, funding for this program was exhausted, and Pennsylvania is no longer accepting applications. Pennsylvania has been directing businesses to federal relief options. Note, Philadelphia also introduced a COVID-19 Small Business Relief Fund which offers Microenterprise Grants of $5,000 for businesses with annual revenue under $500,000, Small Business Grants of up to $25,000 and Small Business Loans of up to $100,000. Similar to Pennsylvania, applications are no longer being accepted by Philadelphia.
Many states have created programs and provided funding to assist businesses through the COVID-19 pandemic in the form of loans, grants, and other credits and incentives. While some states have yet to unveil any such programs or have directed businesses to federal and private relief opportunities, other states have indicated that their programs’ application periods are closed while leaving the door open for future refunding and open applications. State relief programs and incentive opportunities remain rather fluid. Businesses must continue to monitor the incentives and relief available in the states in which they operate. At the same time, they should watch out for the possibility that states may take actions to recapture funds from existing deals and/or take actions to raise taxes by limiting credit utilization. Andersen can work with you to identify those credits and incentives that are advantageous for your business. We can also help you to negotiate or renegotiate credit and incentives packages with state and local jurisdictions.
Compliments of Andersen – a member of the EACCNY.