While the complete world is fighting against Coronavirus, what happens to those small businesses that cannot stand the fall of the economy at this time? That is where the government is doing its best to help as many as possible. In the USA, from the Federal Reserve lowering the interest rates to a recent $2 trillion economic stimulus package, the government is getting involved in the economic fight against COVID-19. One area that can help the small businesses is the SBA disaster assistance loans. (SBA here is Small Business Administration.)
On the 6th of March, the Coronavirus Preparedness and Response Supplemental Appropriations Act was passed. It offered about $20 million for the SBA to leverage $7 billion in low-interest disaster assistance loans to small businesses. Basically, it means that the small businesses across the country are now eligible to get the SBA disaster assistance loans.
With the endless headlines related to COVID-19, it is important to understand what concrete steps you should take to alleviate the economic impact on your business. If you are feeling overwhelmed in taking the first step to saving your business, do not be. Every small business in the USA is eligible for the SBA loan. All you need to do is know the needed information on how to apply for it online and other details. That is where this article will help you. Keep reading to know all about the SBA loans and the SBA disaster assistance loan requirements.
What is an SBA Disaster Relief Loan?
The Small Business Administration is a government agency that offers assistance to all the small businesses in the country. It has a disaster loan program in place to offer economic relief to the businesses that are impacted by any natural disasters throughout the United States. This program is extensively used after detrimental events where businesses can receive low-interest loans to get back on their feet.
And since early March this year, this offering has been extended to all the small businesses in the country that have had a huge amount of losses due to the coronavirus pandemic. These loans have a 2.75% rate for nonprofits and a 3.75% interest rate for small businesses. The loans are also capped at $2 million. So, the SBA disaster assistance loans are used to cover business expenses like the machinery and equipment purchases, accounts payable, real estate payments, payroll, and other bills that the company cannot pay due to the COVID-19 pandemic.
SBA Disaster Assistance in Response to the Coronavirus
Here is how the SBA Disaster Assistance Loans started and works for everyone affected with the COVID-19 pandemic and economic crisis:
- The US Small Business Administration is offering designated territories and states low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus pandemic. As per a request received from a territory’s or state’s governor, SBA will issue under its own authority an Economic Injury Disaster Loan declaration, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President.
- For any Economic Injury Disaster Loan assistance declaration issued by the SBA, loans are made available statewide to small businesses and non-profit, private organizations to help alleviate economic injury caused by the Coronavirus pandemic.
- SBA’s Office of Disaster Assistance will coordinate with the territory’s or state’s governor to submit the request for Economic Injury SBA Disaster Assistance Loans.
- As soon as the declaration has been made, the information on the application process for the loan assistance will be made within the state (it has been made available for every state and territory in the USA now). The SBA Disaster Assistance Loans offers up to $2 million in assistance and can offer vital economic support to the small businesses so that they can overcome the temporary loss of revenue they are experiencing.
- These loans can be used to pay the accounts payable, payroll, fixed debts, and other bills that can’t be paid because of the disaster’s impact. As mentioned earlier as well, the interest rate for the non-profits is 2.75% and for the small businesses is 3.75%
- SBA offers these SBA Disaster Assistance Loans with long-term repayments in order to keep payment affordable up to a maximum of 30 years. The terms for this are determined based on the case, and the borrower’s ability to repay.
- The SBA Disaster Assistance Loans are just one piece of the expanded focus of the federal government’s coordinated response. And with this, the SBA is strictly committed to offering the most effective and customer-focused response possible.
For more information on this, kindly visit the SBA website. And for more questions, please contact the SBA disaster assistance customer service center at 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail firstname.lastname@example.org
How SBA Disaster Loans Work and it’s Eligibility?
As mentioned above as well, the SBA disaster assistance loans program is a government-backed loan program. This means that even though a bank will be the one offering your small business the loan, the SBA will be guaranteeing that loan to the bank. It would cover the loss in case your business is not able to pay back the loan to the bank.
With the COVID-19 situation and its impact on the American economy, every small US business is eligible for a disaster relief loan from the SBA. In short, every small business owner in all US states, territories and Washington DC is eligible to apply for the SBA Disaster Assistance Loans. They can get an advance of up to $10,000. This advance would provide them with economic relief where they are currently experiencing a temporary loss of revenue.
In fact, this loan advance would not have to be repaid. The SBA provides debt relief to small businesses as they overcome the challenges created by this health crisis. But mind it, the rest of the loan would have to be repaid as per the rules mentioned above. You can apply online here to get started.
Process to get SBA Disaster Assistance Loans
The US Small Business Administration (SBA) offers long-term and low-interest disaster loans to businesses of all sizes, renters, homeowners, and private non-profit organizations to replace or repair underinsured/uninsured disaster-damaged property. So, how do you apply for it? Below shared are the steps to the process of obtaining the SBA disaster assistance loans.
