Options Available for Businesses Facing Financial Distress Due to COVID-19

Bowles Rice Labor and Employment e-Alert
Options Available for Businesses
Facing Financial Distress Due to COVID-19

In the midst of the COVID-19 pandemic, businesses that were once financially sound may now be facing a crisis because many companies cannot continue to operate while curbing the spread of the virus. Through no fault of their own, business owners must now make decisions about which creditors to pay, which employees to retain or lay off and whether the business can once again be viable once after reopening for business.

Bowles Rice LLP has experience working with distressed businesses and can help craft a plan of action that will allow your business to stabilize until normal operations can begin again. Additionally, to assist with developing a plan of action, we are constantly monitoring new programs being offered by the federal and state governments to businesses to help with the difficulties they are facing. Many of these programs will provide assistance to businesses while providing forgiveness options and low interest rates so that, as operations resume, businesses will not suffer from large debt service payments.

A major development in assisting businesses and their employees, the Coronavirus Aid, Relief and Economic Security (CARES) Act passed the US Senate on March 25 and is pending before the US House of Representatives. The CARES Act provides a $2 Trillion stimulus package to address the effects of the COVID-19 pandemic in the United States. The CARES Act includes several provisions intended to support businesses and their employees during the disruption, including:

  1. An extension of unemployment benefits to employees, including a 4-month enhancement for furloughed workers during which the federal government will match full salary, along with eligibility for some independent contractors/self-employed persons to file an unemployment claim;

  2. Paid sick leave for some employees at no cost to the business owner;

  3. $425 Billion for Federal Reserve-backed loans for a broad group of distressed companies;

  4. $350 Billion to establish a small business lending program; and

  5. $75 Billion for certain industries.

Once passed, each of these programs will come with certain conditions designed to encourage companies to keep employees on the payroll even if a business cannot support salaries in the near term. This will also allow businesses to retain their employees, so businesses can begin immediate operations when it is safe to do so.

Under the CARES Act, loans are available for small businesses through the Small Business Administration (SBA), which have particular benefits for businesses that need assistance in covering basic expenses such as rent and that will continue to pay their employees during the business closure. The benefit to this new loan program is that the portion used to pay employees, along with a few other expense categories, can be forgiven if the business submits documentation demonstrating the continued employment of its employees once the crisis is resolved. This may allow your business to cover expenses with little to no long-term repayment obligation for a portion of loan. Additionally, other types of loans through the SBA and state governments are being made available and can provide additional capital to keep your business viable during the pandemic.

More traditional options to preserve and restructure your business, including debt restructuring and bankruptcy, if necessary, can be utilized to recover from the temporary disruption and prevent a failure of an otherwise viable and healthy business.

For More Information

If you are unable to operate your business or anticipate a closure or decrease of business in the future due to the COVID-19 pandemic, please contact a Bowles Rice attorney to discuss options to position your company for a successful rebound once our country is able to address the pandemic and keep us safe. We can provide guidance on which options will work best for your business and guide you through the conditions placed on the new business recovery programs offered by federal and state governments.

About the Authors

To learn more about the authors of this e-alert, simply click on the names below to view their full profiles on the firm's website.

Sharon Menchyk
(724) 514-8924
Admitted in PA

Julia Chincheck
(304) 347-1713
Admitted in WV

Michael Proctor
(724) 514-8934
Admitted in OH, PA & WV

Zachary Rosencrance
(304) 347-1161
Admitted in WV

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