Coronavirus: SBA Loan Considerations
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Protecting your business amid the coronavirus pandemic
The coronavirus crisis has left many businesses in a bind as customers stay home and revenue dries up, particularly for those unable to operate online. Fortunately, the Small Business Administration (SBA), Emergency Disaster Loan program is offering those suffering businesses an opportunity to take out loans for much-needed funds to keep operating during the crisis. While most small businesses undoubtedly need any help offered, many are wondering whether they qualify for the loans, or what strings are attached to the money. Below is some guidance for small business owners on the new program.
Frequently asked SBA Disaster Loan questions during coronavirus:
- Applying for SBA loans
- Loan eligibility
- Stipulations and repayment
- Loan forgiveness
- CARES Act
- Business insurance
- Loan disbursement
Applying for SBA loans
What information do I need to provide in order to get an SBA Disaster Loan?
If you’re looking to apply for an Economic Injury Disaster Loan, you can do so from the SBA Disaster Loan portal. You’ll need to fill out and submit a Business Loan Application or a Home or Sole Proprietor Application, as well as an Economic Injury Disaster Relief Supporting Information Form.Once completed, you can upload and submit directly from the web portal. You may be asked for further information and forms from a loan officer. The SBA also offers the option to mail in the application forms to its Processing and Disbursement Center. Applicants should note that the initial volume has caused the website to crash periodically, so submitting your forms may take time.
Loan Eligibility
How do I know I’m eligible?
Per the SBA’s page on coronavirus, all small business owners in every U.S. state and territory are eligible to apply for the Economic Injury Disaster Loan Program, as every state and territory is a disaster area, as noted on the SBA’s tracker of currently declared disasters. The loans are open to businesses across all industries for those companies of less than 500 employees.
How much does my company have to make annually to be considered a “small business”?
There isn’t a fixed dollar amount for what the SBA would typically consider a “small business”; rather, for the purposes of disaster loans, it’s a calculation of receipts for your entire period of operation, divided by the number of weeks you’ve been in business and multiplied by 52.
Does it matter how many employees I have?
Generally, the measurement by the SBA of what is a small business is a sliding scale based upon the industry and other considerations. For the purposes of disaster relief loans during the current coronavirus disaster, the only stipulation regarding employees is that the small business in question must have fewer than 500 to be eligible to apply for a loan.
Does my industry count?
SBA Emergency Disaster Relief Loans are available to small businesses across all industries that have suffered significant economic injury as a result of the current outbreak. However, there are certain considerations for the accommodation and food services industry that may have multiple locations; those companies may be eligible if they have fewer than 500 employees per location.
If my business is commercial real estate and I rent out homes for a rental income, does this count?
Many commercial real estate entities are feeling the effects of their tenants’ loss of income and revenue with businesses shutting their doors. Provided that they meet the definition of a small business, commercial real estate companies are eligible to apply for an SBA Disaster Loan.
What if I have a bad credit score? Will I still qualify?
Those with bad credit can still apply for a disaster loan; however, they may have to provide justification or further explanation to a loan officer in order to get approval.
Stipulations and repayment
How much money can I receive? How long do I have to pay it back in full?
You can apply for up to $2 million in a Business Physical Disaster loan to be used to pay fixed debts, payroll accounts payable and sick leave. Specifically, the money can’t be used for physical repairs or to refinance debts accrued prior to the current disaster. The interest rate on the loans for the current crisis has been set at 3.75 percent, or 2.75 percent for non-profits. Depending on the applicant’s ability to repay, the term of the loan repayment may run as long as thirty years.
How long do I have to wait to start paying my loan back?
Borrowers will be able to defer principal and interest payments on SBA Disaster Loans for the first eleven months, with repayment beginning a year after the loan was taken out. Payments on loans under the Paycheck Protection Program are also deferred for one year.
Can I use this loan to repay vendors I work with? Can I use this to make payroll?
Disaster loan funds can be used for payroll as well as for paying fixed debt, sick leave, and accounts payable during this period.
Can this loan be used to cover expenses for having to make business adaptations because of COVID-19?
Disaster loans are earmarked for use for covering currently existing expenses that can’t be met due to a loss of revenue, not for any expansion, adaptation, or development, even due to the current pandemic. Any efforts towards changing your business to meet new realities will have to be borne by the company.
Loan forgiveness
If my business ends up being shut down, how do I pay this back?
According to the SBA Disaster guide, the agency is not permitted to provide grants or to forgive loans, and will only lend to those with a reasonable ability to repay the disaster loan based on earnings. Borrowers will be on the hook personally for any amount borrowed over $200,000, even if their business goes under, so give that careful consideration when applying for a loan. The Payroll Protection Program that is part of the Coronavirus Aid, Relief and Economic Security (CARES) Act also offers business loans that can be at least partially forgiven.
CARES Act
Are there any other loans available?
The recently-passed CARES Act includes the Paycheck Protection Program, which increases government loans to $350 billion for small businesses. It differs from SBA Disaster Loans in some significant ways: loans can be made up to $10 million, and employers are eligible for loan forgiveness equal to the amount spent on payroll, rent, interest payments and utilities for a period of eight weeks after the loan disburses.
What if my business doesn’t have many assets?
Those businesses without assets can still apply because the CARES Act has waived any rules regarding personal guarantees for loans of $200,000 or less.
What if I am a new business and didn’t have to file taxes last year?
The CARES Act waives the requirement for a business to have been in operation for one year to qualify for the SBA assistance. Absent a tax return, the SBA would ask for the latest or year-end profit-and-loss statement and balance sheet.
What if my business already has a line of credit?
SBA Disaster Loans are typically limited to those unable to find credit elsewhere; however, the CARES Act has waived that requirement, opening up the process to all small businesses suffering economically in the crisis.
Business insurance
What if my business’s insurance doesn’t want to cover any of the losses, I experienced during COVID-19?
Many businesses are learning that their business interruption doesn’t cover the coronavirus, as many firms took the steps of writing in exclusions for contagions after SARS and other viral outbreaks in the early 2000s. You should seek consultation, document review including all applicable insurance policies, and assistance from your LegalShield Provider Attorney. The companies that won’t be getting insurance payouts may be eligible for SBA Disaster Loans, provided that they meet the guidelines for a small business.
Loan disbursement
How long does it take to receive the loan?
The loan application process may take up to three weeks to be approved, particularly given the volume of applications now coming into the SBA. Once it’s been approved, a disbursement will be made within five days of up to $25,000, with the additional funds to be paid out on a schedule determined by a loan officer. Taking out a loan to keep your company running is yet another unexpected challenge for business owners, and the urgency of the moment means they need help in navigating all the paperwork involved.
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