STEP 1: Apply for Loan
To apply for the loan, you would have to fill in the appropriate forms and share all your business information with them. Here is what you need to do:
- Apply: There are three ways by which you can apply for the SBA disaster assistance loan – online, in-person at a disaster center, or by mail.
- If you choose to apply online, then do so through the SBA’s secure website. You will also find the address of the place you need to submit the application in case you want to send it as a mail or apply in person by visiting the center.
Remember that as a small business, you can apply for a maximum of $2 million for the loan, regardless of the reason.
STEP 2: Property Verified and Loan Processing Decision Made
To explain better, here is how this step works:
- SBA will review your credit after you have applied and before conducting an inspection to verify your losses.
- An SBA verifier will estimate the total physical loss to your disaster-damaged property.
- Then, a loan officer will figure out your eligibility during processing, after reviewing any insurance or other recoveries. Just so you know, the SBA can make a loan while your insurance recovery is pending.
- After that, a loan officer works with you to provide all the necessary information needed to reach a loan determination. The main goal here is to arrive at a decision on your application within 2 – 3 weeks.
- A loan officer will contact you to discuss the loan recommendation and your next steps. You will also be advised in writing of all loan decisions.
After you have applied, you need to be prepared with some financial information and supporting documents related to your business. These documents can include the year-to-date financial statement, last year’s financial statements, two to three years of tax returns, property leases, and knowledge of your business and personal credit score.
The full list of the documents needed can be seen at the bottom of the application form. (We have also shared a common list in the next section to help you.) When the officers come to verify your case, you will need these documents to show them as proof. So, be ready before time.
STEP 3: Loan Closed and Funds Disbursed
It takes an average of 21 days for the SBA to issue the SBA disaster assistance loans. And during this time, a loan specialist will be in contact with you to figure out the amount and the parameters of the loan. As soon as the loan documents are signed, funds are deposited via ACH within 3 to 5 business days.
- The SBA will prepare and send your loan closing documents to you for your signature.
- As soon as the officers get the signed loan closing documents, an initial disbursement will be made within 3 to 5 days. This is how it would be done:
- Physical damage: $25,000
- Economic injury (working capital): $25,000 (In addition to the Physical damage disbursement)
- A case manager will be assigned to work with you so that you can meet all the loan conditions. They will also schedule the subsequent disbursements until you get all the loan amount you applied for and that was approved.
- Your loan might be adjusted after closing due to your changing circumstances. This includes situations such as reducing the loan due to additional insurance proceeds or increasing the loan for unexpected repair costs.
In the case of COVID-19, things are handled a bit differently since everyone is being affected by it. You will get the details of it on the form you fill.
Now that you know all about the process and how to get the SBA disaster Assistance loan, there is some documentation that you will need to keep with you for it. In short, you will need the following documents to process your application and reach a loan decision. The loan officer in charge of your case will assist you to make sure that you submit all the proper documentation. The approval decision and the disbursement of loan funds are dependent on receipt of your documentation.
Here are some of the documents that you will need:
- Business Loan Application, known as the SBA Form 5 completed and signed by the business applicant.
- IRS Form 4506-T completed and signed by applicant business, each principal owning 20% or more of the applicant business, each general partner or managing member and, for any owner who has more than a 50% ownership in an affiliate business. (Affiliates include business’ parent company, subsidiaries, and/or businesses with common ownership or management).
- Schedule of Liabilities listing all fixed debts (SBA Form 2202 may be used).
- Personal Financial Statement (SBA Form 413) completed, signed and dated by the applicant (if a sole proprietorship), each principal owning 20% or more of the applicant business, each general partner or managing member.
- Complete copies, including all schedules, of the most recent Federal income tax returns for the applicant business; an explanation if not available.
Additional Information that you might need to have your application processed:
- Complete copies, which include, the most recent Federal income tax returns for each principal owning 20% or more of the applicant business, each affiliate when any owner has more than a 50% ownership in the affiliate business, and each general partner or managing member. The affiliates include but are not limited to, business subsidiaries, parents, and/or other businesses with management or common ownership.
- A current year-to-date profit and loss statement.
- In case the most recent Federal income tax return has not been filed, you will have to give a year-end profit and loss statement and balance sheet for that tax year.
- Additional Filing Requirements (SBA Form 1368) providing monthly sales figures.
At this devastating time where COVID-19 has disabled most of the world, there are a lot of people who are applying on the SBA site to get their SBA disaster assistance loans fast. Due to this, it might be difficult for you to get in touch with an SBA loan representative. However, IncParadise can help you with the process and even help you understand what your business’ situation is. Contact us today so that we can help you here!