You have likely heard about the availability of disaster loan support from the Small Business Administration (SBA). Information is quickly becoming available on how to access this funding source. This money is a loan and must be repaid, although repayment terms can be long term enough to be helpful. The interest rates are lower than most commercial loans.
The first thing for all of us to do is asses our own situations. If you have not experienced a mandatory closure, first consider all options for cost reduction and cash accumulation. Those that have worked with me very likely have a budget and cash flow projection in place – we can adapt that to the changing times. If you don’t have this in place, getting a realistic view of your circumstances is the best first step. Challenging though, since we have no idea at this point the extent of the impact since it is changing so quickly. We’ll have to do our best to project into the most uncertain times any of us have experienced.
Talk to your current bank to see what they are able to offer you. If you have existing debt, they may be able to offer interest only loans, or be able to extend the terms of your loan to conserve cash in the short run. If you don’t have an active line of credit, consider applying for one now even if you don’t need it. That is always the best time to apply.
If you think SBA assistance is for you, go to https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources to start to understand what they are offering.
Additionally, here is what I know:
• Applicants must meet the SBA requirements of a small business (500 employees or fewer)
• Businesses directly affected by COVID-19
• Businesses that offer services directly related to the businesses in the declaration
• Other businesses indirectly related 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)
• 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
• Gambling Concerns (Ex: Concerns that derive more that 1/3 of their annual gross revenue from legal gambling activities)
• Casinos & Racetracks (Ex: Businesses whose purpose for being is gambling (e.g., casinos, racetracks, poker parlors, etc.) are not eligible for EIDL assistance regardless of 1/3 criteria above.
• Cannabis Industry
LOAN APPROVAL CRITERIA:
• Credit History: Applicants must have a credit history acceptable to SBA.
• Repayment: SBA must determine that the applicant business has the ability to repay the SBA loan.
• Eligibility: 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.
HOW MUCH YOU CAN BORROW:
• Eligible entities may qualify for loans up to $2 million.
• The interest rates for this disaster are 3.75 percent for small businesses and 2.75 percent 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 THE FUNDS CAN BE USED:
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. Funds cannot be used to pay down long-term debt.
BEFORE YOU START YOUR APPLICATION:
Collect the following documents – keep them handy in case the online application crashes part way through – the system is overloaded now.
• Last three years of federal tax returns for your business
• Last three years of personal federal tax returns
• A Personal Financial Statement
• Articles of Incorporation (if you are an LLC, your Articles of Organization)
• A Business Plan with Financial Projections might be helpful, but probably not required
HOW SOON WILL BUSINESSES RECEIVE MONEY:
• Small businesses that submit complete loan packages could receive the money within three (3) weeks
• Incomplete information and verification of collateral will delay the approval process
• Include the specific disaster in your application – specifically reference “COVID-19” or Coronavirus
Know how much you are applying for and have a repayment plan determined – the best way to do this is to have an updated cash flow forecast. Please feel free to reach out to me with questions and support to navigate this situation.
Contact Terryl Peterson