SBA Economic Injury Disaster Loans
If you own a small business and have been affected by the Coronavirus (COVID-19). I’m sure you’ve heard of the various stimulus bills the President and Congress have approved. Part of the stimulus includes the SBA Economic Injury Disaster Loan (EIDL).
SBA’s EIDLs are loans offered for disaster areas. SBA offers disaster loans whenever a disaster affects a region of America. Examples are Hurricane Katrina in Louisiana and Hurricane Maria in Puerto Rico.
SBA has recently declared that businesses affected by COVID-19 may qualify. Below, I outline questions and answers you probably have about the SBA Loans.
The SBA’s disaster loans are for eligible Small Businesses, Non-Profits and Small Agricultural Co-Ops in declared disaster areas that have suffered substantial economic injury.
Below we will explain
- How do I know if my business is an Eligible Small Business?
- Am I in a Declared Disaster Area?
- Has my business Suffered from Substantial Economic Injury
- How do the loans work?
- Will I need collateral to get the SBA Loan?
- How do I apply?
How do I know if my business is an Eligible Small Business?
If it’s directly affected by the disaster and offers services directly related by the Coronavirus, then it’s Eligible.
Your business must be physically present in the disaster area. (Don’t worry, if your business is out of your home office, that counts!)
Small businesses include – LLCs, corporations, S-corporations, partnerships, and DBAs.
However, the following businesses are NOT eligible:
- Religious organizations
- Most gambling activities (casinos)
- Federally illegal activities (marijuana dispensaries)
- Governmental entities
- Political or lobbying organizations
How do I know if my business is in a Declared Disaster Area?
If your city has been impacted by the Coronavirus, you are in a Declared Disaster Area. For example, in Las Vegas, the casinos have closed, and the Governor had requested an EDIL declaration for the entire state. SBA approved this right away, so now the entire state of Nevada is considered a Declared Disaster Area. Check with your own state of residence to see if they’ve been approved.
Has my business suffered from Substantial Economic Injury?
Substantial means that due to the Coronavirus and the slowdown of the economy, your business can no longer pay the ordinary and necessary expenses for running your small business. Your business is having trouble paying any (maybe all) of the following:
- Additional extraordinary expenses incurred due to the Coronavirus
How do the loans work?
Here are the technical details of the SBA Disaster Loan:
- All loans are termed, meaning that they can go up to 30 years, but they are not Lines of Credit
- The interest rate on the loan is 3.75% (2.75% if you’re a non-profit)
- The maximum limit on a loan is $2,000,000
- There are no prepayment penalties if you pay back the loan early
- You do not have to make payments on the loan for the first year (deferment for 12 months)
- You may be able to get credit or financing anywhere else
- Must show the ability to pay back the loan
- Note that the SBA will pull your credit history
Will I need collateral to get the loan?
There may be some collateral requirements depending on the amount of money you request.
Here are the details:
- If your loan is < $25,000, then you do not have to secure any collateral
- If your loan is > $25,000, then you will need collateral, such as real estate, inventory, receivables, etc.
- You will need to pledge what assets you have available as collateral.
If you’re running a small business today, chances are that you have been seriously affected by the Coronavirus and may need some help. If so, it won’t hurt to apply for the SBA loan. I hope this article helps!