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The state intends to create two funds totaling $20 million to support grants and low-interest loans to small businesses that had to close or have been disrupted by the coronavirus and COVID-19 pandemic.
The Michigan Small Business Relief Fund will “assist those businesses facing drastic reductions in cash flow and the continued support of their workforce,” according to a memo from Michigan Economic Development Corp. staff to the Michigan Strategic Fund board.
“Through this program, in combination with other programs and services, the state will ensure economic support is available to Michigan’s small businesses to overcome anticipated loss of revenue as a result of the COVID-19 virus through both grant and loan opportunities,” according to the memo.
The Strategic Fund Board approved formation of the relief funds this morning in a meeting held via conference call.
The MEDC intends to begin deploying the capital by April 1, said Josh Hundt, chief business development officer.
The pandemic has caused “significant economic impacts” for small businesses and an “urgent need” for a relief fund, Hundt said.
“It’s an opportunity to support our small businesses in the state,” Hundt told MiBiz this morning. “This also fits in very closely to our strategic plan of building a resilient economy, and supporting companies at this time of need is a way to build that resiliency into the economy and help the workforce and those most affected by the current COVID-19 emergency.”
In response to the pandemic, Gov. Gretchen Whitmer on Monday issued an executive order requiring restaurants and bars to close for dining. Other businesses — theaters, coffee houses, performance venues, casinos — also closed under the executive order that’s in effect until 11:59 p.m. on March 30.
The MEDC estimates that 117,000 small businesses in the food service, gym and recreational services, retail and related personal services industries have been directly affected by the executive order. Those businesses collectively employ more than 593,000 people.
At least 1,100 businesses can benefit through a grant or loan from the relief fund, according to the MEDC memo.
In one $10 million fund, companies with 50 employees or less could qualify for a grant of up to $10,000 provided through one or more economic development organizations across the state if the business is in an industry affected by the governor’s executive order, “or demonstrates it is otherwise affected by the COVID-19 outbreak” by:
- Providing support to affected employees.
- Being located in a downtown district or high impact corridor.
- Providing services to companies outlined in the executive order and requiring additional employees to support affected companies or employees.
The grants are for companies that need working capital to support payroll, rent, mortgage payments, utility expenses, “or other similar expenses that occur in the ordinary course of business.” A company also would have to demonstrate income loss resulting from the executive order.
The MEDC is also creating a loan fund of up to $10 million. Loans of $10,000 to $200,000 to eligible borrowers to use for working capital would come from one or more certified development financial institutions in the state, nonprofit institutions licensed by the U.S. Small Business Administration or directly from the Michigan Strategic Fund.
The MEDC will finalize organizations it will work with on the loan fund “in the coming days,” Hundt said.
“We are looking at multiple options with an effort and a focus on ensuring that we are supporting companies in every region of the state,” he said.
Businesses with 100 or less employees could draw on the loans for 24 months at an annual interest rate of 0.25 percent. Borrowers can make interest-only payments for five years with any amount over the interest going to the loan’s principal.
Principal payments with interest would have to begin in the 61st month and the loan paid off within 10 years.
Loans would go to “certain small businesses that have realized a significant financial hardship as a result of the COVID-19 pandemic,” according to the MEDC memo.
Borrowers would have to demonstrate an income loss from the executive order or that the company “is otherwise affected by the COVID-19 outbreak, or is a company that provides goods and services to companies,” and that they are “unable to access credit through alternative sources.”
The Michigan Small Business Relief Fund is designed to complement other capital funds and programs the MEDC already provides, as well as other assistance such as emergency loans from the U.S. Small Business Administration, Hundt said.
One Strategic Fund Board member, Cindy Warner, a technology consultant with 360ofme Inc. in Traverse City, urged MEDC “re-think” requirements for the loans that could draw out the approval process and delay funding for small business owners.
“These people are going to need this money like yesterday,” Warner said.
Funding for the relief fund comes from diverting money budgeted for the MEDC’s business development and attraction and other sources, Hundt said.