21 Apr Legal Alert #2 – Economic Injury Disaster Loan Program
Our efforts to keep our business clients up to date on the legal challenges and opportunities presented by the spread of COVID-19 (the “Coronavirus”) continue with this second alert. In this alert we share with you good news regarding the availability of small business loans.
Small Business Guidance & Loan Resources: Economic Injury Disaster Loan Program
The Coronavirus pandemic has severely impacted small businesses with issues such as loss of revenue, incapacity to make payroll, employee layoffs, inability to maintain inventory, supply chain interruptions, and other unforeseen circumstances. In our efforts to monitor and report on new options to consider, small business owners in Indiana and certain other states are now eligible to apply for a low-interest loan due to COVID-19. The Small Business Administration (“SBA”) will work directly with state Governors to provide targeted, low-interest loans to small businesses and non-profits that have been severely impacted by the Coronavirus. The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses 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 interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%. SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay. SBA’s Economic Injury Disaster Loans are just one piece of the expanded focus of the federal government’s coordinated response. The SBA has stated that it is strongly committed to providing the most effective and customer-focused response possible. Small businesses can go to the Disaster Loan Assistance webpage to check eligible disaster areas, apply online, and check the status of their application.
There are three steps to the application process:
Step One – Apply for a Loan
Apply online or by mail. A copy of the paper application can be obtained here. As a small business, small agricultural cooperative, small business engaged in aquaculture, or private non-profit organization you may borrow up to $2 million for Economic Injury.
Step Two – The Loan Processing Decision
SBA reviews your credit before conducting an inspection to verify your losses. A loan officer works with you to provide all the necessary information needed to reach a loan determination. The goal is to arrive at a decision on your application within 2 – 3 weeks, although it is difficult to predict how a large influx of applications will be handled. A loan officer will contact you to discuss the loan recommendation and your next steps. You will also be advised in writing of all loan decisions.
Step Three – Loan Closed and Funds Disbursed
SBA will prepare and send your Loan Closing Documents to you for your signature. Once they receive your signed Loan Closing Documents, an initial disbursement will be made to you within 5 days ($25,000). A case manager will be assigned to work with you to help you meet all loan conditions. They will also schedule subsequent disbursements until you receive the full loan amount. Your loan may be adjusted after closing due to your changing circumstances.
Documents you may need to gather to complete the loan process include:
IRS Form 4506-T completed and signed by Applicant business, each principal owning 20% or more of the applicant business, each general partner or managing member and, for any owner who has more than a 50% ownership in an affiliate business. (Affiliates include business parent, subsidiaries, and/or businesses with common ownership or management).
- Complete copies, including all schedules, of the most recent Federal income tax returns for the applicant business; an explanation if not available.
- Personal Financial Statement (SBA Form 413) completed, signed and dated by the applicant (if a sole proprietorship), each principal owning 20% or more of the applicant business, each general partner or managing member.
- Schedule of Liabilities listing all fixed debts (SBA Form 2202 may be used).
- Complete copies, including all schedules, of the most recent Federal income tax returns for each principal owning 20% or more of the applicant business, each general partner or managing member, and each affiliate when any owner has more than a 50% ownership in the affiliate business. Affiliates include, but are not limited to, business parents, subsidiaries, and/or other businesses with common ownership or management.
- 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 is acceptable.
- A current year-to-date profit and loss statement.
- Additional Filing Requirements (SBA Form 1368) providing monthly sales figures.
We have been through difficult times before; in time, this too will pass.
All of us at Eagle & Fein continue to be available to provide you guidance and support. We are well connected electronically and are available for VVFMs – Virtual Virus Free Meetings. Please reach out with any follow up questions by e-mail or phone.