Businesses large and small are experiencing financial consequences of the COVID-19 pandemic itself and the attempts of state and federal governments to limit and control its spread. All of the traditional risk management and insurance coverage options are failing business owners as they navigate full and partial closures, accommodate social distancing, and try to keep their employees safe and their businesses in the black.
Our clients have been dismayed as we review Business Interruption Insurance policy’s with them, confirming that closures due to pandemic and virus protection are universally excluded. Business Interruption Insurance is an integral part of many risk management portfolios since it covers income lost due to an inability to do business. However, these policies require physical damage that causes the loss of income– forced closures due to the COVID-19 threat and government response don’t qualify.
Unfortunately, there is no insurance designed to provide “Pandemic Closure Coverage”. If your business has lost income due to government-mandated full or partial shutdown because your industry is classified as “non-essential,” the only financial relief available is provided by state and federal government relief programs.
Paycheck Protection Program
The US Small Business Administration Paycheck Protection Program was part of the Federal Government’s economic response to COVID-19 business shutdowns. Designed to incentivize keeping employees on the payroll through the partial shutdown, the entire loan can be forgiven if your business uses the funds correctly. Full terms for PPP loan eligibility and forgiveness are available at sba.gov. You can apply for funds with any SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, or Farm Credit System institution that is participating.
Economic Injury Disaster Loan
EIDLs provide economic relief to businesses that are currently experiencing a temporary loss of revenue. EIDL funds can be used to cover a wide array of working capital and operating expenses, such as healthcare benefits, rent, utilities, and fixed debt payments. These low-interest loans are not forgivable”, but offer an affordable option for managing expenses during a COVID-19 related loss of revenue.
For those small businesses that are up to date on their payment terms for a 504, SBA 7(a), or Microloan, or who apply and receive funding through one of these SBA programs before September 27, 2020, SBA will pay principal, interest, and any associated fees for six months. This is not forgiveness, and it is not a deferment. SBA will pay the processing lender, and the borrower will maintain their current repayment schedule. Borrowers who already have relationships with SBA Express lenders will also have priority access to up to $25,000 in funding through Bridge Loans to meet operational needs while longer-term funding like an EIDL is processing.