Enacted by the New Mexico Legislature during the June 2020 Special Session and signed by Governor Michelle Lujan Grisham, this program provides financial assistance to businesses that are experiencing financial hardship due to the public health order resulting from the COVID-19 pandemic. 

The Small Business Recovery Act of 2020 is a loan program that provides low interest (interest only) loans of up to $75,000 for a minimum term of three years to qualifying New Mexico small businesses that closed or reduced operations as a result of the COVID-19 pandemic public health order.

To qualify for a loan, the business must have had less than $5 million in annual revenue for 2019 and suffered a revenue drop of over 30% in the months of April and May of 2020 over the same period of 2019. The loans need not be secured or personally guaranteed. The New Mexico Finance Authority, working with banks and other financial institutions, will administer the loan program. 

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Small Business Recovery Act Loans FAQs
 
1. What is the Small Business Recovery Act of 2020?  The Small Business Recovery Act of 2020 (“Small Business Recovery Act” or “Act”) is a loan program created by the state legislature in the 2020 Special session that provides low interest loans to qualifying small businesses throughout New Mexico hit hard by the business shut down resulting from the COVID-19 pandemic. 
 
2. Who will administer the Small Business Recovery Act loan program?  The New Mexico Finance Authority (“NMFA”), working with banks and other financial institutions, will administer the Small Business Recovery Act loan program. 
 
3. Does the Small Business Recovery Act apply to different forms of business?  Yes.  The Act applies to most forms of businesses that otherwise meet the requirements of the Act, including sole proprietorships, partnerships, limited liability companies, corporations and certain non-profit corporations. 
 
4. What are the requirements to be a qualifying small business eligible to apply for and obtain a loan under the Act?  The requirements differ depending whether the business is for profit or operated as a non-profit corporation.  For businesses that operate for profit, a qualifying small business is any business that meets the following requirements: 

• First, the business must have closed or reduced operations due to the public health order issued by the State’s Secretary of Health on March 23, 2020 (“Public Health Order”); 
• Second, the business must have had annual gross revenue of less than $5 million for 2019; 
• Third, the business’s gross receipts for the months of April and May of 2020 must have declined by at least thirty percent (30%) when compared to the business’s gross receipts for the same months for 2019; and 
• Fourth, the business must satisfy an ownership test (See FAQ No. 5) 

 For businesses that operate as a non-profit corporation, a qualifying small business is any business that meets the following requirements: 

• First, the business must have closed or reduced operations due to the Public Health Order; 
•  Second, the business must have had annual gross revenue of less than $5 million for 2019; and 
•  Third, the business’s gross receipts for the months of April and May of 2020 must have declined by at least thirty percent (30%) when compared to its average monthly gross receipts for 2019. 

 5. What is the ownership test for businesses that operate for profit?  For a sole proprietorship, one hundred percent of the assets of the business must be owned or leased by a New Mexico resident; and for a corporation, partnership, joint venture, limited liability company, limited partnership or other business entity, at least eighty percent (80%) of the total voting power of the entity and at least eighty percent of the total value of the equity of the entity is owned by one or more New Mexico residents. 
 
6. How do you determine whether the owners of a business entity are New Mexico residents under the Act?  Resident is defined by the Act to mean an individual who either is domiciled in New Mexico during any part of 2020 or is physically present in New Mexico for one hundred eighty-five days or more during 2020. 
 
7. What is a non-profit corporation for purposes of the Act?  A non-profit corporation for purposes of the Act is a corporation that qualifies as an exempt organization under either §501(c)(3) or §501(c)(6) of the Internal Revenue Code. 
 
8. Are any industries excluded from participation in the Small Business Recovery Act loan program?  No.  Any business that otherwise meets the requirements of the Act, regardless of industry, may apply for and obtain a small business recovery act loan, including, for example, retailers, restaurants, bars, daycares, schools, gyms, salons, barbershops, home repair services, medical practices, behavioral health clinics, financial services businesses, and breweries.  
 
