Virginia companies (including independent non-profits) have access to a number of emergency financial support programs. This brief resource guide is targeted primarily to the needs of Virginia’s high-growth startup community, but should be helpful to Virginia companies in general. It provides brief descriptions of each financial support program, and includes links to find out more.
Note that we are coordinating our efforts with Governor Northam’s office, and we encourage you to also monitor the governor’s COVID-19 resource page.
On Wednesday, April 8, CIT's CEO Ed Albrigo hosted a webinar focused on providing an update on the status of the COVID-19-specific federal financial support programs. Panelists were Timm Johnson (Director, Mason SBDC), Stephen Ramaley (Principal, Miles & Stockbridge) and Bruce Whitehurst (CEO of the Virginia Bankers Association). We recorded this webinar, and it can be viewed here.
We continue to plan and host webinars relevant to entrepreneurs and startups navigating coronavirus-related disruption. Please visit our events calendar for more details.
1. Paycheck Protection Program
Update on April 27, 2020: With the passage of the CARES Act II legislation on Friday April 24, an additional $250 billion has been appropriated to the PPP (this is in addition to the previously appropriated $349 billion, which was already fully disbursed). Effective today, the SBA is accepting new PPP applications through its network of approved lenders. If you are interested in leveraging this program and have not yet applied, contact your bank immediately. We expect this additional funding will go quickly.
Initially signed into law on March 27, 2020, the CARES Act allocated $349 billion to support US small businesses and other organizations. With the CARES Act II legislation signed into law on April 24, 2020, an additional $250 billion was made available. Called the “Paycheck Protection Program” (PPP), this facility is being administered by the US Small Business Administration (SBA). PPP rollout began on Friday, April 3, and applications are now being received and processed by many SBA-approved lenders. Here are the main features and rules for PPP:
PPP loan amounts are limited to 2.5x average monthly payroll expenses (based on payroll in 2019 or over past 12 months) or $10 million, whichever is less. For new businesses, average monthly payroll may be calculated using the time period from January 1, 2020 to February 29, 2020. Only the first $100,000 of an employee’s annualized salary can be used, but other non-salary items for those employees (like company-provided healthcare expenses or retirement benefits) can be included for computing payroll expenses. Payroll expenses can only include employees who reside in the United States. 1099 contractors cannot be included in payroll expenses; contractors are eligible to apply on their own for PPP funding.
PPP loans have a 100% federal guarantee, meaning that participating banks do not shoulder any default risk.
Small businesses (i.e. corporations, sole proprietorships, partnerships and LLCs) with not more than 500 employees are eligible for PPP loans. Other types of entities are also eligible, such as 501(c)(3) nonprofits, a 501(c)(19) veteran’s organizations, or Tribal business concerns described in section 31(b)(2)(C) of the Small Business Act with not more than 500 employees.
PPP loans carry a 1.0% interest rate and will have a 2-year maturity. Repayment is deferred for 6 months, and there are no prepayment penalties.
PPP loans must be received on or before June 30, 2020.
Acceptable uses of PPP loans are limited to salaries/wages, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments.
Waives borrower and lender fees, as well as collateral and personal guarantee requirements.
Expedites the delivery of loan proceeds by delegating authority to determine borrower eligibility and creditworthiness to SBA-approved lenders, bypassing the customary SBA review process.
Traditional repayment ability determinations shall not be considered. Instead, lenders will simply verify that a business was operational on February 15, 2020 and had employees.
Requires borrowers to certify that the loan is necessary due to uncertain economic conditions caused by COVID-19, the loan will be used to retain workers and continue to make lease and utility payments, and they are not using loan proceeds from another SBA program for the same purposes. With the passage of CARES Act II, the SBA has clarified the "economic necessity" certification component of the PPP.
Requires SBA to pay lenders a loan processing and service fee of 5 percent of loans up to $350,000; 3 percent of loans of $350,000 to $2,000,000; and 1 percent for loans of $2,000,000 or more.
Borrower is eligible for loan forgiveness equal to the amount spent during the eight-week period following loan origination for payroll costs, interest payments on preexisting mortgages, rent on preexisting leases, and the costs of preexisting utilities. Payroll costs must represent at least 75% of the forgiveness amount.
Forgiveness amounts will be reduced proportionally by any reduction in the number of employees compared to the prior year and/or the reduction in pay of any employee beyond 25 percent of their prior year compensation.
Borrowers that rehire workers previously laid off due to the COVID-19 crisis will not be penalized for having a reduced payroll at the beginning of the period.
Upon a lender’s report of expected loan forgiveness, SBA will purchase the amount of the loan(s) from the lender.
Forgiven loan amounts will not be included in the borrower’s taxable income.
Loan amounts not forgiven will continue with a 2-year term and an interest rate of 1.0 percent. The 100 percent federal loan guarantee remains for the life of the loan.
If you are interested in applying for PPP funding, we recommend that you take the immediate action to reach out to your bank. With the suspension of new applications for PPP loans, ask them to explain the steps you need to follow.
If you have already applied for a PPP loan through your bank, ask your bank to confirm that your application was "in the system" before the SBA's cut-off (ask for an SBA application confirmation number).
