Legal hemp businesses suffering from the economic devastation caused by coronavirus are eligible for emergency aid programs included in the $2.2 trillion federal economic stimulus package – and can start applying for that monetary relief immediately.
While medical and recreational marijuana companies will not be able to benefit from the coronavirus stimulus package because marijuana remains federally illegal (even though many states have legalized cannabis for medical or recreational purposes), hemp companies should encounter no such obstacles in seeking relief.
Kelley Drye has covered the federal relief package in detail here, but this overview further highlights the funding mechanisms that would make the most sense for hemp companies to pursue during this unprecedented time:
- The CARES Act: Paycheck Protection Program
Enacted on March 27, the CARES Act provides $2 trillion in stimulus money, including $349 billion in expedited small business loans. The CARES Act offers these low-interest loans to small businesses to cover payroll expenses, health care benefits, employee salaries, rent, utilities and interest on mortgage debt.
To qualify as a “small business” and be eligible for the “Paycheck Protection Program” loans, the business must employ 500 employees or less. We would expect the majority of hemp businesses to fall into this category.
Small businesses are eligible to receive either the lesser amount of (1) 2.5 times of the company’s average total monthly payroll costs for the prior year; or (2) $10 million.
Loans are issued by banks and credit unions, with the loan applicant instructed to contact their bank or credit union directly to begin the application process. Lenders may begin processing applications on April 3.
- SBA Economic Injury Disaster Loan Program
The Economic Injury Disaster Loan Program (EIDL) provides up to $2 million in assistance for small businesses suffering from substantial economic harm due to the effects of COVID-19.
The low-interest loans (capped at 3.75%) offer working capital to small businesses, with businesses permitted to request an immediate advance of $10,000 in funds to be paid three days after the application.
The loans can be utilized to pay fixed debts, payroll, accounts payable and other bills. The U.S. Small Business Administration will evaluate each applicant and make determinations on loan terms, based on the alleged economic harm suffered and the applicant’s ability to repay its obligations. Small businesses can apply now for EIDL loans at https://covid19relief.sba.gov/#/.
- SBA Express Bridge Loan Program
Another option administered by the SBA is the SBA Express Disaster Bridge Loan, which serves as a possibility for small businesses with urgent cash needs.
Under this program, small businesses that have an existing relationship with an SBA Express Lender can qualify for an immediate $25,000 with minimal paperwork while the business waits for more comprehensive funding under the SBA Economic Injury Disaster Loan mechanism. The Bridge Loan can then be repaid in full or in part by proceeds from the EIDL.
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We recommend that impacted hemp businesses continue to follow Kelley Drye’s COVID-19 Resource Center for updated information on issues pertaining to small businesses. Kelley Drye also can assist any small business seeking to apply for any of the above-mentioned loans.