Navigating COVID-19: A Flight Plan for Small Business Owners

Maria Sklar is licensed to practice law in Florida and New York. She is an instrument-rated commercial pilot. Maria assists our members with various aviation-related matters, including aircraft transactions and corporate law issues.

Keep in mind that the business climate is evolving day-by-day. As a result, we urge you to stay afloat of any developments, as things are likely to change (quickly) over time. If you have any specific questions about a particular benefit or program, please reach out to one of our AOPA Legal Services Plan panel attorneys.

NOTE: AS OF 4/16/2020, THE FUNDS MADE AVAILABLE FOR THE PAYCHECK PROTECTION PROGRAM, AS WELL AS THE ECONOMIC INJURY DISASTER LOAN PROGRAM - BOTH DESCRIBED IN DETAIL BELOW - HAVE BEEN FULLY DISBURSED. THE TREASURY SECRETARY HAS ALREADY REQUESTED THAT CONGRESS APPROVE $250 BILLION DOLLARS IN ADDITIONAL RELIEF, WHICH IS UNDER REVIEW IN WASHINGTON, D.C.

 

LOANS

 

            There are two main loan programs currently available to the aviation small biz community, Economic Injury Disaster Loans and Paycheck Protection Program Loans.

1. Economic Injury Disaster (“EID”) Loan: Every small business in the US (as defined by the Small Business Administration or “SBA”) is eligible for an EID loan. This program is administered by the SBA and provides up to $2,000,000.00 in working capital loans (for each business). Generally, the interest rate is set at 3.75% for (up to) a 30-year term.
   
   

   At the time you apply for an EID loan, you can also request up to $10,000.00 as an emergency grant, which you don’t need to pay back, even if you are denied a loan. Repayments are automatically deferred for one year (and perhaps up to four years); meaning, the first payment is not due for at least a full year.

   You can easily apply for an EID loan through the SBA website.

   Helpful links:

   • EIDL Eligibility Checklist and Application
   • FAQ

    

2. Paycheck Protection Program (“PPP”) Loan. The CARES Act provides more than $375 billion in small business relief, including $349 billion in forgivable loans to incentivize small businesses to keep employees on payroll. These are called PPP loans.

Each loan amount is, generally speaking, 250% of your average eligible monthly payroll costs. The fine print has all sorts of caveats, which AOPA panel attorneys can walk you through. In particular, if you significantly reduce workers’ hours or, even yet, let them go, your loan may not be 100% forgivable. Finally, the loan proceeds can only be used for specific expenses, which primarily include payroll costs. Any part of the PPP loan that isn’t forgiven, will simply be converted into a standard term loan.

PPP loans aren’t administered or disbursed by the SBA, like EID loans. Instead, you’ll have to apply through an approved lender. I highly encourage you to approach your current bank first, as many aren’t, at this time, processing applications for non-clients.

Helpful links:

• FAQ
• Copy of Initial Application
• Issues concerning EIDL and PPPL

 

EIDL VS. PPPL

                                          Paycheck Protection Program                  Full EIDL Loan

PURPOSE	Forgivable if used for payroll (minimum of 75% of the funds received) and the remaining for certain operating expenses (amount of any EIDL advance is not forgivable)	To meet financial obligations and operating expenses that could have been met had the disaster not occurred (amount of any EIDL advance is forgiven)
TERMS	Up to $10 million 1% interest rate	Up to $2 million 3.75% for businesses 2.75% for non-profits
FORGIVABLE	YES	NO – EIDL Loan YES – EIDL Advance
MATURITY	2 years	30 years
FIRST PAYMENT DUE	Deferred 6 months	Deferred 1 year (automatic)

 

            We are often asked two pressing questions: (1) can you apply to both programs? and (2) when will you get the money?

            The general consensus on question #1 is “yes”, with an important caveat: you cannot double dip. In other words, you can’t use both program funds for the same expenses. Generally speaking, if you’ve received an EID loan and used it for payroll expenses, you can refinance your existing credit line into a PPP loan (and thereby make it forgivable!). If you’ve received an EID loan and used it for expenses other than payroll, you can still get a PPP loan. In both cases, the amount of the PPP loan that is forgiven will be reduced by the EID grant you have received.

           When you will get your money is a more elusive question. As of the time I’m writing this article, only 1.4% of businesses have received EID grants and just 4% of applicants have received PPP loans. For context, almost 7,000 small businesses have applied for about $2,800,000,000 across all 50 states. You can track the progress here (but please note this is crowd-sourced, and thereby unofficial, data).

 

STATE AND LOCAL ECONOMIC RELIEF

Each state and, in turn, some local governments, are also providing complementary relief. You can find more information about your particular state through the Governors website

REDUCING COSTS AND CUTTING EXPENSES

In addition to the programs above, we invite you to consider the following ad-hoc strategies:

1. Inheriting Benefits. If you are currently renting your office space, hangar, etc., and your landlord has a mortgage on the property, it’s likely that he or she has received a moratorium on those mortgage payments. This waiver will probably last for about three months, at which time a lump sum of skipped mortgage payments will be due. Consider asking your landlord to “inherit” this benefit. In other words, on a temporary basis, perhaps you too can forgo rent payments, at the conclusion of which a lump sum payment would be due. This may help alleviate temporary cash flow problems. Always check with your state real property laws or your neighborhood lawyer.

    

2. Force Majeure. Force majeure is a common contract provision that allows one to “get out” or reduce certain contractual duties, as a result of an unforeseeable event beyond the parties’ control (like COVID-19). For example, if you’re an aviation parts supplier and your distributor is afflicted with extended delays, you could perhaps take refuge in your contract’s force majeure clause. But please speak with a lawyer to understand the extent of your rights pursuant to this provision. It’s not a one-size-fits-all legal iron shield. (Sorry.) But it could help you address certain supply chain shortages and other issues.

    

3. Refinance Debt. Consumer credit is about to skyrocket - don’t let high APRs eat into your savings. If you’ve been carrying a balance on your company card, consider one of these 0% APR options that let you roll over a balance from another account. Similarly, now is the time to refinance any outstanding high-interest credit lines. If you’ve acquired or paid off assets recently, you can even consider using the collateral as leverage to negotiate better terms.

    

4. Lawyer Up. If you anticipate that you’ll default on any obligations, I strongly urge you to speak with an attorney. A counselor can help you address your rights and obligations, as well as negotiate on your behalf. Legal issues do not have to be a zero-sum game. A good attorney will help you find compromise, concessions, and solutions that will strengthen your long-term business relationships.

 

WHAT YOU CAN DO TODAY

Here are a few things you can get started on today- both to apply for government programs and to better prepare for the road ahead.

1. Get Your (Corporate) Affairs in Order. Corporate housekeeping has never been as urgent for small business owners. Banks will need to see your records and understand your structure, even if it’s a simple one. Make sure your corporate documentation is up to date (this includes your operational documents, share/interest documentation, shareholder/member loan notes, etc.). Ensure that any objective third party could understand your operations. If you’d been meaning to title any assets in your company’s name, now is the time, because you may need corporate property for collateral.

    

2. Taxes, Bookkeeping, and Other Records. Lenders will also need a clear picture about your finances, which includes: past corporate and personal tax returns, profit and loss statements, collateral summary, business plans, estimated tax liabilities, state returns, and the like.

I hope you’ve found this useful. There’s a saying where I’m from: “In the entire history of the world, every time it has rained, it has stopped.” The aviation industry, right now, is standing in a downpour of uncertainty, instability, and volatility but the storm will pass. The rain will stop. And one day we’ll remember the sacrifices we made for our employees, colleagues, and friends.

 

Safe skies.