SBA DISASTER RELIEF (FOR ECONOMIC INJURY)
The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans of up to $2M for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19).
Below is a brief outline of what we know about the program, with links and contacts numbers for resources with more information.
- $50B of loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19).
- The program will be administered through SBA’s disaster loan program, which is primarily set up to offer loans after natural disasters in targeted geographies (e.g. post Hurricane Katrina, Sandy, etc). The advantage of this approach is that it will be easier to get the program up and running quickly by making it part of an existing program with already established processes. There may some challenges, however, as they utilize a program structured for one purpose and apply to a different set of circumstances.
- Loans up to $2M per small business. Proceeds can be used in a variety of ways: paying off fixed obligations, A/P, payroll, other cost.
- Low interest – 3.75% for business. Term of the loan will be set on a case by case basis. Up to 30 years.
- Details of the program are still being worked out.
- Typically, SBA requires a “credit elsewhere” test, i.e. the business has tried to secure a loan elsewhere, but was turned down. It’s not clear yet what, if anything, SBA will require in this program
- It’s not clear yet how what requirements SBA will put forth to determine that the impactof the COVID-19 is big enough to warrant the loan.
- Program overview can be found here.
- For additional information, please contact the SBA disaster assistance customer service center. Call 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail email@example.com.
- The Company must be in a state or territory from which the governor has applied to be designated a disaster area for purposes of this program. SBA identifies those areas for which it is currently accepting applications. https://www.sba.gov/disaster-assistance/coronavirus-covid-19#section-header-1. Even if a geography is not currently listed, it is highly likely that the geography is in the process of submitting its request and it would potentially make sense for companies to do their homework and prepare materials so that it is ready to go once a designation is finalized.
- Will be limited to companies suffering substantial business impact due to COVID – 19 (see earlier point –not clear how SBA will measure this)
- Meets SBA size standards. SBA has detailed rules in place to make sure larger companies aren’t trying to take advantage of a program intended for small businesses. These requirements will include:
- Company size by financials or employee base. General rule is companies with up to 500 employees could qualify, but requirements vary by industry. The resources below can help individual companies clarify that they meet the size standard for their specific industry.
- Affiliation. These are a complex set of rules that look at the underlying ownership of the company to determine how the small business is affiliated with other companies. In an extreme example, if a small company was owned by a large company, then the subsidiary would not qualify. As a general rule, if a private equity firm has more than 50% ownership of a company, the company may not qualify. The precise determination will depend on the individual facts and circumstances. The resources below can help individual companies evaluate these rules as well.
For more help
Companies should reach out to SBA related resources in their state:
- SBA has a network of district offices around the country who are positioned to help. They will likely be the ones most up to date on what is happening with this specific program. https://www.sba.gov/local-assistance/find/?type=SBA%20District%20Office&pageNumber=1.
- Small Business Development Centers (SBDCs.) These are independent organizations around the US funded by SBA to support local small businesses. https://www.sbdcnet.org/find-your-localsbdc-office. They should have experience with most SBA programs.