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CARES Act Funds Can Be Used for Small Business Grants


June 24, 2020 by Toni Nelson
Category: COVID-19

CARES Act Funds Can Be Used for Small Business Grants

Editor's note: For additional guidance on this topic, including eligibility-based versus reimbursement-based approaches as well as oversight of grant beneficiaries and subrecipients, see our follow-up blog post MRSC Guidance for CARES Act Grants to Small Businesses.


Throughout our state, local governments are looking for ways to help stimulate the economy in their communities and assist local businesses in recovering from the fiscal impacts of the COVID-19 pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) Act may be one of those opportunities.

Background

Under the CARES Act a “Small Business” grants program can be established by local governments to help mitigate the losses that small businesses have incurred as a direct result of the emergency public health declarations and stay-at-home orders.

The U.S. Treasury guidance on CARES Act funds allows for specific expenses, one of which is:

Expenses associated with the provision of economic support in connection with the COVID-19 public health emergency, such as:

  • Expenditures related to the provision of grants to small businesses to reimburse the costs of business interruption caused by required closures.

Local governments have been actively seeking assistance in interpreting the U.S. Treasury’s guidance so that they can both develop small business grant programs and ensure that these programs meet CARES Act program requirements.

The Washington State Department of Commerce (Commerce) has been tasked with overseeing the distribution of Coronavirus Relief Funds (CRF) to local governments. Their Coronavirus Relief Fund webpage offers CRF information, links to the U.S. Treasury guidance on the CARES Act, and FAQ information. Additionally, they have created a DOC-FAQ from numerous CRF-related questions raised by cities, towns, and counties throughout the state. Here is an FAQ on small business grants:

If a jurisdiction has not incurred expenses up to the full amount allocated to them, can they set up a small business loan/grant program now to get this money out to small businesses in their community?

Jurisdictions are charged with determining whether or not an expense is eligible based on the US Treasury’s Guidance and as provided in the jurisdiction’s contract scope of work with Commerce. To assist with this determination, Commerce has developed an eligibility cost test (test). This test gives each jurisdiction full authority to make the appropriate call for each circumstance. Expenditures related to the provision of grants to small businesses to reimburse the costs of business interruption caused by required closures are eligible. Ensure the funds are specifically for COVID related impacts and needed to prevent significant damage to the local economy.

Commerce’s eligibility cost test was created to assist local government with analyzing the U.S. Treasury’s guidance. The intent of the CARES Act / Coronavirus Relief Funds is to help jurisdictions cover the immediate impacts of the COVID-19 emergency, and Commerce has stated that while both direct costs to the jurisdiction and to their communities are eligible, these costs must still fall within the scope of what is allowed. Just like the analysis that you complete to determine whether your jurisdiction has eligible costs to submit, you will have to develop a similar analysis to determine if your proposed small business grant program falls within the U.S. Treasury’s guidelines. 

The DOC-FAQ also addresses private business grants:

Are business assistance programs for private businesses eligible?

Expenditures related to the provision of grants to small businesses to reimburse the costs of business interruption caused by required closures are eligible. Ensure the funds are specifically for COVID related impacts and needed to prevent significant damage to the local economy.

The U.S. Treasury guidance also includes an FAQ addressing when CRF may be used:

Must a stay-at-home order or other public health mandate be in effect... for a government to provide assistance to small businesses using (CRF) payments?

No. The Guidance provides, as an example of an eligible use of payments from the Fund, expenditures related to the provision of grants to small businesses to reimburse the costs of business interruption caused by required closures. Such assistance may be provided using amounts received from the Fund in the absence of a requirement to close businesses if the relevant government determines that such expenditures are necessary in response to the public health emergency.

In the U.S. Treasury FAQ, the important consideration is that “expenditures are necessary in response to the public health emergency.”

