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Small Businesses Can Apply for Loans through the U.S. Small Business Administration’s Economic Injur Small Businesses Can Apply for Loans through the U.S. Small Business Administration’s Economic Injur

Small Businesses Can Apply for Loans through the U.S. Small Business Administration’s Economic Injury Disaster Loan Program

Similar to its reaction to natural disasters, the U.S. Small Business Administration (“SBA”) is making available its Economic Injury Disaster Loan Program to qualifying small businesses and nonprofits in designated states. In order to qualify as a “small businesses,” a business must meet SBA size standards by NAICS code that can be found here: SBA Size Standards. The federal government has announced it has made $50 billion available for this program. The SBA has been working with governors across the country to provide these targeted loans, and as of March 20, 2020, 30 states and the District of Columbia have been declared statewide as “Disaster Areas,” where eligible businesses can apply for the loans. A full list of Disaster Area Declarations can be found here: Disaster Area Declarations

Qualifying small businesses and nonprofits can apply directly to the SBA by following this link:
Disaster Loan Assistance

Among the criteria it will consider in underwriting these loans, the SBA has stated it will include:
  • An applicant’s credit history;
  • An applicant’s ability to repay the loan;
  • That the applicant is located in a county declared as a Disaster Area; and
  • That the applicant has suffered working capital losses due to the COVID-19 disaster and not due to a downturn in the economy generally or other reasons.
If approved, the SBA can loan an applicant up to $2,000,000 depending on need and underwriting, with a term of up to 30 years for repayment and at interest rates of 3.75% per annum for small businesses and 2.75% per annum for non-profits. Loans in excess of $25,000 will require collateral; however, the SBA has advised it will not decline a loan just due to lack of collateral or due to insufficiency of collateral. Loan proceeds can be used for working capital, payroll and other expenses the qualifying small business or non-profit could have paid had the disaster not occurred, but are not intended to be used to replace lost profits or to finance business expansion.

In addition to the Economic Injury Disaster Loan Program, as of March 20, 2020 there is legislation currently under consideration by Congress that would add one or more additional SBA loan programs directed toward assisting small businesses impacted by the COVID-19 pandemic.

For more information on requirements for qualification for an Economic Injury Disaster Loan and the SBA’s programs relating to COVID-19 generally, visit SBA Coronavirus Resources.
  
For businesses that wish to apply, here is an easy reference point to start:
 
Checklist:
 
  • Completed IRS Form 4506-T for:
    • Each owner with 20% or more ownership interest
    • Each general partner or managing member, regardless of ownership percentage
    • Each owner who owns more than 50% of an affiliate business
  • At least 2 years complete business tax returns with all schedules
  • Most recent year-end balance sheet and income statement
  • Current YTD balance sheet and income statement as of most recent month-end
  • Schedule of fixed debts
  • Personal financial statement on each owner with 20% or more ownership interest
Process:
 
  • The checklist above will be verified and credit will be checked by SBA
  • Forecasts will be completed to determine loan amount
  • Decision can take up to 4 weeks
  • After approval and loan signing, the first $25,000 is disbursed within 5 business days
  • Each business or non-profit will work with an assigned case officer on additional disbursements
  • Loan disbursements can repay bank bridge loans up to $25,000
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances. 
 
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