9. My business obtained a paycheck protection program (“PPP”) loan from the federal government.  May it also obtain a Small Business Recovery Act loan under this program?  Yes.  The Small Business Recovery Act is a state program that is independent of the paycheck protection program (“PPP”) and a business that has obtained a PPP loan may still apply for and obtain a Small Business Recovery Act loan if it otherwise meets the requirement of the Act.  The PPP loan amount will, however, reduce the business’s annual business expenses for purposes of determining the amount of the loan. 
 
10. Is a business required to participate in the PPP (or any other federal) loan program to participate in the Small Business Recovery Act program?  No.  There is no requirement that a business participate in PPP or any other federal program in order to participate in the Small Business Recovery Act loan program. 
 
11. How is the amount of the Small Business Recovery Act loan determined?  The amount of the loan is determined by multiplying the business’s average adjusted monthly business expenses by 2. 
 
12. How are the business’s average adjusted monthly business expenses determined?  The business’s average adjusted monthly business expenses are determined using the following steps. 

• First, determine the business’s total annual expenses for 2019. 
• Second, subtract depreciation and section 179 expenses and the amount of any PPP loan obtained by the business from the business’s total annual expenses for 2019 to get adjusted annual expenses. 
• Third, divide the adjusted annual expenses by the number 12. 

13. How are a for profit business’s 2019 annual expenses determined?  The business’s annual expenses are determined from the business’s 2019 federal income tax return filed with the Internal Revenue Service and information regarding its PPP loan (if any) provided by the business.  For sole proprietorships the applicable form is the business’s 2019 from Schedule C; for Partnerships and Limited Liability Companies, the applicable form is the business’s 2019 form 1065; for C Corporations the applicable form is the business’s 2019 form 1120; and for S Corporations the applicable form is the business’s 2019 form 1120S. 
 
14. How are a non-profit corporation’s business’s 2019 annual expenses determined?  For non-profit corporations, expenses are determined from the business’s 2019 Form 990. 
 
15. What is the maximum amount the business can borrow under the program?  The maximum amount of the loan is the lesser of 200% of the business’s adjusted average monthly business expenses or $75,000. 
 
16. What is the interest rate on a Small Business Recovery Act loan?  The interest rate is one half of the Wall Street Journal Prime rate determined on the date of the loan.  The Wall Street Journal Prime rate at July 25, 2020 was 3.25%. 
 
17. Can a business borrow less than the maximum amount under the program?  Yes.  A business can borrow less than the maximum amount allowed under the program. 
 
18. I own all of the issued and outstanding capital stock of an “S” corporation that meets the requirements as a qualifying small business but operates three separate locations.  Can the business apply for three separate loans of $75,000 for each location?  No.  The maximum loan amount applies to the legal entity regardless of the number of locations the entity operates. 
 
19. What documentation will be required to apply for a Small Business Recovery Act loan?  The business will be required to complete a loan application and submit copies of the following documents to the NMFA: 
 
For a business entity other than a non-profit corporation: 
 (a) Federal tax returns for taxable year 2019; 
 (b) Evidence of any loan obtained pursuant to the federal Coronavirus Aid, Relief, and Economic Security Act; 
 (c) Copies of CRS Reports submitted to the Department for gross receipts collected in April 2019, May 2019, April 2020, and May 2020. 

For a business entity that is organized and operated as a Nonprofit Corporation: 
 (a) Monthly financial report, including income statement, for the taxable year(s) that include the months of April 2020 and May 2020 with a certification by the applicant that the information is accurate; and 
 (b) Monthly financial report, including income statement, for the tax year(s) that include the months of April 2019 and May 2019, including a certification by the applicant that the information is accurate and reported to the Internal Revenue Service; and 
 (c) Evidence of any loan obtained pursuant to the federal Coronavirus Aid, Relief, and Economic Security Act. 
 
