Small businesses are vital to Truckee and North Lake Tahoe’s economy. The novel coronavirus (COVID-19) pandemic has hit local businesses incredibly hard due to the lack of tourism, ski rentals, and dining, among other reasons. Businesses in Truckee and North Lake Tahoe continue to operate the best they can in compliance with “shelter-in-place” rules, but operating in a limited fashion (or not at all for certain non-essential businesses) poses significant cash flow issues to cover fixed and other operational costs..
On March 6, 2020, the President signed the Coronavirus Preparedness and Response Supplemental Appropriations Act (the “Act”). Out of the $6.7 billion designed for to respond to the coronavirus outbreak domestically, $20 million was allocated to the U.S. Small Business Administration (SBA) disaster loans program to support loan subsidies for businesses impacted from the coronavirus outbreak. Shortly after signing the Act, President Trump called for Congress to authorize an additional $50 billion in SBA loans to help small businesses overcome temporary economic setbacks.
Many small businesses first open their doors after obtaining a SBA loan. These loans, especially Series 7(a) loans, require a personal guarantee and for the guarantor to grant a lien against his or her residence to secure repayment of the loan. Although the loan is made to the business, the guarantee and lien requirement changes the debt from being solely owed by a business to one that could be personally owed by the owner. This greatly affects the owner’s personal assets if the SBA or the partnering lender seeks to collect the loan when the business defaults. With the drastic downturn in the economic and lack of revenue for small businesses, owners must find alternative options to obtain financing to save their business from bankruptcy and, in turn, their house from foreclosure.
The Act allows the SBA to issue an Economic Injury Disaster Loan declaration when requested by a state’s governor. On March 13, 2020, Governor Newson’s Office of Emergency Services made a request to the SBA, which was promptly granted. Both Placer and Nevada County are part of California’s COVID-19 Declaration #16332. This gives the green light for our local businesses to obtain SBA “disaster loans.”
The loans offer up to $2 million in assistance and may be used to pay fixed debts, payroll, accounts payable, and other bills left unpaid because of COVID-19 issues. Interest rates can be as low as 3.75% (and 2.75% for nonprofits) and repayment terms may be as much as 30 years. After a small business applies for a loan, the SBA intends on negotiating with small companies on a case-by-case and county-by-county basis. If you want to apply for a loan, you should read more information and decide whether to apply here. The deadline to apply is December 16, 2020.
Business owners experiencing operational issues should immediately analyze creative short-term solutions to address a lack of cash flow. It is never a bad time to start thinking about an infusion of capital and options to restructure certain debt obligations, along with understanding rights and remedies provided by the Bankruptcy Code or through out-of-court workouts. It is also worth attending one of the great programs presented by the Sierra Business Council. No one knows what the ultimate economic impact of COVID-19 will be, but keeping the ship afloat is the first step to successfully navigate through a recession.
Porter Simon PC has offices in Truckee and Tahoe City, California, and Reno, Nevada. Author Ethan Birnberg is licensed in California, Nevada, Wyoming, and Colorado. Ethan has extensive insolvency experience assisting entities seeking to restructure under chapter 11 of the U.S. Bankruptcy Code, borrowers and lenders seeking out-of-court workouts, and advising directors, officers, and executive management regarding labor and employment matters, fiduciary duties, and corporate governance issues. He has also represented chapter 7 trustees, secured and unsecured creditors, and creditor committees. He holds dual bankruptcy certifications, as a business bankruptcy and consumer bankruptcy specialist, from the American Board of Certification.