As of Friday, March 13, 2020, President Trump declared a national emergency to combat the Coronavirus (COVID-19). Businesses across the United States are suffering tragic losses due to the pandemic and the drastic measures implemented to combat the spread of the virus. Since a state of emergency has been announced, businesses may qualify for assistance to ease financial losses incurred during these unprecedented times. One of these reliefs, the Economic Injury Disaster Loan (EIDL) come in the form of a loan administered by the Small Business Administration (SBA).
What businesses qualify for the loan?
All small businesses and private non-profit organizations with a physical location in a US state or US territory, excluding some religious institutions and cannabis businesses, are eligible and can now apply for EIDL. Businesses must be able to prove an economic injury. An injury is defined as a loss in revenue resulting in the inability to cover business expenses. Eligibility is being backdated to January 31, 2020, to allow businesses to show their injury beginning in February or March. Businesses can also qualify by showing anticipated (future) economic injury.
How does the SBA define a small business?
There are several measures the SBA uses to define a small business, and it varies by industry. As a general guide, less than 500 employees and $35 million in revenue would typically qualify.
How much can a business borrow?
Small businesses can borrow up to $2 million to pay fixed debts, payroll, accounts payable, and other bills.
What is the interest rate?
The interest rate is 3.75% (per annum) for small businesses, 2.75% (per annum) for non-profits.
What is the term of the loan?
Up to a maximum of 30 years; terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
When do businesses begin repaying the loan?
Loan payments are deferred for a year. Interest on the loan does accrue during that time.
What collateral do businesses need to provide for this loan?
The SBA will take a general UCC filing against the assets of the business. No real estate collateral is required for the loan.
Will the SBA do a credit check?
- Applicants must have a credit history acceptable to SBA. Our understanding is that a minimum credit score of 650 is what the SBA is looking for but will consider alternative methods for determining the applicant’s ability to repay.
- Applicants must show the ability to repay the loan.
- Collateral is required for all EID Loans over $25,000. SBA takes real estate as collateral when it is available. SBA will not decline a loan for lack of collateral, but SBA will require the borrower to pledge collateral that is available.
Do businesses need to provide filed 2019 tax returns to apply?
No, 2019 tax returns do not have to be filed prior to applying for the loan. However, businesses will be asked to submit IRS form 4506T, which provides the SBA with access to historical tax returns.
What can the SBA EID Loan be used to pay for?
Fixed debts, payroll, paid sick leave, making rent or mortgage payments, meeting increased costs to obtain materials and accounts payable and other bills that that can’t be paid because of the disaster’s impact. The loans are not intended to replace lost sales or profits or for expansion.
Applications are open now?
Yes, the application process is live, and loans are readily available now. There is no obligation to accept the loan even if the business qualifies. The SBA typically allows 60 days to accept the loan offer.
How do I apply?
Businesses may apply online at http://disasterloan.sba.gov/
This alert does not purport to be a substitute for advice of counsel on specific matters. Should you have any questions or concerns, or require assistance in connection with the application process, please feel free to contact us, we are here to help!
