March 26, 2020

News

3-26-20 SBA Economic Injury Disaster Relief Loans For Small Business or Non-Profits

I have heard the Small Business Administration is making loans to small businesses and non-profits affected by coronavirus pandemic. Is this available to my business or non-profit?

Yes, that is true, and you may be eligible. The SBA is making economic injury disaster relief loans (EIDL) available to small businesses and non-profits affected by the coronavirus. Businesses and non-profits in all U.S. States and territories are currently eligible. Funds come directly from the U.S. Treasury. Whether you qualify will be based on your need and the availability to you of other credit sources.

Who is eligible?

Small businesses
Small agricultural cooperatives, small aquaculture businesses
Most private non-profit organizations

What qualifies as a small business?

This depends on several factors, including your revenue, the number of employees you have, your net worth, and the industry you are in. To see if your business qualifies as a small business, go here: https://www.sba.gov/federal-contracting/contracting-guide/size-standards.

What can the loan be used for?

The loans must be used for working capital. You can use them to pay fixed debt, payroll, accounts payable and other expenses that cannot be paid due to the impact of COVID-19.

What is the interest rate?

3.75% for businesses that cannot get credit elsewhere (businesses with other credit available are not eligible).

2.75% for most non-profits.

When do I need to repay it?

The maximum length of the loan is 30 years, but it’s determined on a case-by-case basis, based on your ability to repay the loan.

Is there a maximum loan amount?

Yes. The maximum loan amount is $2 million. If a business can’t justify the loan amount requested, the SBA may approve a lesser amount. Your loan will be based on your actual economic injury and your business’s financial need.

How much does it cost?

There are no costs or fees to apply for a disaster loan and no closing costs.

Will these loans need to be secured?

Loans under $25,000 will be made on an unsecured basis. Loans over $25,000 have to be secured by whatever collateral is available.

Do not worry about inadequate collateral – submit the application and let the SBA make the decision – The value of available collateral does not have to cover full amount of the loan. The SBA will not decline a loan for lack of collateral, but requires borrowers to pledge what is available.

What are the criteria to be approved?

You must have acceptable credit history and be able to repay the loan. You must be an independently owned and operated small business within the SBA size parameters that does not have credit available elsewhere and must have suffered or be likely to suffer substantial economic injury as a result of the disaster. Your business must have a physical presence within the U.S. or a U.S. territory.

What if I have a senior debt facility?

The SBA will subordinate their loan to your senior debt if and when necessary.

What if I already have taken an SBA disaster loan?

A business that has an existing SBA disaster loan (e.g. from Hurricane Sandy) can still apply for a new disaster loan to address economic injury related to the Coronavirus, but the loans cannot be consolidated

Are any businesses not eligible for disaster relief loans?

Yes. Businesses that are not eligible for disaster loans include:

Agricultural
Religious
Charitable Organizations
Gambling; Casinos
Real estate developers

If I get approved, do I need to take the loan?

There is no obligation for you to take the loan if approved.

Where do I apply?

You can do this directly online. Businesses submit applications for disaster loans directly to the SBA at https://disasterloan.sba.gov/ela/Information/Index. The SBA recommends that you print the paper application first to make sure you have all of your information and can submit the complete application. If your application is missing items, you will lose your place in line. They also state that only six months of losses or less are eligible for the more expedited loan processing. Additional guidance can be found here: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

What else should I know about the application for these disaster relief loans?

Be prepared to explain and demonstrate the impact on your working capital cash flow (i.e. with historical financial statements before the disaster and pro forma financial projections for after the disaster began). Items to consider include the cash impact of:

larger than normal volume of accounts receivables,
lower sales or revenue due to cancellation or business disruption such as cancelled or delayed orders, cancelled meetings or events,
slower inventory turnover or supply disruption, and
projected delinquencies in trade payables, current accruals and debt payments.

Your application should focus on the business need to maintain a reasonable working capital position during the period affected by the disaster, being able to keep people employed, and making payroll.

How long does it take for the loan applications to process?

The time frame for processing applications is generally 18 – 21 days. The SBA website enables you to keep track of the status of your loan application.

SBA Disaster Loan customer service:

Telephone # 800-659-2955
disastercustomerservice@sba.gov

I need capital, but I need more than the $2 million/I need the money for more than just making payroll. Are there other options available to me?

Yes. You could consider a 7(a) loan.

What are 7(a) loans?

7(a) loans are loans are made available by the SBA through third party lenders. 7(a) loans can be up to $5 million for eligible small businesses within the U.S. States and its territories. You need not be in an economic disaster area to be eligible, but you still need to qualify as a small business.

What can my business use the 7(a) loan funds for?

The uses of proceeds can be used for broader purposes than the disaster loans above, including:

working capital
expansion/renovation; new construction
purchase of land or buildings
purchase of equipment
purchase of fixtures
lease-hold improvements
refinancing debt for compelling reasons
seasonal line of credit
inventory
starting a new business

Where do I apply?

Small businesses can apply for a 7(a) loan https://www.sba7a.loans/.

What’s the Bottom Line?

There is help available to you right now to keep your business and non-profit afloat. In addition, as of the time this update is being written, Congress has compromised on a large stimulus bill to help the economy during the ongoing crisis. Voting on the stimulus bill should take place today, March 25th.

We will update you as more information becomes available.

If you have any questions, please reach out to any member of our team. Our task force is here to help you.

For more information regarding Coronovirus (COVID-19) or to access all of our client alerts go to:

https://www.woodsoviattgilman.com/practices/covid-19-multidisciplinary-crisis-group

Please contact your Woods Oviatt attorney or the following attorneys regarding COVID-19 related issues:

COVID-19 Multidisciplinary Crisis Group Co-Leaders