Undoubtedly, COVID-19 presents a complex challenge to our country and the world at large. If we all stay home, we might quell the spread of the virus. And yet, many people need to work outside the home to pay their bills. We know that many of our small-to-mid-size business clients are facing hard choices, especially with shelter-in place orders, including closing down and/or engaging in temporary or permanent layoffs. Pacific Northwest businesses may be eligible for an Economic Injury Disaster Loan (EIDL) being offered by the Small Business Administration (SBA). Applicants may apply online here.
COVID-19 Qualifies Some States and Territories for Disaster Relief
The Coronavirus Preparedness and Response Supplemental Appropriations Act, signed into law on March 6, provides an $8.3 billion package to fund disaster relief loans for small businesses and a health care response, including vaccine development, as well as to support local and state governments.
A few steps must occur before a small business can seek disaster relief. A governor must first request the SBA to make an Economic Injury Disaster Loan declaration. Once the declaration has been made, small business owners may apply.
What is a Small Business?
“Small business” is a malleable term defined by the SBA based on industry, annual sales and/or employee numbers. Generally, a small business will also include affiliated businesses, as defined by 12 CFR § 121.103.
You can locate the SBA’s size standards by industry at 13 C.F.R. § 121.201 to see if your business qualifies. It is important to look at this regulation (which is a chart covering broad swaths of businesses) to determine whether your business qualifies, because the SBA defines some businesses as “small” based on annual receipts and others based the number of employees. For example, the SBA generally defines a brewery as a small business if it has less than 1200 employees. In contrast, the SBA defines a beer, wine and liquor store as “small” if its annual receipts are less than $8 million.
About the Loans
- SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance, and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
- These loans may be used to pay fixed debts, payroll, accounts payable, and other bills that cannot be paid because of the disaster’s impact. The interest rate for small businesses is 3.75 percent. The interest rate for non-profits is 2.75 percent.
- SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
- SBA’s Economic Injury Disaster Loans are just one piece of the expanded focus of the federal government’s coordinated response, and the SBA is strongly committed to providing the most effective and customer-focused response possible.
For additional information, contact the SBA disaster assistance customer service center at 1-800-659-2955 (TTY: 1-800-877-8339); by e-mail at disastercustomerservice@sba.gov; or online at SBA.gov/disaster. SBA has provided several helpful resource documents here.
Businesses Within Washington and California, and the Oregon Counties Bordering, May Be Eligible for EIDLs
On March 19, the SBA announced disaster declaration 16332, covering primarily California counties, but also including the Oregon contiguous counties of Curry, Jackson, Josephine, Klamath and Lake.
On March 21, the SBA announced a disaster declaration for all counties within the state of Washington, the Idaho contiguous counties of Benewah, Bonner, Boundary, Kootenai, Latah and Nez Perce, and the Oregon contiguous counties of Clatsop, Columbia, Gilliam, Hood River, Morrow, Multnomah, Sherman, Umatilla, Wallowa and Wasco.
The Summary of the Loan Terms
Credit Requirements
- Credit History: Applicants must have a credit history acceptable to SBA.
- Repayment: Applicants must show the ability to repay the loan.
- Collateral: Collateral is required for all EIDL loans over $25,000. SBA takes real estate as collateral when it is available. SBA will not decline a loan for lack of collateral, but SBA will require the borrower to pledge collateral that is available.
Interest Rates
The interest rate is determined by formulas set by law and is fixed for the life of the loan. The maximum interest rate for this disaster is 3.75 percent.
Loan Terms
The law authorizes loan terms up to a maximum of 30 years. SBA will determine an appropriate installment payment based on the financial condition of each borrower, which in turn will determine the loan term.
Loan Amount Limit
The law limits EIDLs to $2 million for alleviating economic injury caused by the disaster. The actual amount of each loan is limited to the economic injury determined by SBA, less business interruption insurance and other recoveries, up to the administrative lending limit. SBA also considers potential contributions that are available from the business and/or its owner(s) or affiliates. If a business is a major source of employment, SBA has the authority to waive the $2 million statutory limit.
Loan Eligibility Restrictions
Applicants who have not complied with the terms of previous SBA loans may not be eligible. This includes borrowers who did not maintain required flood insurance and/or hazard insurance on previous SBA loans.
Refinancing
Economic Injury Disaster Loans cannot be used to refinance long-term debts.
Insurance Requirements
SBA may require appropriate insurance. By law, borrowers whose damaged or collateral property is located in a special flood hazard area must purchase and maintain flood insurance. SBA requires that flood insurance coverage be the lesser of (1) the total of the disaster loan, (2) the insurable value of the property, or (3) the maximum insurance available.
If you have more questions, please contact Pilar French, frenchp@lanepowell.com, 503.778.2170.