If your company has received equity investment from outside investors (e.g. angels, CIT GAP Fund, VCs), we strongly recommend that you consult with your legal counsel to review and consider the SBA's Affiliation Rules. Minority investors with certain rights (e.g. ability to prevent a board quorum, or to veto day-to-day operational actions) can trigger affiliation, at which point the employee count must include employees of all affiliated entities. Companies that are tightly-held by the founder(s) normally will not be impacted by the Affiliation Rules. If you are unable to get advice on this subject from your legal counsel, Stephen Ramaley at the law firm of Miles & Stockbridge has kindly offered quick "off-the-clock" consultations - he is a foremost expert on SBA programs and the Affiliation Rules.
We would like to acknowledge and thank the CARES Act experts at the law firms ofMiles & Stockbridge, Cooley and Crowell Moring - they have been invaluable to us as we’ve pulled together this resource.
Update on April 27, 2020: With the passage of the CARES Act II legislation on Friday April 24, an additional $60 billion has been appropriated to the EIDL program. Note, however, that the SBA expects 100% of this new appropriation to go towards EIDL applications that have already been submitted, and the SBA is therefore not accepting new EIDL applications. If you previously submitted an application, received correspondence from the SBA, and have a loan number that begins with a "3", then you are in the queue and the SBA is processing applications on a first-come first-served basis.
Also administered by the US Small Business Administration (SBA), EIDL is an existing federal program that has been expanded to support for-profit businesses impacted by COVID-19. 30-year 3.75% interest loans of up to $2 million are available to a large percentage of small businesses (under 500 employees). Note, however, the SBA determines the loan amount and duration based on a company’s application, and collateral/personal guarantees are required for loans greater than $25,000. With the passing of the CARES Act, applicants for EIDL loans also have the option of requesting a $10,000 advance on the EIDL loan, and the advance will not need to be repaid.
The Virginia SBDC team generally recommends applying for an EIDL loan in addition to applying for the PPP. Monies received from these two programs cannot be used for the same purpose, but companies can benefit from both programs.
3. Express Bridge Loan Pilot Program
Also administered by the SBA, this program allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 with less paperwork. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be a term loans or used to bridge the gap while applying for a direct EIDL loan.
If a small business has an urgent need for cash while waiting for decision and disbursement on an EIDL loan, they may qualify for an SBA Express Disaster Bridge Loan.
The US government is the largest funder of scientific research, and several of these funding programs are pivoting to support COVID-19-related research and development. The Biomedical Advanced Research and Development Authority (BARDA), part of the HHS Office of the Assistant Secretary for Preparedness and Response, has taken the lead in funding research and development efforts that will quickly bring COVID-19-related solutions to market, but there are other federal R&D funding programs that may be more suitable to your organization.
Robert Brooke (email@example.com) is CIT’s expert on federally-funded research commercialization programs, and he is available to assist with navigating to suitable R&D grant program options.
1. Rapid Response COVID-19 Business Support Grant Program
Administered by Virginia Career Works (https://virginiacareerworks.com/), this program provides grants to employers, but use of grant funds is restricted (e.g. no payroll support).
Virginia is divided into regions supported by local workforce boards, and each local workforce board is administering the Rapid Response grant program in their region, including decisions on the number and size of individual grants.
The Virginia Small Business Financing Authority (VSBFA) is the Commonwealth of Virginia’s business and economic development financing arm. Aligned within Virginia’s Department of Small Business and Supplier Diversity, the VSBFA offers programs to provide businesses, not-for-profits, and economic development authorities with the financing needed for economic growth and expansion throughout the Commonwealth. VSBFA offers loans directly to businesses & non-profits, credit enhancements to banks that are lending to businesses & non-profits, as well as bond financings to benefit for-profit businesses, 501 (c) (3) not-for-profit entities, and to support clean energy and P3 transportation projects. VSBFA also helps small businesses seeking to attract equity investments by providing an equity incentive grant program.
Facebook has announced a $100 million dollar program consisting of cash grants and advertising credits for up to 30,000 eligible small businesses in over 30 countries where they operate. They promise to share more details as they become available: https://www.facebook.com/business/boost/grants
2. Virginia 30 Day Fund
Pete Snyder and his wife, Burson, have donated $100,000 in “seed money” to create the nonprofit Virginia 30 Day Fund, which is intended to help businesses meet payroll, preserve health-care coverage for workers and avoid layoffs while awaiting the federal aid expected to arrive in about a month. The fund will provide up to $3,000 to each approved small business. Recipients do not have to repay the money, but if they eventually are in a position to do so, it will be directed to another qualified business. To apply to Snyder’s fund, a business must fill out a one-page form at va30dayfund.com and submit a video no more than three minutes long about the enterprise and its employees. Applications will be evaluated by volunteers with MBAs from the Darden School of Business at the University of Virginia, as well as others. Businesses will get an answer in three days, and those approved can expect an immediate transfer of funds. Qualifying businesses must be based in Virginia, have operated for at least a year, employ three to 30 people and be owned and operated by a Virginia resident.
We hope you have found this brief resource guide to be useful.
If you are affiliated with a company in the GAP Funds portfolio, please reach out to your designated GAP investment director for more information. If you have any questions or would like to recommend additions or changes to this resource guide, please reach out to Sean Mallon at firstname.lastname@example.org.
Note that nothing in this resource guide should be deemed legal advice.