The Small Business Administration (SBA) has issued preliminary guidelines and criteria to qualify for their Disaster Loan Assistance due to the impact of the COVID-19 pandemic.
The SBA Disaster Loan Program will offer loans from the SBA that will be repaid directly to the SBA. Loan amounts will be up to $2.0 million for a business applicant and all its affiliates. Interest rates for businesses will be 3.75% fixed for 30 years and all loans will have a repayment term of 30 years. Payments can be deferred for the first 12 months but interest still accrues. The deadline to apply is December 18, 2020.
The SBA is using their “Three Step Process” for the Disaster Loan application.
- Step 1. Apply for the loan: If possible complete the application online at https://disasterloan.sba.gov/ela. Note that the applications will be processed in the order received. The required documentation is listed on page 4 of 6 of loan application. Please note page 3 of the loan application was intentionally omitted by the SBA. The required forms are Form 413, Form 2202 and IRS Form 4506-T.
- Step 2. Information verified and decision made: Submitted forms are verified by an SBA loan officer to determine eligibility. The SBA will use credit scores in their decisions for approval. A loan officer will be assigned to assist the applicant in providing all of the necessary information to reach a loan determination. It is estimated that step 2 can take up to 4 weeks to complete, at which time you will be notified in writing of all loan decisions.
- Step 3. Loan closed and Funds Disbursed: Loan documents are prepared for applicant’s signature. Once the signed documents are received by the SBA a $25,000 initial disbursement will be made to you within 5 days. A case manager will be assigned to work with you on meeting all loan conditions and to schedule subsequent disbursements.
Additional Loan Information: (subject to change)
• Loan amounts will be up to $2.0 million for a business applicant and all its affiliates.
• SBA will use credit scores in their decisions for approval.
• Rates for businesses will be 3.75% fixed for 30 years.
• All loans will have a repayment term of 30 years. Payments can be deferred for the first 12 months.
• In a Phase I application (which will be most businesses) the maximum loan amount will be 50% of gross profit from the last completed fiscal year, based on the prior year’s tax returns (Sales – Cost of Goods Sold = Gross Profit x 50% = Maximum Loan Amount).
• Larger businesses can proceed to a Phase II application that will require additional documentation if they need more than $500,000.
• Loans will be secured if over $25,000 if collateral is available with real estate being the preferred collateral.
• All 20% or more owners will fully personally guaranty the loan. Changing ownership prior to application to lower an individual’s ownership to avoid a personal guaranty could jeopardize eligibility.
• Proceeds may be used for working capital for business expenses only including supplies and materials, payroll, debt payments, utility, and other operational costs. Essentially any expense that appeared in the business expenses in their financials in the past 12 months is likely eligible. Anything else such as expanding or renovating a facility or making capital equipment purchases (vehicles or other equipment) is not.
• No debt consolidation will be allowed. The exception would be temporary or interim loans that were taken out since the crisis started for operational expenses may be refinanced. The business can pay regular monthly debt payments as they become due.
• Non-profits can apply, but not churches, agriculture production, gambling, or sin businesses.
• Timeline is expected to take less than a week for approval using the scoring system after a business applies directly online (they will use tax return transcripts as well to verify applications). SBA is targeting 30 days to close.
• SBA expects 300,000 to 500,000 applications depending on the length of the Coronavirus pandemic and encourages patience.
• Businesses will be required to retain receipts and evidence of what they spent the proceeds on for a period of 3 years and may be subject to SBA Audit to insure only eligible business expenses were paid.
• Everyone is encouraged to apply online at https://disasterloan.sba.gov/ela.
We are available to assist our clients with the preparation of the loan application and any required documentation. We strongly encourage our clients who complete their own application and required documentation to send to our office for review before submission to the SBA. We can help minimize errors that would cause a delay in the approval process.
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