SCORE

The SBA is Now Offering Disaster Assistance Loans
to Small Businesses Impacted by the Coronavirus

The federal government is moving swiftly to help small businesses mitigate the financial impacts of the Coronavirus (COVID-19). Low interest (e.g., 3.75%) long-term loans are now already available in Connecticut and Rhode Island and certain counties in Massachusetts (Check here for the latest list of Massachusetts counties in the program).

The U.S. Small Business Administration (SBA) is offering low-interest disaster loans to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19).  These Economic Injury Disaster Loans offer up to $2 million in assistance and economic relief to small businesses to help overcome the temporary loss of revenue.  The loans may be used to cover fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.

Eligibility - Small businesses and private non-profit organizations that have been financially impacted as a result of the Coronavirus may qualify.  The loans are available to those organizations either directly affected by the disaster or those harmed by losses in their community. The SBA offers examples such as hotels, recreational facilities, charter boats, manufacturers, rental property owners, restaurants, retailers and wholesalers.  Ineligible organizations include religious and charitable organizations, gambling concerns, casinos, and racetracks.

Financial Impact - Eligibility is also based on the financial impact of the Coronavirus. The loans are designed to help meet financial obligations and operating expenses which otherwise could have been met had the disaster not occurred. So the applicant has to establish that the claimed economic injury is substantial and a direct result of the declared disaster. Typically this would be a decrease in income from operations or working capital resulting in the business being unable to meet its obligations and pay ordinary and necessary operating expenses in the normal course of business. So the funds cannot be used to expand the business or fund new product development.

Location – In this area, loans are available in Connecticut and Rhode Island and certain counties in Massachusetts. The applicant must have a tangible physical presence in the area. An economic presence alone or a PO box does not suffice.

Interest Rate and Terms - The interest rate is 3.75 percent for small businesses and 2.75 percent for private non-profit organizations.   To keep payments affordable, the SBA is offering long-term repayments of up to a maximum of 30 years.  Additionally, the SBA says that first payment of disaster is not due until 5 months from the date of the note. “This allows small businesses time to weather the storm, get their footing again, and start making money before they need to start worrying about repayment,” according to Mark Hayward, deputy director of the US SBA’s Rhode Island District office.

Collateral - The maximum unsecured loan amount is $25,000. Loans over $25,000 require collateral such as real estate. The SBA says it will not decline a loan for lack of collateral, but requires borrowers to pledge what is available. To qualify, applicants must have a credit history acceptable to the SBA and the SBA must determine that the applicant's business can repay the loan.

Applying - Unlike most other SBA loans, applicants do not apply through a bank, but instead directly from the SBA at DisasterLoan.sba.gov. There is no cost to apply and if approved there is no obligation to take the loan.  Paper applications are available, but the SBA says that filing electronically is easier and faster.

Typical filing requirements include a completed loan application, tax information authorization, copies of the most recent federal income tax returns, and a personal financial statement. The SBA says that the most common reason for processing delays is due to missing information, so it pays to make sure all filing requirements are completed correctly.

Getting Assistance - SBA customer service center representatives are available to answer questions at 800-659-2955. Volunteers from SCORE and other SBA partners are also available to assist with preparing financial statements and submitting the loan application. Feel free to reach out to your local SCORE chapter at www.score.org or call 1-800-634-0245.

The SBA’s Economic Injury Disaster Loans are just one piece of the expanding government response.  Federal, state and local governments are actively pursuing a coordinated response, so look for more information as the situation develops. 

For more than 50 years, SCORE has helped more than 11 million aspiring entrepreneurs and small business owners through mentoring and business workshops. More than 11,000 volunteer business mentors in more than 300 chapters serve their communities.

About the Author(s)

Jeff Bodenstab

Jeff Bodenstab is a Providence, Rhode Island-based SCORE mentor and recently retired marketing executive, board member and co-founder with a career of helping build young businesses into larger enterprises.

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