FEDERAL LOAN ASSISTANCE FOR SMALL BUSINNESESS IMPACTED BY COVID-19 OUTBREAK
On March 6th, the United States Congress passed the Coronavirus Preparedness and Response Supplemental Appropriations Act 2020. Under Ttitle II of the Act, the Small Business Administration (SBA) was appropriated additional funds to administer a disaster loan assistance program for the outbreak and authorizing the SBA to declare areas impacted by COVID-19 as being disaster areas and eligible for the loan assistance program. On March 12th, SBA Administrator Jovita Carranza announced the terms of the loan program for covered businesses and the governmental process for making a local jurisdiction eligible for assistance.
Terms of the Loan The SBA Economic Injury Disaster Loans can be up to $2 million and carry a 3.75% interest rate for small businesses. However, according to the declaration of the SBA administrator these loans will only be made available “for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible.” This is an explicit requirement under the regulations governing Economic Injury Disaster Loans (13 CFR §123.300(b)). Update: Under the CARES Act, the “no credit elsewhere requirement” has been lifted.
Who Qualifies? In order to qualify the Governor of your State, or in the case of DC the Mayor, must have first filed a request with SBA Office of Disaster Assistance to have their jurisdiction declared a disaster area for the COVID-19 outbreak. At the time of this article, Washington DC and the surrounding counties in Maryland and Virginia, along with the Maryland counties that border Delaware and the Virginia counties that border North Carolina, have all been declared. It is recommended that you contact your local officials to determine the progress on this effort. Once a disaster area is declared for your jurisdiction there are two key qualifications that must be satisfied in order to receive an Economic Injury Disaster Loan. One, your business must be classified as a small business under the regulations of the SBA, and two, it must have suffered or be suffering substantial economic injury as a direct result of the declared disaster (13 CFR §123.300). The SBA defines any brewery with fewer than 1,250 employees, and any winery or distillery with fewer than 1,000 employees, as a small business (13 CFR §121.201). A substantial economic injury is one that is so severe it impacts the ability of the business to meet its obligations as they come due or pays its standard operating expenses, including payroll. However, a loss of anticipated profits or a drop in sales by itself does not meet the requirement of substantial economic injury (13 CFR §121.300(a)(2)). The business must show a financial hardship, tied to the outbreak, such that their ability to maintain operations is at risk.
What can the money be used for? Funds from the Economic Injury Disaster Loan only be used for working capital needed to keep the business going until it can resume normal operations and for spending necessary to alleviate the specific economic injury tied to the disaster (13 CFR §123.303(a)). The loan funds cannot be used to refinance prior existing loans, make loan payments to a federal agency or a Small Business Investment Company, pay fines or tax penalties tied to misconduct or negligence, repair physical damage (other loans are available for that purpose), or pay dividends or disbursements to owners or officers of business except for reasonably payments tied to their performance of services for the company (13 CFR §123.303(b)).
If your business is suffering from the COVID-19 outbreak and you would like to determine your eligibility for an Economic Injury Disaster Loan, please apply online and consult with your local SBA loan provider.