SBA Disaster Loans and the COVID-19 Crisis

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SBA Disaster Loans – How to Qualify

SBA disaster loans will play an integral roll in the economic recovery from the COVID-19 pandemic. COVID-19, or 2019 novel coronavirus, touched down in the United States on Jan. 19, 2020. The spike in cases two months later has shuttered the public from small businesses – now working out of pick-up windows, delivery cars and deserted office-spaces. As federal and state authorities construct a COVID-19 health and economic response plan, the following information can help small business owners make sense of moving forward during this crisis. Response plans to COVID 19 are developing. Expect updates to this article.

Confronting COVID-19: The Proposed Programs

President Donald Trump’s administration and the US Small Business Administration (SBA) have taken action to bolster the SBA’s disaster loan program and make sure that small businesses affected by the crisis are able to weather the storm.

SBA Disaster Loans: How to Qualify

On March 12, the Jovita Carranza of the SBA issued a press release outlining additional information and plans to help small businesses. In sum, the plan outlines coordination between the federal government and state governors to provide “targeted, low-interest disaster recovery loans to those small businesses that have been most affected by the crisis. Here are the cliff notes:

  • The SBA’s Office of Disaster Assistance will work with governors to make “Economic Injury Disaster Loan Declarations” to identify regions that will be eligible for funding
  • Once an area has been designated a disaster area, information about how the SBA’s economic injury disaster loans will be made available and distributed to affected communities
  • These loans will be issued directly by the SBA utilizing the powers given to it by the recently passed “Coronavirus Preparedness and Response Supplemental Appropriations Act

Details of the Loan Program:

The SBA Economic Injury Disaster Loans will provide up to $2 million in assistance. Funding provided through these loans can be used to shore up a number of key areas of concern for small businesses suffering from a cash crunch due to the coronavirus pandemic:

  • Fixed debt payments
  • Payroll for employees
  • Dealing with accounts payable
  • Other bills that can’t be paid due to the crisis

These loans will charge a 3.75% interest rate to small businesses, but the key thing to note is that this credit will only be extended to those businesses that can’t find credit elsewhere. Remember, the SBA usually acts as a “lender of last resort” and thus will only jump in when all other options are exhausted. The SBA will work with qualified businesses to determine the most affordable repayment period for these loans. Loan terms will be determined on a case by case basis, with a maximum period of 30 years, based on a borrower’s ability to pay. You can begin the process of accessing this funding through the SBA’s disaster assistance lender match tool.

Additional Steps Being Taken: Bolstering Other SBA Loan Programs

In addition to streamlining and accelerating the process of disaster area declarations, a number of lawmakers on Capitol Hill have introduced legislation meant to expand and strengthen the SBA’s capacity for making these and other loans. Senator Marco Rubio, who chairs the Senate Committee on Small Business and Entrepreneurship, has introduced a bill that would expand the SBA 7(a) loan program’s authority from $30 to $80 billion with that extra funding earmarked for businesses affected by COVID-19. Reminder: The SBA 7(a) loan program is the SBA’s loan guarantee program, which steps in to ease a lender’s worries about lending to new or otherwise needy small businesses. This is different from their disaster loan program. Senator Rubio’s plan would also temporarily increase the amount of a loan that the SBA would guarantee to 90% and waive almost all fees associated with the program, which would significantly expand the number of businesses that would be eligible. It also expands the availability and assistance level of SBA Express loans. The plan emphasizes the role of private-sector lenders in the distribution of loans. Representative Nydia Velazquez, chair of the House Small Business Committee, has put forward a similar bill that puts its trust in the SBA to make these loans directly. Representative Velazquez’s plan also includes the extension of 10-year, zero-interest loans of up to $2.5 million. Many bankers and lawmakers have supported Rubio’s proposal, citing the SBA’s inability to quickly get the money to impacted businesses. The SBA has had trouble in the past during crises in getting loans out quickly to affected areas, and existing lenders already have the infrastructure and relationships to leverage the 7(a) program efficiently. In Summary: The Federal government wants to put money in the hands of small business owners ASAP to mitigate the effect of economic disruptions coming as a result of the coronavirus. They’re doing this by expanding the resources available to the SBA and their partnered lenders. The SBA’s website outlines the programs available to small business owners and how to access them.

