UPDATED: Small Business Administration (SBA) Response to Coronavirus
NOTE: Recent updates are included to reflect recent guidance provided by Treasury and the Small Business Administration as of April 13, 2020.
This brief describes the process to apply for economic relief through the Small Business Administration’s (SBA) low-interest loan and grant programs.
In response to the economic situation created by Covid-19 Congress has provided an increase of $384 billion to the SBA’s loan programs. The goal of the law is to help small businesses retain employees, meet payroll and pay for business expenses like rent and utilities. The package provides funding for Economic Injury Disaster Loans (EIDL) and Emergency EIDL Grants, the newly created Paycheck Protection Program (PPP), and the small business loan forgiveness and debt relief programs. Below you will find a summary of each of these SBA programs.
Economic Injury Disaster Loans (EIDL) Program: SBA’s EIDL loans offer up to $2 million in assistance for each affected small business. The loans are designed to provide economic relief due to an emergency or catastrophe. They can be used to pay fixed debts, payroll, accounts payable and/or other bills that can’t be paid due to the epidemic’s economic impact. The interest rate is 3.75% for small businesses and 2.75% for non-profits. SBA offers the option to establish long-term repayments, with up to a maximum of 30 years, and a one-year deferment on the first payment. Section 1110 of the CARES Act expands eligibility of EIDLs to include any individual as a sole proprietor or an independent contractor during the covered period (January 31, 2020 to December 31, 2020). Any EIDL made in response to the coronavirus outbreak before the covered period ends will waive any personal guarantee on advances and loans below $200,000 and will waive the requirement for an applicant to be in business for at least a year before the disaster.
Who is Eligible:
-The amount of sales or employees required to qualify as a small business varies by industry. Every type of small business has a size standard identified by a code under the North American Industry Classification (NAIC) System.
-For most small businesses in the finance and insurance industry, the SBA only considers the amount of sales and does not factor the number of employees. You will find more information on how the SBA defines a small business here and the industry size matched to the codes here.
-For example, an entity dealing with portfolio management or investment advice is considered a small business if they have annual sales less than $41.5 million, regardless of the number of employees.
In addition to meeting the numerical standards, your small business must:
o Be a for-profit business of any legal structure
o Be independently owned and operated
o Not be nationally dominant in its field
o Be physically located and operate in the U.S. or its territories
Non-profit organizations of any size, including charitable organizations such as churches and private universities, organized under state law as such and registered with the IRS are eligible for SBA EIDLs. A non-profit organization is legally structured for goals other than profit. For example, the entity must be assembled as a charity for the advancement of religion; advancement of education or science; or the promotion of social welfare.
How to apply: There are a few methods to apply for an SBA EIDL. You can apply through SBA’s website here; or you can request an application via phone at (800) 659- 2955 or TTY (800) 887-8339. To start your application, the SBA will do an initial credit check. You should expect an SBA loss verifier to estimate the total cost to support your operations.
An SBA loan officer will review applications and will guide applicants through the process. If approved, the SBA will contact applicants to discuss the loan application. The application review can take anywhere from few days to a few weeks. A loan officer will then contact you to discuss the loan recommendations and your next steps. Once SBA receives your signed Loan Closing Documents, you should get an initial disbursement within five days of $25,000. A case manager will be assigned to you to help you with subsequent loan disbursements and to ensure you meet all loan conditions. It allows the SBA to approve credit based on the applicant’s credit score or an alternative process for determining the small business’ ability to repay the loan. The SBA designation for small business insurance agencies or brokerages is $8 million or less in annual sales.
EIDLs are not eligible for loan forgiveness. However, a small business that takes an EIDL loan in response to the coronavirus crisis can refinance their EIDL loan under the PPP to take advantage of the PPP’s loan forgiveness measures.
Note: Due to the oversubscription of the EIDL Program, expect SBA limiting the amount of an EILD loan you may receive.
Emergency EIDL Grants: Section 1110 of the CARES Act, establishes Emergency EIDL Grants to allow any eligible entity who has applied for an EIDL as a consequence of the coronavirus outbreak to request an advance on that loan. The amount of the advance of the loan shall not be more than $10,000, which the SBA must distribute within 3 days to maintain payroll. In other words, this is money the Federal government is giving to small businesses and other eligible entities without any strings attached. If the application is denied, the applicant is not required to repay the $10,000 advance. Emergency advance funds can be used for payroll costs, increased material costs, rent or mortgage payments, or for repaying obligations that cannot be met due to economic losses due to the coronavirus outbreak. The CARES Act provides $10 billion to support expansion of this EIDL Grant until December 31, 2020. As soon as you apply for EIDL, you will be asked if you want to receive an EIDL Grant.
High demand for the EIDL loans has limited the amount of the EIDL Grants. Due to this high demand, SBA has changed its policy to limit EIDL Grants to $1,000 per employee.
Note: Numerous government sources have stated the EIDL Program has seen an oversubscription of loans.
Small Business Debt Relief: The law requires the SBA to pay all principal, interest, and fees on all pre-existing SBA 7(a) loan products for six months to provide economic relief. The debt relief only applies to 7(a) loan recipients. Loans that are already on deferment will receive six months of payments by the SBA beginning with the first payment after the deferral period. The CARES Act provides $17 billion for these loan subsidies. Your lender should be able to process the debt relief. The PPP loans are not covered under this program.
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