By: Paul Reuland
Updated: March 30, 2020
The U.S. Small Business Administration (the “SBA”) is currently accepting applications for Economic Injury Disaster Loans (“EIDL”) from businesses impacted by the Coronavirus. It is expected that demand for these loans will be high and processing times will be significantly delayed. Accordingly, businesses with an immediate or anticipated need for funding are advised to apply to the SBA as soon as possible. A business is not obligated to accept funds from an EIDL by virtue of submitting an application.
Eligibility for an EIDL
- Qualify as a “Small Business.” An applicant must meet the SBA definition of a “Small Business.” While there is no single metric used to make this determination and the criteria vary substantially by industry, the overwhelming majority of businesses will qualify as a “Small Business”, including both incorporated and unincorporated businesses. The SBA webpage offers a tool to assist businesses in determining whether or not they qualify as a “Small Business” (https://www.sba.gov/size-standards/).
- Disaster Declaration. The impacted business must be located in a county that receives a “Disaster Declaration” from the Governor. The SBA webpage maintains a current listing of eligible counties (https://disasterloan.sba.gov/ela/Declarations). It is expected that most counties in New Hampshire and Massachusetts will receive this designation shortly, if they have not already.
- Demonstrable Need. The business must demonstrate that is unable to pay its ordinary operational expenses that would have been paid but for the impact of the Coronavirus.
The maximum EIDL loan amount is $2,000,000. The maximum interest rate is 3.75%. The loan term is determined in conjunction with an SBA representative based upon the ability of the business to make payments. The maximum permissible term is 30 years. In order to provide flexibility for the business, the principal amount of the loan may be adjusted after the initial disbursement as circumstances dictate.
Time Frame for Loan Review, Disbursement of Funds
After submission of an application but prior to approval, an applicant may request an advance of up to $10,000 to be used for authorized costs. The advanced funds will be disbursed within 3 days of the request. If the loan application is rejected, the applicant is not required to repay the amount of the advance.
The SBA’s stated goal is that all EIDL applications are reviewed within 2 to 3 weeks from the date of submission. Upon approval, a business can expect to receive a disbursement of up to $25,000 within 5 days of returning executed loan documents. The loan funds are disbursed directly to the business from the SBA.
A business applying for an EIDL is required to submit the following application materials: a loan application; monthly sales figures; a schedule of liabilities; tax returns; and, personal financial statements. Tax information and personal financial statements must be submitted by any owner of more than 20% of the equity of the applicant business, any guarantor, the general partner and managing member (if any), or each proprietor (if an unincorporated business).
EDILs cannot be used to re-finance existing debt. Personal guarantees are not required on loans under $200,000 (although collateral may be required). Loans over $200,000 must be guaranteed by any owner having a 20% or greater interest in the applicant. The SBA will make disbursements under an EIDL even if the applicant business has a pending insurance recovery. Thus, for businesses with business interruption insurance coverage that includes pandemics, EIDL funds can be used as a source of bridge financing until insurance payments are received.
Given the amount of loan applications that are anticipated, we recommend submitting your EIDL application as soon as possible. You can begin the application here: https://www.sba.gov/disaster-assistance/coronavirus-covid-19#section-header-21.
Should you require assistance with any part of this process, attorneys at Sheehan Phinney Bass & Green PA are ready and able to help.