UPDATED: March 23, 2020, 8:15 a.m. South Carolina now appears on the official disaster declaration list.
UPDATED: March 19, 2020, 6:45 a.m. North Carolina now appears on the official disaster declaration list.
Small businesses negatively impacted by the novel coronavirus outbreak may find recovery assistance in low-interest SBA disaster assistance loans. The U.S. Small Business Administration said it will offer low-interest economic injury disaster loans of up to $2 million to impacted small businesses to provide economic support to those experiencing a temporary loss in revenue. Those loans can be used to help meet payroll, accounts payable and other bills, and fixed debts.
In order for loans to be available, governors need to request that the SBA issue an economic injury disaster loan declaration. A continually updated list of declared disaster areas can be found here. We expect the list to grow as the effects of widespread social distancing continue to be felt across the nation. North Carolina’s governor just yesterday requested disaster declaration by the SBA.
Business owners tend to have a lot of questions about SBA loans, and particularly disaster loans, as they’re not utilized often over the average lifespan of a business. In an effort to help our small business clients, we’ve compiled a list of frequently asked questions regarding SBA loans and some advice for proceeding with such a loan.
What is an SBA-approved Economic Injury Disaster Loan?
An SBA Economic Injury Disaster Loan is available to businesses and nonprofit organizations that have suffered substantial economic injury in a declared disaster area. These loans generally offer up to $2 million in assistance to businesses experiencing temporary loss of revenue.
What are the terms of such a loan?
- a 3.75% interest rate for small businesses without credit available elsewhere. (Businesses able to get credit elsewhere are not eligible.)
- 2.75% interest rate for nonprofits.
- a maximum 30-year term, determined on a case-by-case basis, based upon each borrower’s ability to repay.
How can I apply for an Economic Injury Disaster Loan?
Once the funds are made available to your area, you should be able to apply directly with the SBA. You must provide substantial financial detail to analyze and prove your creditworthiness, and that’s where we can help. We can also guide you through the extensive loan paperwork.
What is the maximum loan amount limit?
Disaster loans generally max out at $2 million, but if a business is a major source of employment the SBA has the authority to waive that limit.
What can the loan be used for?
SBA disaster loans can be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s negative impact.
The loans cannot be used to refinance the long-term debts of a business.
What credit requirements does the SBA use to determine the application?
Typically, the SBA requires:
- an acceptable credit history.
- the ability to repay.
- collateral (required for all loans over $25,000).
What if I have an insurance policy that kicks in?
If a business has business interruption insurance or other relevant claims, then the SBA may reduce the amount of the loan.
What evidence will I need to provide that demonstrates economic injury?
In guiding companies through the process, we generally provide the SBA with:
- detailed financial statements from the company’s bank and cash flow statements demonstrating the impact on the business prior to and since the onset of the disaster.
- written evidence of cancelled orders that have a material impact on the cash flow or profitability of the business since the onset of the disaster.
- proof of layoffs or reduced hours for staff as a consequence of a decline in income or cancelled orders.
How long does the approval process take?
The coronavirus is an unprecedented situation affecting the entire nation (not just one area hit by a tornado or drought), so it’s hard to say how the SBA will handle the workload. Their stated goal is to arrive at a decision on applications within 2-3 weeks.
There is much to consider before taking on debt of any kind. Reach out to your BGW team members for advice on your specific situation and for guidance navigating the time-consuming process of an SBA loan.