On March 6, 2020, President Trump signed into law the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 which declares the coronavirus outbreak to be a disaster permitting the SBA to extend EIDLs. In response, the governors of Nebraska, Iowa, and many other states have qualified with the SBA so that their residents may apply directly to the SBA for EIDLs. Application for these loans may currently be made on the SBA’s website, sba.gov/funding-programs/disaster-assistance, and the information required of businesses and sole proprietors is listed in the page preceding the actual application.
The SBA has indicated that these loans may be used to pay fixed debts (such as rent), payroll, accounts payable, and other bills that cannot be paid due to the effects of coronavirus, but cannot be used for certain purposes, such as refinancing debt, making payments on loans owed to another federal agency, paying tax penalty obligations, repairing physical damage, or to pay dividends to shareholders. The maximum amount of these loans is $2,000,000 and they may have a term of up to 30 years. The repayment terms are determined on a case by case basis based on the borrower’s ability to pay. For small businesses and agricultural cooperatives, the interest rate is fixed at 3.75%. For non-profits, the interest rate is fixed at 2.75%.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to “provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.” The CARES Act includes an expansion of EIDLs. Under the CARES Act, EIDLs obtained because of the coronavirus pandemic will be available until December 31, 2020 (the “Covered Period”). During the Covered Period the small businesses eligible to apply for an EIDL was expanded to include a business with no more than 500 employees, any individual who operates a sole proprietorship, with or without employees, or as an independent contractor, a cooperative with no more than 500 employees, an ESOP, and a Tribal small business concern. In addition, during the Covered Period:
(a) any requirement that an owner issue a guarantee is waived on EIDLs of not more than $200,000;
(b) any requirement that the applicant be in business for at least one (1) year is waived for a business that was not in operation on January 31, 2020;
(c) any requirement that the applicant cannot obtain credit elsewhere is waived;
(d) the SBA is given latitude to approve an applicant based solely on a credit score and use alternate appropriate methods to determine an applicant’s ability to repay.
The CARES Act also provides for a $10,000 emergency advance (within three (3) days of submitting an application for an EIDL) while the applicant’s loan application is pending to be used for an allowable purpose described above and including paid sick leave, increased materials costs due to interrupted supply chains, rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses, but excluding the non-permissible uses described above. The SBA will not require this emergency advance to be repaid, even if the applicant’s EIDL application is denied. If an applicant that receives an emergency advance transfers into, or is approved for, a Paycheck Protection Program loan under the CARES Act, the advance amount is reduced from the loan forgiveness amount for a loan for payroll costs under the Paycheck Protection Program loan. A Paycheck Protection Program Loan may be used to refinance an EIDL. The funding for these emergency advances is limited to $10,000,000,000 and these funds may be exhausted quickly. Consequently, those interested should apply as soon as possible on the SBA’s site noted above.
The Banking and Finance attorneys at Dvorak Law Group have the knowledge and experience to efficiently assist our clients with financing needs. Please contact Dvorak Law Group for specific questions and recommendations regarding how SBA loans may assist your business.
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