COVID-19 and small business, part II: The SBA – current relief and new relaxed guidelines
Part II: COVID-19 Small Business Series
As previously addressed in the first installment in this series, Congress and the Trump Administration have reached agreement on a variety of plans and processes to inject economic relief for small businesses affected by COVID-19 (the “Coronavirus”). While business owners continue to struggle with the economic ramifications associated with the various health concerns and new governmental requirements, lawmakers and governmental agencies are moving forward with measures aimed at assisting with these burdens.
In addition to the tax credits and other economic relief addressed in part one of this series, the Small Business Administration (SBA) has issued revised guidelines to begin issuing economic injury disaster loans to small businesses in affected states.
Current Relief – SBA Economic Injury Disaster Loans
Economic Injury Disaster Loans (EIDL) are available for small businesses, small agricultural cooperatives and most nonprofits in declared-disaster areas. The SBA defines a “small business” as one that typically makes a maximum of $750,000 – $38.5 million in annual revenue and has fewer than 100 – 1,500 employees, depending on the industry. Small business owners in all U.S. states and territories are currently eligible to apply for a low-interest loan due to the Coronavirus.
The SBA is working with state governors, through its network of 68 District Offices, to manage the disaster loan programs. Loans are determined by actual economic injury and can be worth up to $2 million, with interest rates at 3.75% for small businesses and 2.75% for nonprofits. In an effort to keep repayments affordable, the loans can be long-term (up to thirty (30) years), but the SBA must determine the business to be creditworthy. Loans that exceed $25,000 must be secured by collateral to the extent possible and, if the business has no collateral to pledge, assets of the business owners may need to be pledged as collateral.
Once these criteria are met, however, funds may be used to:
- pay fixed debts
- fund payroll
- cover accounts payable
- pay employee sick leave AND
- protect against other bills that cannot be paid due to the disaster’s impact
The SBA provides important restrictions on the use of the funds, however, as they may not be used to:
- refinance debts incurred prior to the disaster event
- make payments on other loans owned by another federal agency or the SBA
- pay tax penalties or non-tax criminal/civil fines, repair physical damage OR
- pay dividends or other disbursements to owners or partners except as related to their performance of services for the business
New Relaxed SBA Guidelines
On March 17, 2020, SBA issued guidance to increase EIDL efficiency:
- Historically, the SBA has required that any state or territory impacted by the pandemic provide documentation certifying that at least five small businesses have suffered substantial economic injury as a result of a disaster, with at least one business located in each declared county/parish. Under the just-released, revised criteria, states or territories are only required to certify that at least five small businesses within the state/territory have suffered substantial economic injury, regardless of where those businesses are located.
- SBA disaster assistance loans are typically only available to small businesses within counties identified as disaster areas by a governor. Under the revised criteria, disaster assistance loans will be available statewide following an economic injury declaration. This will apply to current and future disaster assistance declarations related to the coronavirus.
Under the revised criteria, once a state becomes a declared-disaster area, small businesses, private nonprofits, homeowners and renters can apply online for an SBA disaster assistance loan. As EIDL eligibility depends on small businesses’ access to other forms of capital, businesses can use the online portal to determine eligibility on a case-by-case basis.
For more information on the criteria or the relaxed guidelines, or to apply for an Economic Injury Disaster Loan (EIDL), please visit: https://covid19relief.sba.gov/#/
This post has been prepared by Robinson Gray Stepp & Laffitte, LLC for informational purposes only and does not constitute legal advice. For more information, contact attorney Tim Thompson.