Due to the impact of the coronavirus (COVID-19), small businesses are facing unprecedented financial hardships. The Small Business Administration (“SBA”) is providing support to business owners suffering a substantial economic injury in the form of low-interest federal disaster loans for working capital.
Small businesses who believe they may be eligible for an SBA EIDL should visit the SBA’s website where they can directly apply for assistance. The online application is the fastest method to receive a decision about loan eligibility.
The SBA has declared the COVID-19 pandemic a “disaster” and small businesses in Texas are eligible for relief with a federal disaster loan. Applicants may apply for up to $2,000,000 to assist business owners to overcome the temporary loss of revenue they are currently experiencing.
SBA’s Economic Injury Disaster Loans (or working capital loans) are available to small businesses, small agricultural cooperatives, small aquaculture businesses and most private non-profit organizations This includes:
- Businesses directly affected by the disaster.
- Businesses that offer services directly related to the businesses in the declaration.
- Other businesses indirectly related the industry that are likely to be harmed by losses in their community.
Examples of eligible industries include but are not limited to the following: hotels, recreational facilities, charter boats, manufactures, sports vendors, owners of rental property, restaurants, retailers, souvenir shops, travel agencies, and wholesalers.
SBA’s Economic Injury Disaster Loan (EIDLs) funds come directly from the U.S. Treasury. Applicants do not go through a bank to apply. There is no obligation to take the loan if offered. The maximum unsecured loan amount is $25,000. Loans over $25,000 will require collateral.
What is the criteria for a loan approval?
- Credit History-Applicants must have a credit history acceptable to SBA.
- Repayment –SBA must determine that the applicant business has the ability to repay the SBA loan.
- Eligibility-The applicant business must be physically located (not just a Post Office box) in a declared State and suffered working capital losses due to the declared disaster, and not due to a downturn in the economy or other reasons.
The SBA is lending these funds at a 3.75% interest rate to small businesses and a 2.75% interest rate to non-profit organizations. The SBA offers long-term repayment plans (up to 30 years) to allow borrowers to repay the loan over a feasible period of time. The disaster relief loans may be used to pay operating expenses that cannot be paid due to the impact of the COVID-19 pandemic. These working capital loans may be used to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. The loans are not intended to replace lost sales or profits or for expansion. The loan amount and term are determined by the SBA after reviewing your application.
Applicants may file for relief online, in-person, or by mail, but the SBA strongly recommends filing online at https://disasterloan.sba.gov/ela/ as soon as possible. As there will be many businesses applying for this help, it may be advantageous to go online in non-peak times (7 P.M. to 7:00 A.M).
The SBA will then review the economic injury sustained by the business and allocate a loan amount after analyzing the application. In reviewing the application, the SBA considers the applicant’s credit, the financial position of the business, the business’s potential to accumulate funds necessary to operate, and the estimated loss incurred or that will be incurred. A loan officer will then contact the applicant to obtain all outstanding information. The SBA’s goal is to process applications within 2 weeks of the application being processed; however, due to Covid-19, we expect the SBA to likely receive an increase in applications which will result in a longer processing period for applicants.
Navigating through the SBA website can be difficult at times. Below is a step-by-step approach on how to complete your disaster relief loan application below:
Step 1: Visit https://disasterloan.sba.gov/ela/. For efficiency, you may want to print out an application form and prepare your responses prior to going online (https://disasterloan.sba.gov/apply-for-disaster-loan/pdfs/Business%20Loan%20Application%20(SBA%20Form%205).pdf).
Step 2. The User Registration first requires you to register as an individual with your personal information (Name, Address, Social Security Number, Date of Birth, and Email Address). Once completed, you may register a username, password, and set the security questions. The SBA strongly recommends you write down and secure your user name and password as they will not be able to provide that information and you may need to re-apply.
Step 3: Once you are registered, click “Apply Online” in the blue circle and select the loan type requested, which will most likely “Businesses and Non-Profits”. You will want to only click the “Economic Injury”, not physical loss.
Step 4: You will then select the type of organization (sole proprietorship, partnership, a private non-profit organization, limited partnership, trust, or limited liability entity) and type of relief you are applying for. To apply for operating capital, you will select “Economic Injury Disaster Loan (EIDL)”.
Step 5: You will enter the State and County your business is in. Once entered, a menu will come up allowing you to select the cause you are applying for. “Coronavirus (Covid-19)” is an option here.
Step 6: Certify you have provided truthful information to the SBA.
Step 7: Certify you comply with required laws and executive orders.
Step 8: Complete the Disaster Business Application (SBA Form 5). The form can be found https://www.sba.gov/sites/default/files/Disaster%20Business%20Loan%20Application.pdf; however, we recommend completing this form online. This form requires the applicant’s name, contact information, Federal EIN, property address, type of business, and minor details about the business and managers.
Step 9: Complete the Personal Financial Statement (SBA Form 413) for each partner/member/shareholder. The form can be found at https://www.sba.gov/sites/default/files/forms/SBA_Form_413_7a-504-SBG.pdf; however, for faster processing by the SBA, this form should be completed online. A list of assets, liabilities, sources of income, and insurances will be helpful when filling out this form.
Step 10: Complete the Schedule of Liabilities (SBA Form 2202) for each partner/member/shareholder. This form can be found at https://www.sba.gov/sites/default/files/2019-09/2202%20Schedule%20of%20Liabilities.pdf; again it is recommended that you fillin out this form online. This form requires you to provide a list of all creditors along with the original amount owed, date of the initial loan, current balance, current or delinquent designation, maturity date, payment amount, and security interest.
Step 11: Complete the Request for Transcript of Tax Return (IRS Form 4506-T) for each partner/member/shareholder. This form can be found at https://www.irs.gov/pub/irs-pdf/f4506t.pdf; however, we recommend filling out this form online. This form requires the individual’s personal information in order for the SBA to review each individual’s tax returns. If the business is in its first year of operation, please upload a detailed letter informing the SBA.
Step 12: Read and accept the Truthful Information Certification.
Step 13: SUBMIT APPLICATION.
In summary, the basic filing requirements are:
- Completed SBA loan application (SBA Form 5).
- Tax Information Authorization (IRS Form 4506T) for the applicant, principals and affiliates.
- Schedule of Liabilities (SBA Form 2202).
- Personal Financial Statement (SBA Form 413).
The biggest reason for delays in processing Economic Injury Disaster is due to missing information. Make sure to complete all filing requirements before submitting the application and forms.
Additionally, you should initiate conversations with your current lenders, landlords, and creditors to explore all options. Congress is also pursuing other programs that you will want to consider.