Breaking Down SBA's COVID-19 Economic Injury Disaster Loan

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The unprecedented impact of the COVID-19 pandemic on small businesses has caused the Small Business Administration (SBA) to institute an Economic Injury Disaster Loan (EIDL) program aimed at aiding those affected by the pandemic. Whether you’re a government contractor or a commercial business, we’re breaking down for you the who, what, where, when, and how of the SBA’s detailed EIDL application process.

1.     WHO: Eligible Businesses

a. To be eligible, in addition to other conditions, an applicant must be a small business, small agricultural cooperative, or a private non-profit organization.
b. The business’s principal office must be located in a state that has an EIDL declaration (see list below).
c.  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’s owners may need to be pledged as collateral.
d. Applicants must show that they have the ability to repay all loans.
e. EIDL assistance is available only to a small business when SBA determines that such business is unable to obtain credit elsewhere. If you have not explored obtaining financing through other avenues (SBA or other),  please contact a trusted advisor who can help align your objectives with an appropriate lender and/or investor.

2.    WHAT: Economic Injury Disaster Loan

a.
 
EIDLs are loans issued to eligible business by SBA under its own authority, following a request to the SBA from a state or territory’s governor that the businesses in their respective area have been adversely affected by the COVID-19 pandemic, as provided for in the recent Coronarvirus Preparedness and Response Supplement Appropriations Act.
b.

An EIDL is a loan for a business to pay fixed debts, payroll, accounts payable and other liabilities. 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” has been interpreted to mean that 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. 

c. The maximum interest rate is 3.75% for small businesses.
d. The maximum term of each loan is 30 years, though the period of time to repay the loan is determined on a case-by-case basis depending on the business’s creditworthiness.

3.     WHERE: Eligible States and Territories

Listed below are states that have received an EDIL declaration at the time of this alert. States in bold have not yet received a declaration, though we anticipate that they will shortly. If your business’s principal office is in one of the states or a county or city that borders these states, you may be eligible for SBA assistance.

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

District of Columbia

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

4.     WHEN: SBA has already started processing applications.

5.     HOW: Starting the Application Process

For additional information, please visit  SBA Disaster Loan Assistance, call the SBA Disaster Assistance Customer Service Center at 1-800-659-2955 (TTY: 1-800-877-8339), or email emaildisastercustomerservice@sba.gov

Important Takeaways 

a. Businesses should review their current insurance policies, other assistance programs, and other banking relationships currently in place to determine whether obtaining an EIDL is an “event of default” or can otherwise adversely affect their financing agreements and arrangements that are currently in place.
b. The COVID-19 pandemic is an unprecedented national crisis that will put a strain on governmental resources which, in turn, may cause delays in the processing of loan applications. Accordingly, SBA officials have repeatedly stressed that applicants should thoroughly complete their applications before submission to ensure they are able to be processed the first time they are submitted. 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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