Guidance Navigating the SBA Coronavirus (COVID-19) Economic Injury Disaster Loan Program

Guidance Navigating the SBA Coronavirus (COVID-19) Economic Injury Disaster Loan Program

By |2020-03-26T01:05:40+00:00Mar 26, 2020|Business Law|

The U.S. Small Business Administration (SBA) is offering low-interest federal disaster working capital loans through the Economic Injury Disaster Loan Program (EIDLP) for small businesses and private non-profits in Pennsylvania which were impacted by COVID-19.

The SBA is encouraging all small businesses and private non-profits impacted by COVID-19 to apply now for EIDLs, with hopes of getting the money in the hands of those who need it in just a few weeks.

Below is a brief rundown of how EIDLs work and the application process.  Please be in touch with either Britain Henry (bhenry@goldsteinlp.com) or Jonathan Goldstein (jonathan@goldsteinlp.com) if we can answer any questions or assist you in preparing an application.

Economic Injury Disaster Loan:

An EIDL is a loan for a business to pay fixed debts, payroll, accounts payable and other liabilities or otherwise provide the necessary working capital to help small businesses survive until normal operations resume after a disaster. The actual amount of each loan is limited to the economic injury suffered by the business as determined by SBA, up to a maximum of $2 million, which maximum can be waived by SBA if the business is a major source of employment.  “Economic injury” means the business is unable to meet its obligations and to pay its ordinary and necessary operating expenses. Importantly, such loans do not replace lost sales or revenue, and such losses will not be considered an economic injury. 

Eligibility:

All small businesses, small agricultural cooperative and private non-profits impacted by COVID-19 with the business’s principal office located in Pennsylvania are eligible for assistance under the EIDLP. The SBA must determine the business to be creditworthy and Applicants must show that they have the ability to repay all loans.

Financing terms:

The interest rate is 3.75% for small businesses and 2.75% for private non-profits.  Repayment terms are determined on a case-by-case basis, based upon each borrower’s ability to repay, with a maximum repayment period of 30 years.  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’s owners may need to be pledged as collateral; however, lack of pledgeable assets will not automatically be a reason of denial.

Use of funds:

The money can be used for paying fixed debts, accounts payable, payroll and other bills that cannot be repaid because of the impact of COVID-19. An EIDL cannot be used for business expansion or to refinance existing debts. The disaster declaration is retroactively made effective as of January 31, so any losses the business has incurred since then may be used in determining the loan amount.

Timeline:

The SBA is estimating it will take between eight and 21 days to process the loan application, depending on the complexity of the business and the number of applications received. Once the loan has been approved, the SBA currently estimates that it will take approximately five days to receive the money.

Application processing:

Applications can be found online here and applicants are encouraged to apply online. Upon submission, an SBA loan officer is assigned to review the application and the supporting documents and information.  The loan officer will contact the applicant to discuss the loan recommendation and next steps. All determination will also be delivered in writing.

If approved, the SBA will prepare and send the applicant the Loan Closing Documents for signature.  Upon receipt of the signed Loan Closing Documents, an initial disbursement will be made within 5 days:  up to $25,000 for working capital.  In addition, a case manager will be assigned to assist with compliance of the loan conditions and schedule subsequent disbursements until disbursement of the full loan amount.  The loan may be adjusted after closing due to changing circumstances, such as increasing the loan for unexpected repair costs or reducing the loan due to additional insurance proceeds.

Required documents:

  1. Business Loan Application (SBA Form 5) completed and signed by business applicant.
  2. IRS Form 4506-T completed and signed by the 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.
  3. Complete copies, including all schedules, of the most recent Federal income tax returns for the applicant business; an explanation if not available.
  4. 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.
  5. Schedule of Liabilities listing all fixed debts (SBA Form 2202 may be used).

ADDITIONAL INFORMATION THAT MAY BE REQUIRED:

  1. 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. 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.
  2. A current year-to-date profit and loss statement.
  3. SBA Form 1368 providing monthly sales figures.

Other considerations:

Businesses should review their current insurance policies, other assistance programs, existing loans and existing liens on assets to determine whether obtaining an EIDL is an “event of default” that would violate any covenants in existing loan documents or otherwise adversely affect existing financing agreements.

Business are not required to take the approved loan if they later determine they do not want or need the money.

Business may take an initial disbursement and apply again later if it is determined more money is needed.

Additional information:

More information about the SBA EIDLP can be found here.

Please be in touch with either Britain Henry (bhenry@goldsteinlp.com) or Jonathan Goldstein (jonathan@goldsteinlp.com) if we can answer any questions or assist you in preparing an application.

Britain Henry is an associate at Goldstein Law Partners. He concentrates his practice in the areas of Municipal Law and Land Use, Business Law, Election Law, Complex Dispute Resolution & Litigation, and Constitutional Law & Civil Rights.