The Small Business Administration (SBA) Disaster Loan Program has emerged as a key economic tool for businesses to survive the current coronavirus crisis.
The Small Business Administration (SBA) Disaster Loan Program has emerged as a key economic tool for businesses to survive the current coronavirus crisis. Over the last few days we have begun investigating the lending criteria, business size and type of business that such a loan program might help. This knowledge would help determine which clients may be eligible for the program, have a sense of what funds might be available and determine if it makes sense to apply. We were recently provided with a document from the Connecticut Small Business Development Center that outlines eligibility requirements for the Economic Injury Disaster Loan program (EIDL).
In addition, we are working with clients to help complete this application. We’d like to share what we have learned from that process.
Businesses applying for the SBA Disaster Loan as a result of the current coronavirus crisis will be applying for the SBA’s Economic Injury Disaster Loan (EIDL) program.
EIDL is available to victims of disasters that caused no physical damage to property—unlike, for example, damages sustained due to a hurricane or tornado. EIDLs are meant to provide businesses with working capital and cannot exceed $2,000,000 by law. The actual amount that will be loaned to a business is ultimately determined by SBA’s determination of what the business’s actual economic injury was combined with the business’s financial need. In addition, the SBA takes into consideration the assistance available through business interruption policies and non-government sources, such as the business owner’s personal savings or credit that maybe available from banks.
Borrowers must have a credit history that is acceptable to SBA and demonstrate an ability to repay any borrowings. For loans in excess of $25,000 the SBA expects the business to pledge any available collateral. The SBA states that it will not deny a loan for lack of collateral; however, we expect that what they are ultimately willing to lend will be helped by sufficient collateral.
If multiple businesses are owned, careful consideration should be given to which business makes this loan application. A business that has historically generated losses and that has no collateral may have difficulty obtaining or maximizing the financing available. Businesses should consult with their advisors on an appropriate strategy.
As one might expect, the SBA requires a significant amount of information in the loan application process. Having this information available will expedite the process. The intention of the listing below is to help businesses gather the information necessary in order to expedite the loan application process. This listing is not all inclusive.
Please note that you must provide an “as of” value date of your assets. Previously we discussed that the amounts SBA will loan take into consideration other resources that you have available. Please give careful consideration to which date you are using in assembling the value of your assets, as the value of your retirement accounts and brokerage accounts at January 31, 2020 will most likely differ significantly from the value at March 20, 2020.
SBA is encouraging businesses to apply for a disaster loan on their website https://disasterloan.sba.gov/ela/.
If you are looking for SBA Loan information specific to non-profit organizations, please read our article which focuses on SBA loan help available for non-profits.