Government Business Loans and Grants – Beware of the “Fine Print” SmithAmundsen LLC
From the early days of the COVID-19 pandemic, the federal and state governments have provided assistance to businesses grappling with the economic impact of the pandemic. Specifically, federal, state and public aid in the form of grants and forgivable loans has proliferated to provide much-needed financial support to businesses negatively affected by the pandemic. For example, on August 11, 2021, Governor Pritzker and the Illinois Department of Commerce and Economic Opportunities (DCEO) announced the $ 250 million Back to Business (B2B) Grant Program, its second grant program. for businesses, which aims to deploy grants for the recovery of small businesses. for businesses hardest hit by the COVID-19 pandemic. This is just one of many grant and forgivable loan programs implemented by the government (state and federal) to help businesses that have been affected by the COVID-19 pandemic.
But, before jumping on that public money, businesses should be aware of the “fine print” found in government sponsored loan or grant programs. For example, some of the requirements for a company to accept a B2B grant are:
- A grant recipient may be required to participate in a program audit at a later date;
- A beneficiary must maintain the financial records required for tax and regulatory compliance;
- The proceeds of the subsidy are taxable; and
- A recipient must have complied and will continue to comply with all relevant laws, regulations, and orders of the state and federal governments, including social distancing guidelines as promulgated by orders of the Governor of Illinois.
The B2B grant application is not available at this time (applications will open on August 18, 2021) but Illinois’ previous grant program, the Business Interruption Grant (BIG) program provides a roadmap on what a business must “certify” to receive the grant. Some of the requirements for BIG were:
- Recipient will continue to comply, where applicable, with the provisions of the Contract Work Hours and Safety Standards Act (40 USC 327-333), the Copeland Act (40 USC 276c and 18 USC 874), the Davis-Bacon Act (40 USC 276a-276-1), the Drug-Free Workplace Act of 1988 (44 CFR, Part 17, Subpart F), the Fair Labor Standards Act (29 USC 201) and the Illinois Prevailing Wage Act (820 ILCS 130 / 1);
- The recipient is not currently suspended, excluded, offered for exclusion or declared ineligible by any state or federal department or agency, and will not contract with a contractor who is on a federal or state excluded list of contractors;
- The beneficiary will prohibit employees, contractors and sub-contractors from using their positions for purposes which constitute or present the appearance of a personal or organizational conflict of interest or of personal gain;
- The Recipient has no lawsuits, claims, lawsuits, proceedings or investigations in progress, to the knowledge of the Sub-Recipient and its authorized representative, threatened or affecting the Recipient (or its officers and directors) with respect to the Assets or the sub-recipient nor, to the knowledge of the recipient and its authorized representative, is there any basis for any of them, and there is no prosecution, prosecution or proceeding pending in which recipient is the requestor or the requestor that relates to the recipient or its assets;
- The beneficiary has no action, suit or proceeding in progress or, to the knowledge of the beneficiary or its authorized representative, threatened which calls into question the legality or ownership of the grant funds to be received;
- Recipient has not received any notice of any investigation or charges, complaints or actions brought by the State of Illinois or any government agency of the State of Illinois relating to the Company or its officers and directors; and
- Neither the recipient nor its officers and directors have received any notification that they are the subject of criminal investigations or charges.
The above is just a sample of some of the certifications Illinois requires for businesses to receive WHOLESALE funds. We expect the B2B Grants Program (and other programs offering business grants or forgivable loans) to have similar certifications and requirements for businesses receiving state grants or loans.
Another certification that has emerged – particularly in the CARES Act loan program for medium-sized businesses – is that of labor neutrality. One of the certifications requires companies to “remain neutral in any organizing effort during the term of the loan.” While the legality of this has not yet been challenged, and to date it can only be found in the CARES Act, companies should be vigilant for similar conditions in other assistance programs offered by the government. .
Of course, all of this is not intended to scare businesses away from the B2B subsidy program, or any other COVID-19 business assistance program implemented by the government. Rather, companies should be aware of the myriad of requirements they are expected to comply with in return for obtaining a loan or grant, and the “certifications” they establish as part of the agreement. acceptance of the loan or grant. Businesses and their legal advisors should always read the “fine print” before accepting any government assistance.