20. Will any additional documentation or information be required in connection with the loan application?  Yes, the NMFA will require the following additional documents from an applicant submitting an application for a Small Business Recovery Act Loan: 
 (a) Proof of the applicant’s bank account information with a federally insured institution; 
 (b) Authorization to obtain a credit report of the applicant; 
 (c) Evidence that the applicant is, or eighty percent of its voting power and eighty percent of its equity is owned by New Mexico residents, as defined in the Recovery Act Legislation; 
 (d) Information pertaining to the applicants employees, including but not limited to the number of employees employed by the applicant on March 1, 2020, the number of employees on the date of the application, and the number of employees expected to be employed by the applicant on March 1, 2021 (for reporting purposes only); 
 (e) Whether the applicant is a minority, woman owned, or disadvantaged business (for reporting purposes only); 
 (f) The applicant’s NAICS industry (for reporting purposes only); 
 (g) Information reflecting pending or threatened litigation materially and adversely affecting applicant’s financial position; 
 (h) Any other information requested by the NMFA to evaluate the application or report on the impact of the Recovery Act Legislation. 
 
21. Will the loan require execution and delivery of loan documents?  Yes.  If approved for a loan, the business entity will sign and deliver a promissory note to and loan agreement to the NMFA documenting the terms of the loan. 
 
22. What terms will the promissory note and loan agreement contain?  The promissory note will include usual and customary note terms, including (among other provisions) the amount of the loan, the obligation to repay the loan, the interest rate, and the due dates for interest and principal payments.  The Loan Agreement will include (among other provisions) the terms of the loan, certifications required by the Act, default provisions, representations and warranties and other covenants related to the loan. 
 
23. What are the loan repayment terms for a Small Business Recovery Act loan?  The loan is interest only for the first two years of the loan, with accrued interest due and payable on the first and second anniversaries of the funding of the loan.  Additional interest and principal is due and payable on the third anniversary of the funding of the loan.  The business, however, may, with the consent of the NMFA, extend the loan term and make monthly payments over the three year period commencing on the maturity date (third anniversary of the funding of the loan). 
 
24. What factors must be met for the NMFA to consent to an extension of the term of a Small Business Recovery Act loan?  The regulations do not specify the conditions for extending the loan term at maturity other than to provide that consent to extend (convert) will not be unreasonably withheld. 
 
25. I own a business formed in February 2020.  Does it qualify for a Small Business Recovery Act loan?  No, to qualify for a loan under the Small Business Recovery Act, the business must have been in operation for at least one year prior to calendar year 2020. 
 
26. Must the business provide collateral to secure a Small Business Recovery Act loan?  No collateral is required for a Small Business Recovery Act loan. 
 
27. Must the owners of a business operated through a separate legal entity personally guarantee a Small Business Recovery Act loan?  No personal guarantees are required for a Small Business Recovery Act loan. 
 
28. What criteria will be used to evaluate an application for a Small Business Recovery Act Loan?  The NMFA will determine whether to approve an application for loans based on the following criteria: 
 (a) Whether the requirements of the Small Business Recovery Act legislation and its regulations have been met; 
 (b) Whether the applicant is a qualified small business (under the Act); and 
 (c) The creditworthiness of the applicant. 
 
28. How will credit worthiness be determined for purposes of obtaining a small business recovery act loan?  The regulations set forth a presumption for creditworthiness.  Under regulation section 4D, an applicant will be deemed to be creditworthy unless: 
 (a) The applicant is unable to certify that prior to the issuance of the Public Health Emergency Order it was current on obligations under the Income Tax Act, Corporate and Franchise Tax Act, Withholding Tax Act, Gross Receipts and Compensating Tax Act, Unemployment Compensation Law; 
 (b) The applicant is unable to certify that in calendar year 2019 no Creditor Charge-Off’s or Creditor Collection Efforts were taken by telecommunications, housing or utility creditors as may be verified by an independent credit report; and 
 (c) The applicant is unable to provide proof of a checking account held in its name at an federally insured financial institution. 
 
29. What is a Creditor charge off?  Creditor charge offs are unpaid amounts deemed uncollectible by creditors. 
 
30. What is a creditor collection effort?  A creditor collection effort means pursuit, collection through extraordinary means or exercising rights to collateral by a creditor for amounts more than 90-days past due. 
 
