The Federal Small Business Administration (SBA) is offering an Economic Injury Disaster Loan Program that provides for working capital loans in response to the coronavirus COVID-19 pandemic. The financial assistance offered through this program will be in the form of direct loans from the SBA that will be repaid by borrowers to directly to the SBA.
Applicants are encouraged to apply online at https://disasterloan.sba.gov/ela.
Here are the latest program details:
- The SBA will be providing loans in an amount not to exceed $2.0 million.
- Rates for businesses will be 3.75% fixed for 30 years.
- All loans will have a repayment term of 30 years. Payments can be deferred for the first 12 months.
- Most small businesses will apply for Phase 1 applications (under $500,000). The maximum loan amount for Phase 1 applications will be 50% of their gross profit from their last completed year (using the previous year tax returns). Sales – Cost of Goods Sold = Gross Profit, x 50% = Maximum Loan Amount.
- Businesses applying for more than $500,000 will need to file a Phase 2 application..
- Most loans will require some type of collateralization (depending upon an applicant’s credit score). Loans for over $25,000 will require collateral, and real estate is the preferred collateral.
- At least 20% of the business owners will be required to personally guarantee a loan. Ownership changes immediately prior to an application in an effort to alter an individual’s ownership structure (to avoid a personal guarantee) could jeopardize eligibility.
- Proceeds may be used for working capital for business expenses only. This includes supplies and materials, payroll, debt payments, utility, and other operational costs. Normal expenses as shown on an applicant’s financials over the past 12 months are eligible. Construction projects for expanding or renovating a facility, or for making capital equipment purchases (such as vehicles or other equipment) are not eligible.
- Non-profits may apply for this program, however, preference will be given to for-profit businesses. Churches, agricultural production businesses, gambling facilities, are not eligible.
- No debt consolidation will be allowed. The only exception would be temporary or interim loans that were taken out since the crisis started for operational expenses that may be refinanced.
- Businesses will be required to retain receipts and evidence of what they spent the proceeds on for a period of 3 years and may be subject to an SBA audit to ensure that only eligible business expenses were paid.
- The SBA is expecting 300,000 to 500,000 loan applications, depending upon the length of the coronavirus crisis, and therefore, applicants are advised to expect delays in having loan applications processed. Approval timelines for online applications are expected to take less than a week. Applicants should expect a minimum of 30 days to close on an SBA disaster loan.