The U.S. Small Business Administration’s (SBA) recently expanded COVID-19 Economic Injury Disaster Loan (COVID EIDL) program, which offers long-term, low-interest loans of up to $2 million to small businesses impacted by the pandemic, presents a financing tool that most eligible businesses should consider.
We described the expansion of the COVID EIDL program in a recent article. The below chart provides a high-level summary of the SBA’s guidance related to the program, including the economic terms, eligibility requirements, and documentation required to obtain a COVID EIDL loan. Notably, for the COVID EIDL program, the SBA appears to have dispensed with its usual requirement that borrowers demonstrate “substantial economic injury” to be eligible for a disaster loan.
The SBA is accepting COVID EIDL applications here. The program will end on the earlier of December 31, 2021, or the date funds are exhausted.
Economic Terms
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Loan Term |
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Loan Amount |
- Up to $2 million
- The SBA will begin approval of loans over $500,000 on October 8, 2021
- Corporate groups cannot borrow more than $10 million in the aggregate
- Maximum Loan Amount (up to $2 million) is calculated by the SBA on a borrower by borrower basis
- The formula for most borrowers is 2019 gross receipts or sales minus 2019 costs of goods sold multiplied by two, or $500,000, whichever is less
- For loans greater than $500,000.00 SBA will determine the maximum loan amount by reviewing cash flow and existing debt obligations of the borrower
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Interest Rate |
- For-Profit Businesses – 3.75 percent fixed
- Not-For-Profit Organizations – 2.75 percent fixed
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Deferral Period |
- Payments deferred for 24 months
- Interest will accrue during the deferral period
- Deferred interest to be paid over 28-year loan term following deferral period
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Use of Proceeds |
- Allowed: Working capital to make regular payments for operating expenses, including payroll, rent/mortgage, utilities, and other ordinary business expenses, and to pay business debt incurred at any time
- Allows pre-payment of non-federal debt and regular payments to be made on federal debt
- Prohibited: Expanding business, prepaying federal debt, starting a new business
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Collateral |
- No collateral required for loans of $25,000 or less
- Loans of $25,001 - $500,000 require that the SBA will file UCC-1 covering the borrower’s business assets
- Loans of $500,001 - $2 million require that the SBA will (i) file UCC-1 covering the borrower’s business assets and (ii) obtain a best available mortgage on real estate owned by the borrower
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Personal Guaranty |
- Required for loans over $200,000
- Full guaranty required from:
- All individuals or entities owning 20 percent or more of the applicant business
- For sole proprietorships, the proprietor
- For independent contractors, the contractor
- For General Partnerships, all general partners
- For Limited Partnerships, all general partners and any limited partner who owns 20 percent or more of the partnership
- For Limited Liability Entities, the Managing Member and any member who owns 20 percent or more of the entity
- For Corporations, any individual or legal entity who owns 20 percent or more of the voting stock
- If no single owner owns 20 percent or more, then at least one individual or entity must provide a full guaranty
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Eligibility
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Size |
- A business that, together with affiliates, has not more than 500 employees
- A business that, together with affiliates, has more than 500 employees and
(a) is assigned a NAICS code beginning with:
- 61 Educational Services;
- 71 Arts, Entertainment, and Recreation;
- 72 Accommodation and Food Services;
- 213 Support Activities for Mining; Industry group;
- 3121 Beverage manufacturers;
- 315 Apparel Manufacturing;
- 448 Clothing and Clothing Accessories Stores;
- 451 Sporting Good, Hobby, Book, and Music Stores;
- 481 Air Transportation;
- 485 Transit and Ground Passenger Transportation;
- 487 Scenic and Sightseeing Transportation;
- 511 Publishing Industries (except Internet);
- 512 Motion Picture and Sound Recording Industries;
- 515 Broadcasting (except Internet);
- 532 Rental and Leasing Services; and
- 812 Personal and Laundry Services;
(b) employs not more than 500 employees per physical location; and
(c) has no more than 20 locations (this includes the number of locations that your affiliates have, if any) |
Affiliation |
- “Affiliate” means any business in which a borrower: (i) owns at least 50 percent; (ii) has a right to profit distributions of at least 50 percent; or (iii) has the contractual authority to control the direction of the business
- Affiliate status measured as of January 31, 2020
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Credit Score |
- Loans of $500,000 or less require a minimum credit score of 570
- Ability to repay determined by credit score only
- Loans greater than $500,000 require a minimum credit score of 625
- Ability to repay determined by (i) cash flow analysis conducted by the SBA and (ii) existing debt obligations of the borrower
- Loan amount determined in part by the ability to repay
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Immigration Status |
- For-profit businesses other than sole proprietorships: The business must have a valid IRS-issued tax identification number (TIN). Each owner, member, partner, or shareholder of 20 percent or more of the business must be a U.S. citizen, non-citizen national, or qualified alien with a valid SSN
- Sole proprietorships: U.S. citizens, non-citizen nationals, and qualified aliens with a valid SSN are eligible
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Ineligible Entities
(non-exhaustive list) |
- Businesses not in operation on or before January 31, 2020
- Businesses engaged in illegal activity at federal, state, or local level (including cannabis businesses)
- Businesses primarily engaged in lobbying or political activities
- A business that is a debtor under chapter 7 of the Bankruptcy Code or under another chapter of the Bankruptcy Code but a plan of reorganization has not been confirmed
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Required Documentation
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Generally |
- 2019 Federal Income Taxes, including all schedules, for the applicant business
- 2020 Federal Income Taxes, including all schedules, for the applicant business (if available)
- 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
- IRS Form 4506-T
- Board resolution or certificate of authority providing authority to commit the business to the loan
- Copy of government-issued photo identification of each principal owning 20 percent or more of the applicant business
- Current year-to-date profit-and-loss statement
- For loans less than or equal to $500,000: Schedule of Liabilities listing all fixed debts
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For Loans >$500,000 |
- SBA Form 2202 – Schedule of Liabilities
- List of real estate owned
- SBA Form 413 – Personal Financial Statement for general partners, managing members, and all owners of 20 percent or more of the applicant business
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Lane Powell’s team of attorneys is here to help you develop and implement the strategy that supports your business and your employees. For more information, consult Lane Powell’s COVID-19 Resource Center or contact Andrew Geppert, Lewis Horowitz, or Eric Kodesch. Keep up-to-date by subscribing to Lane Powell’s Legal Updates.
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