31. Are there any restrictions on the use of a Small Business Recovery Act loan?  Yes, the loan may only be used for the following purposes: 
 (a) Payment of ordinary and necessary business expenses incurred by the business; 
 (b) Certain capital expenditures for furniture, fixtures and equipment that are purchased to comply with the Public Health Order; and 
 
32. The PPP loan program required the business spend a certain amount of the loan on certain types of business expenses, such as payroll and rent.  Are there similar requirements under the Small Business Recovery Act?  The Act does not direct how the business must spend the loan funds as long as they are used for ordinary and necessary business expenses and qualifying capital expenditures.  The only exception is that at least eighty percent (80%) of the loan proceeds must be used for ordinary and necessary business expenses and qualifying capital expenditures other than compensation to employee-owners. 
 
33. Do ordinary and necessary business expenses include inventory purchases?  The statute and regulations do not explicitly address whether inventory purchases are qualifying ordinary and necessary business expenses.  Given the intent of the Small Business Recovery Act and the fact that there are no restrictions on the type of business that may qualify for a Recovery Act loan, it is reasonable to conclude that ordinary and necessary business expenses include expenses incurred to purchase inventory for resale or for incorporation into the manufacture of a product to be sold in the ordinary course of business. 
 
34. What certifications are required by the business to obtain a loan under the Act?  An appropriate officer of the qualifying small business must certify that: 
(a) The officer understands that the business is receiving a loan under the Small Business Recovery Act of 2020 that must be repaid by the business with interest under the terms of the loan agreement; 
 (b) All documents submitted in support of the loan application are true and accurate to the best of the officer's knowledge; 
 (c) The officer has a reasonable basis to believe that, as of the date of origination of the loan and receipt of the loan proceeds, the business does not expect to permanently cease business operations or file for bankruptcy; 
 (d) Prior to the issuance of the public health order issued by the secretary of health on March 23, 2020, the business was current on all obligations pursuant to the Income Tax Act, the Corporate Income and Franchise Tax Act, the Withholding Tax Act, the Gross Receipts and Compensating Tax Act and the Unemployment Compensation Law applicable to the business's operations; and 
 (e) All loan proceeds will be used for purposes as provided in the Small Business Recovery Act of 2020, including that at least eighty percent (80%) of the proceeds are [will be] used for ordinary and necessary business expenses other than compensation for employees who own equity in the business. 
 
35. When will the NMFA begin accepting applications for loans under the Act?  The NMFA’s current plan is to begin accepting applications for loans no later than August 5, 2020. 
 
36. What is the deadline for the business to submit an application for a Small Business Recovery Act loan?  The deadline to submit an application for a small business recovery act loan is December 31, 2020, though loans will no longer be made if the funds run out prior to December 31, 2020.  
 
37. May a business prepay a Small Business Recovery Act loan?  Yes, a business may prepay a Small Business Recovery Act loan without any prepayment penalty. 
 
38. What other resources are available to help a qualifying small business under the Act?  The Act allows qualifying small business with annual gross receipts of less than $500,000 (in calendar year 2019) to apply for additional funding to pay a service provider for technical assistance in an amount equal to ½% of the loan amount.  The technical assistance support is paid directly to the provider and is in addition to the loan amount and need not be repaid by the business. 
 
39. How will banks and other lenders be involved in making small business loans under the program?  Banks and other lenders, including community banks, credit unions, and community development financial institutions, will assist with processing applications for submission to the NMFA. 
 
40. Must a business have an existing lending or other business relationship with a bank, credit union or other lender to participate in the Small Business Recovery Act program?  While no existing lending relationship is required to participate in the Small Business Recovery Act loan program, the borrower must establish a checking account with a federally insured institution as part of the application process. 

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*THESE FREQUENTLY ASKED QUESTIONS ARE BASED ON REVIEW AND ANALYSIS OF THE SMALL BUSINESS LOAN PROVISIONS OF THE SMALL BUSINESS RECOVERY ACT AND REGULATIONS ADOPTED BY THE NEW MEXICO FINANCE AUTHORITY.  THESE FREQUENTLY ASKED QUESTIONS ARE SUBJECT TO CHANGE AS ADDITIONAL GUIDANCE IS ISSUED.