March 18, 2020

Coronavirus (COVID-19) is having a broad financial impact across the country with immediate and potentially dire effects on nonprofit organizations and many small businesses, including those in the hospitality, restaurant, retail and manufacturing industries. Affected businesses are prudently concerned with strategies to help alleviate the financial repercussions caused by COVID-19.

Among the governmental responses to the rapidly evolving economic crises, $7 billion in additional funds have been appropriated by U.S. Congress for use by the Small Business Administration (SBA) in the recently enacted Coronavirus Preparedness and Response Supplemental Appropriations Act. And Congress is looking to increase that amount to at least $350 billion.

The general terms of the SBA's disaster loan program for small businesses and nonprofits are as follows:

  • Loan Amount: Up to $2 million
  • Interest Rate: 3.75% on loans to small businesses and 2.75% on loans to nonprofits
  • Terms: Up to 30 years, determined on a case-by-case basis, based upon each borrower's ability to repay
  • Use of Funds: Loans can be used to fund working capital, including to pay fixed debts, payroll accounts payable and other bills that can't be paid because of the impact of COVID-19.

The disaster loan program requires demonstration of economic injury by the applicant. This is in addition to establishing the standards for determining if a company is otherwise eligible to participate in the program. Businesses with credit available elsewhere are not eligible for this program.

In order for funds under the disaster loan program to be available to small businesses and nonprofit organizations, the state where the business is located must first be approved for an SBA Economic Loss Declaration by the federal government. At this point, virtually all states have been approved.

Is My Business a "Small Business" That Is Eligible for a COVID-19 Disaster Loan?

Determining whether your business qualifies as a "small business" under SBA guidelines is the first step. The SBA typically determines whether a business qualifies as small business in two ways:

  • Maximum Number of Employees: Depending on what industry your company belongs to, being a small business can mean having a maximum number of employees ranging from 100 to 1,500 employees.
  • Maximum Business Revenue: Depending on the industry, a small business can have revenue from $750,000 up to $36.5 million.

Note that there is no size limit for nonprofit organizations.

Things You Can Do to Prepare to Apply for a Disaster Loan

  • Start immediately to gather the information needed to apply for a loan. The loan documentation forms can be found on the SBA website. For example, you will need last year's tax return and a current balance sheet.
  • You can apply online for a loan on the SBA's COVID-19 website.

As you evaluate the effects of COVID-19 on your business, we encourage you to reach out to your personal Much attorney or, with respect to SBA issues, to Jeff Schwartz and Jeff Jung. Our team is closely monitoring the outbreak and is ready to provide holistic support as you navigate related challenges and uncertainties.

 

Disclaimer: We are providing the current SBA Loan Application and links to related information as a convenience. The application and related requirements may change and we are not responsible for updating this information. By providing this information, we are not giving legal or tax advice. For advice on your specific situation, please contact your advisors.

This article contains material of general interest and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Under applicable rules of professional conduct, this content may be regarded as attorney advertising.