The COVID-19 pandemic has created the swiftest and most dramatic economic upheaval in at least a century, and we are getting many questions about Small Business Administration (“SBA”) programs, either proposed or in place, to assist small businesses in coping with the fallout from the COVID-19 crisis.
Below are highlights of the Economic Injury Disaster Loan (“EIDL”) program which is currently in place. A second program, part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, was passed by the Senate on 3/25/20 and is with the House of Representatives for consideration.
CARES Act loans are expected to be structured much differently than loans under EIDL and will include provisions for loan forgiveness after a period of time, provided that a company stays in business and maintains its employment levels.
As soon as the CARES Act is finalized and signed into law, we will distribute a fact sheet on that program.
SBA Economic Injury Disaster Loans Summary
- EIDL loans are direct loans from the SBA. Applications are not routed through SBA approved bank lenders. There have already been days where the SBA website is crashing, so turnaround on these loans is unpredictable. The SBA program page provides a link to where applications can be submitted.
- Eligible entities include businesses directly affected by the disaster or businesses that offer services directly related to the affected businesses and other businesses that incurred losses due to disaster losses in their community, such as manufacturers of products sold at the retail level.
- Ineligible entities are Agricultural enterprises defined in Section 18(b)(1) of the Small Business Act, Religious Organizations, Charitable Organizations. Gambling Concerns, Casinos & Racetracks.
- Eligible entities may qualify for loans up to $2 million.
- Pledged collateral (for example real estate) is required for any loan in excess of $25,000.
- SBA will not decline a loan for lack of collateral but will require borrowers to pledge what is available.
- Interest rates are 3.75% for small businesses and 2.75% for nonprofit organizations with terms up to 30 years.
- Working capital loans may be used to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. Loans are not intended to replace lost sales or profits or for expansion.
- Eligible entities must have a credit history acceptable to SBA (this is not defined in any detail).
- The SBA must be able to determine that the applicant has the ability to repay the SBA loan (this is also not defined in any detail).
- The applicant business must be physically located in a declared county and have suffered working capital losses due to the declared disaster, not due to a general downtown in the economy or other reasons.
- There is no cost to apply.
- There is no obligation to take the loan if offered.
- Applicants can have an existing SBA Disaster Loan and still qualify for an EIDL, but the loans cannot be consolidated.
- The application process requires personal financial disclosures and Income Tax Returns from all owners who own 20% or more of company stock. Guarantors can expect that they may be required to pledge personal assets, if significant and available, to secure the loan.
- The EIDL program is different from the forgivable loans under the Paycheck Protection Program (PPP) which was signed into law on 3/27/20. Borrowers may apply for loans under both programs but may not use the proceeds for the same purpose.
