SBA Economic Injury Disaster Loan Program explained in WMC Webinar featuring SBA Public Affairs Specialist Kathy Cook
Below are notes from a webinar hosted by WMC with guest, SBA Public Affairs Specialist Kathy Cook.
The SBA is now offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of COVID-19.
Upon a request received from a state’s or territory’s Governor, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplement Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration.
*IF ELIGIBLE, SBA RECOMMENDS THAT BUSINESSES APPLY AS SOON AS POSSIBLE FOR LOAN BECAUSE THEY WORK ON A FIRST COME, FIRST SERVE BASIS*
What businesses are eligible to apply?
SBA’s Economic Injury Disaster Loans are available to small businesses and most non-profit organizations. They refer to these as “keep the business in business loans.” They cannot lend to any government entity.
- Businesses directly affected by the disaster
- Businesses that offer services directly related to the businesses in the declaration
- Other businesses indirectly related to the industry that are likely to be harmed by losses in their community
Example: Manufacturer of widgets may be eligible as well as the wholesaler and retailer of the product
What is the criteria for a loan approval?
- Credit history
- Applicants must have a credit history acceptable to SBA
- Can present evidence to appeal if declined
- SBA must determine that the applicant business has the ability to repay the SBA loan
- Repayment ability is based historically how they have operated.
- The applicant business must be physically located in a declared county and suffered working capital losses due to the declared disaster, not due to a downturn in the economy or other reasons
- State of Wisconsin has been declared, so everyone is located in a declared county
*They will have 11 months of deferment until they are required to begin paying the SBA back for loan
How much can I borrow?
Eligible entities may qualify for loans up to $2 million.
The interest rates for this disaster are 3.75% for small businesses and 2.75% for nonprofit organizations with terms up to 30 years.
Eligibility for these working capital loans are based on the size (must be a small business) and type of business and its financial resources.
How can I use the loan funds?
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.
What are the collateral requirements?
- Economic Injury Disaster Loans over 25,000 require collateral
- SBA takes real estate as collateral when it is available
- SBA will not decline a loan for a lack of collateral, but requires borrowers to pledge what is available
What kinds of small businesses can apply?
Examples of eligible industries include but are not limited to the following: hotels, recreational facilities, charter boats, manufacturers, sports vendors, owners of rental property, restaurants, retailers, souvenir shops, travel agencies, and wholesalers.
What other criteria is involved?
The applicant business must have a physical presence in the declared disaster area. An applicant’s economic presence alone in a declared area does not meet this requirement. the physical presence must be tangible and significant. Merely having a P.O. Box in the disaster area would not qualify as a physical presence.
SBA’s Working Capital Loans are Different from Other SBA Loans
SBA’s Economic Injury Disaster Loan funds come directly from the US Treasury.
Applicants do not go through a bank to apply. Instead apply directly to SBA’s Disaster Assistance Program at: DisasterLoan.sba.gov
There is no cost to apply.
There is no obligation to take the loan if offered.
The maximum unsecured loan amount is $25,000.
Applicants can have an existing SBA Disaster Loan and still qualify for an EIDL for this disaster but the loans cannot be consolidated.
Basic Filing Requirements
- Completed SBA loan application (SBA Form 5 or SBA Form 5C for sole proprietorships.)
- Tax Information Authorization (IRS Form 4506T) for the applicant, principals, and affiliates.
- Complete copies of the most recent Federal Income Tax Return
- Schedule of Liabilities (SBA Form 2202)
- Personal Financial Statement (SBA Form 413)
- Other information may also be requested.
*Filing electronically is easier, faster, and more accurate.
Additional Filing Requirements
Other Information that may be requested
- Complete copy, including all schedules, of the most recent Federal income tax return for principals, general partners or managing member and affiliates (see filing requirements for more information)
- If the most recent Federal income Tax return has not been filed, a year-end profit-and-loss statement and balance sheet for that tax year
- A current year-to-date profit-and-loss statement
- Additional Filing Requirements (SBA Form 1368) providing monthly sales figures
Private Non-Profit Organizations
Examples of Non-Profit Organizations: Nursing homes, food kitchens, museums, educational facilities, senior citizen centers, daycare centers, playhouses community centers, shelters, rescue organizations, etc
An eligible private non-profit organization is a non-governmental agency or entity that currently has:
- an effective ruling letter from the US IRS, granting tax exemption under sections 501(c), (d), or (e) of the IRS Code of 1954 or
- Satisfactory evidence from the State that the non-revenue producing organization or entity is a non-profit one organized or doing business under State law
What are some of the businesses that are ineligible for an Economic Injury Disaster Loan?
- Agricultural Enterprises – If the primary activity of the business (including its affiliates) is as defined in Section 18(b)(1) of the Small Business Act, neither the business nor its affiliates are eligible for EIDL assistance
- Religious Organizations
- Charitable Organizations, businesses considered hobbies, government-owned concerns
- Gambling Concerns (Ex: concerns that derive more than 1/3 of their annual gross revenue from legal gambling activities)
- Casinos & Racetracks (Ex: Businesses whose purpose for being is gambling (casinos, racetracks, poker parlors, etc.) are not eligible for EIDL assistance regardless of 1/3 criteria above
- Real estate developers-establishments primarily engages in subdividing real property into lots and developing it for resale on their own account
How to apply
- Applicants may apply online using the Electronic Loan Application (ELA) via SBA’s secure website at https://disasterloan.sba.gov/ela
- Paper loan applications can be downloaded from www.sba.gov/disaster . Completed applications should be mailed to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155
- Disaster loan information and application forms may also be obtained by calling the SBA’s Customer Service Center at 800-659-2955 (800-877-8339 for deaf and hard of hearing) or by sending an email to firstname.lastname@example.org
Assistance from SBA Partners
Free assistance with reconstructing financial records, preparing financial statements and submitting the loan application is available from any of SBA’s partners: SBDCs, SCORE, Women’s Business Centers, and Veteran’s Business Outreach Centers and local Chambers of Commerce.
Submit your application as soon as possible
Recheck the filing requirements to ensure that all the needed information is submitted.
The biggest reason for delays in processing is due to missing information. make sure to complete all filing requirements before submitting the application and forms.
If more funds are needed, applicants can submit supporting documents and a request for an increase. If less funds are needed, applicants can request a reduction in the loan amount.
If the loan request is denied, the applicant will be given up to six months in which to provide new information and submit a written request for reconsideration.
Are local chambers and other c6 groups qualified for SBA assistance loans?
How are the loans that were already being requested through SBA still being processed?
Did not know. Only handles disaster loans with that branch of the SBA.
What is the current time frame for decisions to be made on individuals submitting these applications?
Work on a first in, first out basis. The usual policy is to say 2-4 weeks.
Are there any programs to assist members of the business community on filling out these applications?
Depending on partners for that. SBA has a call center to help with any questions.