Due to the Coronavirus (Covid-19), we are receiving a ton of requests for various SBA loan options. This week Congress passed and the President signed into law $50 billion in funding for the SBA for economic disaster loans (“EIDLs”).
Here is a quick summary of some of the key details regarding the EIDLs:
Maximum loan amount: $2M or substantial economic injury, whichever is lower
Interest rate: 3.75%
Other fees/expenses: None
Maximum term: 30 years (term TBD by SBA on a case-by case basis)
What’s not to love right? Well, here are a few important points related SBA economic disaster loans
Only option financing
These loans are only available to borrowers who are unable to obtain credit elsewhere. If you are a credit worthy borrower with an existing banking relationship, go see that bank first to see if they will fund your business. If they won’t then pursue the SBA loan option.
Limited to substantial economic injury
The loan is limited to the borrower’s substantial economic injury. Substantial economic injury means the business is unable to meet its obligations and to pay its ordinary and necessary operating expenses. EIDLs provide the necessary working capital to help small businesses survive until normal operations resume after a disaster.
The SBA can provide up to $2 million to help meet financial obligations and operating expenses that could have been met had the disaster not occurred. Your loan amount will be based on your actual economic injury and your company’s financial needs, regardless of whether the business suffered any property damage. Note that the loans can’t be used to refinance existing debt.
The maximum loan amount is also reduced by any reimbursements received from business interruption insurance and the owner(s) ability to contribute.
Consider these hypothetical set of facts:
- Restaurant closed for 90 days due to Corona virus (aka Covid-19)
- Restaurant suffers $600,000 in losses during government forced closure
- Restaurateur could contribute $200,000 towards operating expense
- Insurance policy pays $100,000 toward economic losses
The maximum loan for the restaurateur is $300,000:
Substantial economic losses $600,000
Owners contribution ($200,000)
Insurance policy ($100,000)
Maximum SBA loan amount $300,000
Credit history – Applications must have a credit history acceptable to the SBA.
Repayment — Borrower must show the ability to repay the loan
Collateral – Collateral is required for all EIDL loans over $25,000. The SBA won’t decline a loan for lack of collateral but will require the borrower to pledge any available collateral.
Other SBA loan programs
If you don’t qualify for a economic disaster loan (aka EIDL) loan, the SBA’s very popular 7(a) program is available for loans up to $5 million. SBA EDIL loans can also be combined with 7(a) loans. If you are looking for a quick assessment of SBA 7(a) eligibility for your business, complete our simple pre-qualify SBA form and we will have an SBA lender call you within one business day.