SBA Disaster Loan Terms
The U.S. Small Business Administration (SBA) is offering low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19).
Eligible entities may borrow up to $2 million dollars at 3.75% (2.75% for non-profits) up to 30 years (terms are determined on a case-by-case basis, based upon each borrower’s ability to repay). Eligibility for these working capital loans are based on the size (must be a small business) and type of business and its financial resources. The SBA’s economic injury disaster loans (EIDL) can provide vital economic support to small business to help overcome the temporary loss of revenue they are experiencing. These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The loans are not intended to replace lost sales or profits or for expansion. Funds cannot be used to pay down long-term debt.
The low rates and extended amortization make for very low-cost loans to help you to get through these hard times. Notably, these loans are direct lending from the SBA and not serviced by a bank. These will take a little work but could be worth it for your business.
Disaster Loan Approval Criteria
Like any loan, there are two components: collateral and debt service. Applicants must qualify for both. Many other SBA programs collateralize with real estate, but the SBA economic injury loans appear to not require real estate. This is a working capital loan, and working capital is an air-ball from a collateral perspective (versus using the funds to buy equipment or real property which has a title to attach).
In addition, eligible entities for the SBA disaster loan must have acceptable credit history and be physically located in the declared county. Businesses must also demonstrate that they suffered working capital losses due to the declared disaster, and not a downturn in the economy or other reasons. This will be a facts and circumstances driven appeal, unique to each individual business.
Applying for SBA Economic Injury Disaster Loan
The application is processed directly by the SBA and you can apply by uploading the completed forms or mailing them – we highly recommend electronic submission.
The link here will take you to the application page of the SBA.gov website.
We’ve obtain and aggregated all of the necessary SBA forms (download here) for you to grab easily in one place – our recommendation is for you to download and complete a rough draft, print it if you have to or you like to work with a tangible product – do this rough draft so that you can fully understand the SBA requirements before preparing your submission.
We recommend forecasting at least 6 months-worth of the following expenses:
- Existing debt service
- Accounts payables, and
- Other Expenses
These expenses should be expressed in a spreadsheet or table showing your future cash outflows.
Supplemental Information for Economic Injury Disaster Loan
In addition to the application stuff above, you will need the most recent tax return prepared and filed by the entity. If 2019 is unavailable, then the financial statements (balance sheet and income statement) for the period ending 12/31/19 ~ in addition to the 2018 filing. In addition, businesses will need current year-to-date financial statements. Economic injury disaster loans require monthly historical sales figures for the 36 months prior to the disaster as well.
On the SBA sales figure form, it also reads “It can be helpful to provide a financial forecast to illustrate what the income and expenses for the business will be during the period affected by the disaster until normal operations resume. This is not required.”
Here’s a link to all things SBA and Corona.