On March 6, 2020, Congress signed into law P.L. 116-123. This act deemed the COVID-19 outbreak a declarable disaster under the Small Business Act. The amendment allows the Small Business Administrator to issue disaster declarations that make SBA Economic Injury Disaster Loan (EIDL) programs available to eligible small businesses. Here are CLG attorneys Jon M. Miles and Emily J. Irwin's summary and takes on that SBA program.
Economic Injury Disaster Loans
Unfortunately, the COVID-19 pandemic could have substantial economic consequences for small businesses and nonprofit organizations in all fifty States. These consequences will likely lead to negative impacts on gross domestic product through significant downturns in, among other things, imports, global supply chains, and tourism. The widespread and prolonged impact of COVID-19 knows no bounds, as global growth slows and workers face layoffs or furloughs.
So, what is available to help sustain small businesses during these unprecedented times? Enter the United States Small Business Associate (SBA) Economic Loan program. This Program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. Here’s what you need to know:
Small Business Association Declaration Activity
On March 6, 2020, Congress signed into law P.L. 116-123. This act deemed the COVID-19 outbreak a declarable disaster under the Small Business Act. The amendment allows the Small Business Administrator to issue disaster declarations that make SBA Economic Injury Disaster Loan (EIDL) programs available to eligible small businesses.
What is the Economic Injury Disaster Loan Program?
In response to the economic impact COVID-19 is having on small businesses, the SBA created the EIDL program to help provide federal assistance to small businesses, private non-profit organizations, homeowners, and renters who have suffered economic injury or physical property damage resulting from a disaster which has been declared in their area.
What is the purpose of the Economic Injury Disaster Loan Program?
SBA Public Information Officer for the Office of Disaster Relief, Susheel Kumar, recently spoke to the Dallas Morning News about the EIDL. When asked about the purpose of the Program, Kumar stated the following:
“We're looking to provide maximum working capital liquidity to those eligible business owners who have demonstrated the capacity to repay and have paid their bills on time. The money is to be used very specifically for working capital purposes, which is paying your vendors that are due (payment), along with making payroll — because one without the other is cereal without the milk.
“So (the loan program is) for business owners to pay their employees who are hurting. And for business owners to pay their accounts payable. One man's accounts payable (is) another man's accounts receivable, so (we’re) making sure that the supply chain doesn't get disrupted.
“Overall, we're looking to find as many loans as possible. We have a robust pipeline of loans nationwide. We're looking to prove these as soon as possible so that we can meet the needs of the business owner that is the engine of this economy.”
Who may qualify for an Economic Injury Disaster Loan?
As of March 20, 2020, all 77 counties of Oklahoma currently qualify for the EIDL program. The EIDL program provides low-interest-rate working capital loans for small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, most private, non-profit organizations of all sizes, homeowners, and renters who are unable to pay necessary expenses due to the disaster.
The following businesses do not qualify for EIDL’s: Agricultural enterprises, religious organizations, charitable organizations, gambling organizations that derive more than 1/3rd of their annual gross revenue from gambling activities, casinos, racetracks, and marijuana related businesses.
What are the terms of an Economic Injury Disaster Loan?
Each EIDL term and amount are to be determined by the SBA on a case by case basis. EIDL’s have a maximum term of 30 years, a 3.75% interest rate for small businesses, and a 2.75% interest rate for private non-profits. Qualified applicants may receive up to $2 million in federal funds. EIDL funds may be used to pay fixed debts, payroll, accounts payable, and other bills that cannot be paid due to the disaster.
What are the requirements to apply for an Economic Injury Disaster Loan?
Applicants must have a credit history which is acceptable to the SBA. The SBA must determine whether the applicant is able to repay the loan. Applicants must show their economic loss is directly related to the COVID-19 pandemic. Collateral is required for EIDL loans over $25,000. Applicants must submit their most recent tax return.
What is the application process?
Applicants must visit the SBA website to apply at https://disasterloan.sba.gov/ela or call (800) 659-2955. Applications must be filed by December 21, 2020.
What else do I need to know?
Reports across the nation have disclosed that the SBA has received a “significant volume” of applications. Due to the high volume of internet traffic the SBA site is currently experiencing, the website may not be responsive during peak times. Try visiting the SBA website between 7p.m. – 7a.m. Note that a number of loans have already been approved.
Who do I contact with questions?
As always, CLG stands ready to assist you in any way we can and will answer any questions you may have for your small business needs. Please contact us via telephone at 405-232-2020 or e-mail with any of your business needs. Additionally, please visit the SBA website https://www.sba.gov/funding-programs/disaster-assi... or email firstname.lastname@example.org.
About the Authors
Jon M. Miles, J.D. is a Director at Christensen Law Group, PLLC. He is an expert in litigation, banking, business transactions, agriculture, oil and gas, and bankruptcy. You can read more about him and his legal experience here.
Emily J. Irwin, J.D. is an associate at Christensen Law Group, PLLC. She is an expert in healthcare, employment matters, business transactions and litigation. You can read more about her and her legal experience here.