In times of crisis, The Small Business Administration (SBA) can be a valuable resource for small businesses. The SBA is currently providing low-interest Economic Injury Disaster Loans (EIDLs) to help businesses recover from Coronavirus (COVID-19).
Small businesses may apply for a maximum business loan of $2 million, which may be used exclusively to address economic injury. Funds can be used to pay for a number of business expenses including working capital needs, such as payroll, accounts payable, and fixed-payment debts. Significantly, the term of the loan could potentially be as long as 30 years. The terms of any loan are determined on a case-by-case basis and are dependent upon each borrower’s ability to repay. The interest rate is 3.75% for small businesses and 2.75% for non-profits.
Eligibility for an SBA Disaster Loan
Small business owners in all U.S. states and territories are currently eligible to apply for an EIDL due to Coronavirus (COVID-19). Small businesses and small agricultural cooperatives that meet the Small Business Act's definition of “small business” and private nonprofit organizations are eligible for an EIDL.
In the past, the SBA has required that any state or territory impacted by disaster provide documentation certifying that at least five small businesses have suffered substantial economic injury as a result of a disaster, with at least one business located in each declared county/parish.
The recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded eligibility to include businesses with not more than 500 employees, sole proprietorships, independent contractors, cooperatives with not more than 500 employees, Employee Stock Ownership Plans with not more than 500 employees and tribal small business concerns with not more than 500 employees.
The CARES Act also relaxed the eligibility requirements for SBA disaster loans. Small businesses no longer have to certify that they are unable to obtain credit elsewhere. Additionally, so long as the business was operating as of January 31, 2020, the prior requirement that an applicant be in business for one year prior to the date it applies for an SBA loan is also waived. Significantly, the SBA is not requiring personal guarantees for loans of less than $200,000.
Applying for an SBA Disaster Loan
The SBA is waiving several application requirements in an effort to process applications more quickly. The SBA is relying on businesses to self-certify eligibility. In addition, businesses are no longer required to provide tax returns; instead, the application may be approved based solely on the applicant’s credit score or other “appropriate” methods.
For businesses that are already suffering, time is of the essence. You can apply for a loan via the SBA’s secure website, disasterloan.sba.gov/ela. To help speed up the loan process, you can start gathering the information that you will need to proceed with the application:
- Legal and trade names of the business
- Federal EIN number or Social Security number
- Gross revenue and cost of goods sold for the 12 months leading up to January 31, 2020
- Any lost rents due to the disaster
- Date the business was founded
- Number of employees
- Ownership information, including percentage of business ownership; home address; phone number; social security number; date and place of birth; and citizenship status.
Once a business submits an application, the typical timeline for approval is two to three weeks, and disbursement can take up to five days. However, approval timelines will depend of the volume of applications received, which is expected to be significant.
Emergency Economic Injury Grant
Under the CARES Act, small businesses impacted by COVID-19 can apply for an Emergency Economic Injury Grant (EEIG) of up to a $10,000 advance on an Economic Injury Disaster Loan for emergency capital. To access the advance, you first need to apply for a disaster loan. During the application process, you will be able to request the advance. This loan advance will not have to be repaid.
Paycheck Protection Program
For small businesses, disaster loans are just one form of financial assistance available. Businesses that receive an EIDL between January 31 and June 30, 2020, for COVID-19-related losses may apply for a Paycheck Protection Program loan. Alternatively, businesses may refinance their existing EIDL into a Paycheck Protection Program loan. However, businesses can’t receive a Paycheck Protection Program and an EIDL for the same purposes. In addition, funds from an EEIG must be subtracted from the loan amount forgiven under the Paycheck Protection Program.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Gregg Hilzer, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.