Impacted by COVID-19? No collateral needed for SBA Economic Injury Disaster Loan

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Certain requirements for the Small Business Administration’s Economic Injury Disaster Loan have been lifted to help assist businesses affected by COVID-19.

That’s according to Susheel Kumar, public information officer at the federal SBA’s Office of Disaster Assistance, who spoke at a webinar this morning about how entrepreneurs can benefit from the loan program. The webinar was hosted by NexusLa and the Louisiana Technology Park. 

The SBA EIDL program provides loans to businesses that have suffered a substantial economic injury and are located in a declared disaster area. Depending on the type of organization, the business can receive up to a $2 million loan with either a 2.75% or 3.75% interest rate and a maximum 30-year term, with no fees or closing costs. 

The goal, Kumar says, is to provide about six months of working capital. The loans can not be used to refinance a business’s long-term debt.

“EIDLs provide the necessary working capital to help small businesses until normal operations can resume,” Kumar says, adding that businesses may want to consider the loan to help them stay in compliance with their bank’s capital requirements.  

Unlike a regular SBA loan, where the funds come from a bank loan, money from an EIDL comes directly from the U.S. Treasury, according to Kumar. Business owners can expect those funds to be deposited in their accounts roughly 25 to 30 days after submitting their loan package. 

Due to the unprecedented nature of the coronavirus crisis, there were several changes made to the program. Previously, when the loans were above $25,000, the loan required collateral, which has been waived.

Determining eligibility for the loans starts with a four-part test, where the underwriters look at the business’s location, business activity, size and whether it’s an independently owned and operated business. A wider variety of businesses will be considered for loans during this crisis than in the past, according to Kumar. 

“My role is to encourage all supply chain businesses to apply and find out if they’re eligible,” Kumar says. “If you feel like you’ve been damaged, please apply.” 

There are some caveats, however. Religious or charitable organizations, casinos, certain lending or investment concerned companies and pawnshops are not eligible for these specific loans. Also, real estate developers who engage in subdividing property into lots and developing it for resale on their own account are not eligible. However, developers who own a shopping center whose tenants can’t pay rent are eligible.  

In addition, the size of applying business must not exceed the size standard for the industry in which the applicant operates. More information about the SBA’s size standards can be found on its website. 

To be considered for the loan, businesses need to have a good credit history and must be able to show the ability to repay all loans. Bryan Greenwood, associate state director-programmatic of the Louisiana Small Business Development Center, who also spoke at the morning event, says it’s important for an applying business owner to write a one-to-three-page document telling their story to the underwriters. 

He suggests the letter be broken into a few sections: a brief overview of what the business is and what it does, a description of how the business handles its cash flow, and a description of “the injury.”

“If you’re not an essential industry, a big disruption is having to close because of the governor’s order,” Greenwood says. “Another is if your supply chain was disrupted and you can’t get stuff to sell.”

Finally, Greenwood suggests you wrap the document up with a critical plan for the business to get back on its feet. 

“It’s not the great American novel with bullet points,” he says. “It’s to give a feel and a flavor of what you’re going through.”

Read more stories about how the coronavirus is impacting the Baton Rouge business community.

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