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Economic Injury Disaster Loan Assistance

Under the CARES Act, the Small Business Administration (SBA) will offer advances and low-interest economic injury disaster loans (EIDL) to small businesses adversely affected by the Coronavirus (COVID-19).

Presently, the SBA is taking pre-applications, wherein there are essentially two parts:  (i) a request for an advance that is not repayable; and (ii) a request for a loan.

Application Overview

The initial pre-application for the EIDL is not a complete loan application.  It merely outlines prequalification requirements to verify by response that the applicant qualifies for the EIDL.  The application must be completed online, and is probably available on a first-come, first-served basis; however, with limited funds, it is difficult to know what the SBA will decide as to the actual amounts of these loans.

EID Advance

On the application, an applicant may request an economic injury advance of $10,000.  The advance will be deposited into the applicant’s designated bank account.  The advance is not part of the loan and need not be repaid, provided that the advance is to a qualified applicant.

While the request is supposed to be paid within three (3) days of successful application, the funds may not be released until sometime after the pre-application is submitted.  In addition, due to high demand, the SBA has decided to limit the amount of the advance to $1,000 per reported employee.  For example, if a self-employed person files a pre-application request and has no employees as of January 31, 2020, then the amount of the advance appears to be “zero” ($1,000 x 0 = 0).

Keep in mind that in addition to certification, the SBA may later request hardship verification proof to allow the funds to be retained.

Loan Basics

The following additional information may be helpful to know:

  • To qualify for this emergency loan, the small businesses and private, nonprofit organizations may be asked to self-certify that the business suffered a “substantial economic injury.”  This generally means that the business cannot meet obligations or pay regular expenses without a loan.
  • Up to $2 million in assistance may be available per applicant, but the exact amount will be based on how adversely the business has been affected.  The SBA is relying upon the self-certifications under penalty of perjury.  In addition, due to the popularity of this loan, it is conceivable that the SBA may further limit the total maximum amount that a business may request to below $2 million, in order to address the limited funds available under this program.
  • Once a declaration is made, the information on the application process for Economic Injury Disaster Loan assistance will be made available within the state.  The SBA is presently hiring persons to help process the applications, and it is believed that these loans will be referred to third party SBA lenders.
  • These SBA loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.
  • With respect to approved loans, the interest rate is 3.75% for small businesses and the repayment term will not exceed 30 years.  The interest rate for non-profits is 2.75%.  It is expected that the terms will be determined on a case-by-case basis, based upon each borrower’s ability to repay.
  • These loans are expected to require personal guarantees, collateral and completion of other requirements consistent with traditional SBA lending practices.
  • The application for the loan can be found at https://covid19relief.sba.gov/#/
  • The same site is used for the EID Advance, and accordingly, one should apply for the Loan Advance at https://covid19relief.sba.gov/#/

Further Guidance

In deciding whether to request an EID Advance or EIDL, it is important to consider a number of concerns as to the best option for a business.  In some cases, a Paycheck Protection Program loan may be preferable (and possibly faster in processing), wherein if certain requirements are met, most if  not all of the loan may be forgiven.  Engaging an attorney who is familiar with SBA loans and financial planning may be in your best interests.

For questions concerning this article, call us at (916) 920-5286, to speak with one of our Northern California attorneys.

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