On March 13, the U.S. Small Business Administration (SBA) announced that low-interest disaster recovery loans of up to $2 million will be available to businesses affected by the COVID-19 crisis. These Economic Injury Disaster Loans (EIDL) provided term loans that are intended to support the working capital needs of businesses affected by COVID-19. The EIDL program provides only term loans, not lines of credit. As of April 16, 2020, the SBA has noted on its website that the SBA is unable to accept new applications for this program due to funding availability. Applications that have been submitted will be processed on a first-come, first-served basis.
At this time, it is unknown whether Congress will approve additional funding for this program.
As some applications continue to be processed, it is still important for businesses to understand their eligibility and other program details. To be eligible, businesses must be located in a declared disaster area. The SBA has declared all fifty states, Washington D.C., Guam, Virgin Islands, Puerto Rico, Northern Mariana Islands, and American Samoa as disaster areas, meaning that eligible businesses from these areas may apply.
Agricultural enterprises, casinos, and companies in the cannabis industry may not be eligible to obtain SBA Loans. In addition, religious and charitable organizations may also be ineligible, although some non-profit organizations will be able to obtain these loans.
Funds can be used to pay fixed debts, such as bank loans, payroll, accounts payable, and other bills. Loans are not intended to support growth initiatives, investment, or other non-working capital needs. Loans will be offered with terms of up to 30 years and interest rates of 3.75 percent for small businesses and 2.75 percent for non-profit organizations. While all applicants must prove the crisis has hurt their business, details of individual loans will be determined on a case-by-case basis. Generally, loans will be awarded to companies that do not have access to other funding.
To further help organizations affected by a disaster, the SBA is offering some deferment options. The SBA will automatically defer existing SBA disaster loans through the end of the 2020 calendar year. In addition, new EIDLs will allow for one-year deferments. During any deferment, interest will continue to accrue.
Through the CARES Act, “emergency advances” became available in an amount up to $10,000 for loan applicants. On April 13, 2020, the SBA emailed applicants noting that this emergency advance would be capped at $1,000 per employee, up to $10,000. Note that the emergency advance does not need to be repaid, although it may reduce the amount of forgiveness available through a Paycheck Protection Program loan.
Applicants applied directly through the SBA, at sba.gov/disaster and submitted information including the SBA Loan Application (Form 5) and an IRS 4506-T (tax return release). Those who have not been contacted by the SBA may still be asked to submit documents including recent federal income tax returns, personal financial statements, schedules of liabilities, financial statements, deed/lease information, and their employer identification number (EIN) available. Note that applicants are subject to credit checks, resulting in hard inquiries.
For questions or to discuss COVID-19’s effect on your business, contact a member of the HBK CPAs & Consultants team.