Examples of Eligible Small Business Program Costs

What are some examples of eligible costs that could be covered by a small business grant program? The following are all potentially reimbursable costs:

  • Rents and utility costs during the period a business is closed to follow any stay-at-home order. While rent and utilities are normally ongoing costs, business operations were interrupted by the required closure.
  • Costs incurred during a reopening process, including the additional business interruption that happens when a small business must limit their accessibility to the public, and for displaying and/or communicating state-based requirements for public access.
  • Operating costs for the purchase of items meant to protect the public and employees, such as protective masks and hand sanitizer, and other costs incurred by installing required safety measures in order to reopen a business.

Additionally, U.S. Treasury guidance allows local government to be reimbursed for the costs associated with the administration and oversight of a small business grant program.

When developing your grant program, it will be important to provide the applicants with appropriate guidance on the types of costs that may be eligible as well as those costs that are not. For example, small business may not be reimbursed by multiple federal funds for the same cost (double-dipping), and this principle also applies to any recipients of CARES funding: No duplicate payments or supplanting of other costs is allowed.

Some municipalities are partnering with Economic Development Organizations (EDOs) that have close relationships with the local businesses and may be better situated to ensure that the funds are used properly. You can partner with EDO’s, community action agencies, and others that have systems and relationships in place with the business community. Should your entity elect to contract out the oversight and distribution of small business grants, it will be important to have appropriate contract language in place to assure compliance.

As the recipient of the CARES Act grant funds, local governments will ultimately be held responsible for the appropriate distribution of funds and should institute proper internal controls to assure that the monies are being used as intended. Federal single audit standards should be used when structuring your programs to assure that uniform guidance standards are being meet.  

Do reimbursable grant rules apply to small business grant programs implemented by local government?

Commerce announced on June 17, 2020, that “grants to small businesses do not have to be on a reimbursement basis.”  The announcement went on to explain that the grants must be structured in a way to meet the eligible fund uses, such as grants to non-essential business impacted by the stay-at-home order. Grants to small business could be provided as “cash grants,” based on eligibility in response to the COVID-19 emergency. The full grant amount would be considered an incurred expense to a local government when the grant is awarded, which will help expediate the distribution of the small business grant. Additionally, Commerce advised that a business does not need to submit receipts in order to access grant funds and the local government does not need to request reimbursement from Commerce for the grant award. However, this does not absolve a local government from having appropriate documentation in place to ensure that the grant requirements have been meet.

Commerce has been very responsive to questions from local governments regarding eligible CRF costs. If you have questions about your small business grant program, we recommend reaching out to Tony Hanson, Deputy Assistant Director, Local Government Division via email (tony.hanson@commerce.wa.gov) or phone (360-725-3005).

Conclusion

For more information, take a look at our Coronavirus (COVID-19) Small Business and Tenant Assistance Programs webpage, which features several examples of business assistance programs from cities and counties throughout the state.  We update all of our COVID-19-related webpages on a regular basis to assure that Washington local governments have the latest information.

Local governments and our small business communities are still being severely impacted by COVID-19. While the CARES Act cannot replace revenue loss due to the pandemic it can reimburse for COVID-related impacts. Establishing a small business grant program to assist with these impacts will help both small businesses and local government recover from this unprecedented public health emergency.


MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.

About Toni Nelson

Toni Nelson joined MRSC in 2014 as the finance consultant. She has worked in local government finance since 1990 and was previously the “Small Cities Specialist” with the State Auditor’s Office (SAO), Clerk Treasurer for the Town of Twisp, as well as an independent financial consultant working with small local government across the state. Toni's area of expertise is "Cash Basis" accounting and reporting, budgeting, and the financial responsibilities and challenges of smaller local government.

Toni is a board member of the Washington Finance Officers Association (WFOA) and longtime member of the WFOA Education committee. While with SAO, Toni wrote the Small Cities handbook and she annually prepares the MRSC - Budget Suggestions publication. Most recently Toni co-authored the comprehensive update of the Revenue Guides for WA Cities, Towns and Counties, in 2019.

Toni conducts workshops on local government financial reporting, budgeting, and the essential duties of finance staff in smaller jurisdictions, with an emphasis on cash basis accounting and the challenges of small local government.

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