What is an SBA Economic Injury Disaster Loan?

The Basics: An SBA disaster loan is a special financial product designed to provide disaster relief to small business owners, renters, homeowners, and nonprofit organizations affected by natural disasters or economic crises. These low-interest federal disaster loans are designed to provide vital economic support and working capital to businesses affected by a crisis. Who can use an SBA Disaster Loan: Any small business owner in a declared disaster area who has felt the effect of an economic or natural disaster is usually eligible to receive disaster assistance. The SBA has a dedicated website that allows you to find out if you’re in an eligible disaster area, apply for these low-interest loans, and monitor your application’s status.

How Are SBA Disaster Loans Different From Normal SBA Loans?

Most importantly, SBA Disaster Loans are issued in the context of an economic crisis or natural disaster. Disaster assistance is only available to small business owners in declared disaster areas who are experiencing “substantial economic injury”. The SBA has a constantly updating list of declared disaster areas. Other SBA loan programs, like the 7(a) loan-guarantee or Express loan programs, are available to eligible businesses through SBA lending partners under more normal circumstances.

How Do I Qualify for These Disaster Loans?

According to the SBA’s press release, there are three key requirements that small business owners have to meet in order to qualify for disaster assistance loans:

  • Be in a Declared Disaster Area: Your state or territory government has worked with the SBA to declare the location of your business a disaster area due to the COVID-19 pandemic. Again, the SBA has a constantly updating list of declared disaster areas.
  • Demonstrate Economic Injury: Through your application, you must clearly demonstrate that your business has sustained “substantial economic injury” due to the crisis. The SBA defines substantial economic injury as a business being “unable to meet its obligations and to pay its ordinary and necessary operating expenses.” Economic injury, in the context of the COVID-19 crisis, will likely fall under the large umbrella of problems associated with a lack of demand and temporary loss of revenue. This could include issues with fulfilling payroll, an inability to pay rent on property and equipment, and an inability to make fixed debt payments.
    • This worksheet can help you estimate the economic injury to your business, which will be vital information for your loan application.
  • Have No Other Options: SBA disaster loans will only be provided to small businesses that can demonstrate that they do not have available credit elsewhere. If you have access to other forms of credit, your business will not be eligible.

If you’re worried about putting together your application, the SBA has dedicated local assistance centers. You can also reach dedicated customer service representatives by calling 1-800-659-2955 (TTY: 1-800-877-8339) or emailing

Conclusion: Next Steps for Small Business Owners

Though there is a lot of work being done to respond to this crisis, the SBA disaster loan program is not meaningfully active at the moment. Lots of questions still need to be answered and, as we discussed, there is fierce debate on Capitol Hill and in the SBA over how to answer those questions. Our experts at Biz2Credit advise that it can take anywhere from 4 weeks to 4 months for businesses to actually receive cash through this process. In the meantime, we recommend the following:

  • Step 1: Most importantly, be safe. Follow the SBA’s recommendations and CDC’s guidelines to keep both yourself and your employees healthy and slow the spread of the virus in the United States.
  • Step 2: Look for ways to reduce the impact of COVID-19 to your business. If you own a restaurant, ramp up your takeout and delivery capability. If you’re a doctor in private practice, look into options to provide care via telemedicine. We understand that small business owners know their business best. Use your first-hand knowledge and operational experience to find innovative solutions!
  • Step 3: Look into the availability of other funding outside of the SBA disaster assistance program. This is helpful in two ways:
    • One, you may not get disaster assistance for a while. Depending on your situation, you might need funding sooner rather than later.
    • Two, you have to demonstrate that you have no other options to be eligible for SBA disaster assistance.
  • Step 4: If all else fails, start collecting the information necessary to make a strong application to the SBA. Most importantly, you need to estimate the economic injury to your business resulting from the COVID-19 pandemic.

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