Credit: Photo courtesy of Jericho via Wikimedia Commons
The COVID-19 economic shutdown has hit the U.S. economy with a hard punch to the gut. Markets have fallen by one third in value and “stay at home” orders have shuttered businesses. Small businesses lacking the capital staying power to weather the economic storm have been hit particularly hard.
The federal government responded by creating a COVID-19 relief program for small businesses. On Friday, March 27, President Donald J. Trump signed the CARES Act into law. It contains $375 billion in relief for American workers and small businesses. This law establishes several temporary programs through the U.S. Small Business Administration (SBA).
A list of the programs can be found on the SBA’s Coronavirus Relief Options page. Included are a Paycheck Protection Program, an EIDL Loan Advance Program for businesses experiencing difficulty, SBA Business Express Bridge Loans for current participants in the SBA’s Express Program, and an SBA Debt Relief program that automatically makes principal and interest payments for current and new SBA 7(a), 504 and microloans allowing a business to defer these costs for six-months.
The most important of these is the Paycheck Protection Program (PPP) that creates loan forgiveness for retaining employees. Under this program, the SBA will forgive loans if the money is used to keep all employees on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest and utilities. These loans have a two-year maturity and a 1% interest rate. At least 75% of the forgiven amount must be used for payroll. Loans are available as of April 3, 2020 and will be issued until June 3, 2020. This program is available to any small business the meets the SBA’s size standards. It is also available to sole proprietors, independent contractors and self-employed persons. Small businesses can apply through any existing SBA 7(a) lender or any federally insured depository institution, federally insured credit union and Farm Credit System institution approved by the SBA.
Nevertheless, there’s the potential problem for the firearms industry. Looking into the requirements of SBA lending institutions, many require that the small business have a business checking account and, in some cases, a business credit card relationship with the bank to access their SBA lending facility. Some of these institutions, despite the firearms industry being declared essential by the government, have internal corporate policies in place that exclude firearms businesses from establishing or continuing business account relationships with the bank.
There is a Find a Lender link that lets you enter your zip code into it and locate SBA lender institutions in your area. When I plugged in my zip code, a number of banks that have been unfriendly to gun owners, such JPMorgan Chase, Bank of America and CitiBank, came up. As we have noted at A1F.com before, these institutions have known restrictions on doing commercial business with the firearms Industry.
This radically restricts the ability of a firearms business entity to access this vital government relief programs. It begs the question: If the government’s objective is to cushion the impact of an economic slowdown of the country, it’s clear that these corporate “lifestyle” policies run counterproductive to the intent of the CARES Act.
The question is, will the SBA and the bank regulators step up to the task to instruct these lenders to relax their corporate gun-control agendas to allow unfettered access by firearms industry businesses to CARES Act subsidies?
It’s not the easiest thing for a business to establish commercial bank accounts, even in the best of times. Typically, there is documentation required that the business is legally established and licensed, and that the company is a going concern. Copies of letters of incorporation or documentation of limited liability company (LLC) status along with signatures of officers or partners are needed as part of strict Know Your Customer (KYC) regulatory requirements. These things take time. Unfortunately, many small businesses desperately trying to find a way to save the livelihood of employees do not have an abundance of time.
This observation isn’t just for firearms companies. Any of the 27 million small businesses that comprise 45% of the nation’s non-farm gross domestic product (GDP) face the same daunting task of having to establish accounts with SBA-approved lenders. It is clearly in the interest of the federal government to do some red tape cutting and regulatory guidance surrounding access by businesses to the CARES Act.
Nobody said keeping the U.S. economy positioned to survive and recover from COVID-19 would be easy. But there’s no reason that it needs to be onerous. The intent of the CARES Act is to save the country across the entire economy. Removing barriers that might get in the way for essential industries is vital to this mission objective.