Due to the severity of magnitude of the ongoing Corona Virus Disease 2019 (COVID-19) pandemic, the US President declared a state of disaster for all states, tribes, territories, and the District of Columbia pursuant to section 501 (b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the “Stafford Act”).
Note: This article is updated on 4/1/2020 to reflect the current development with Small Business Administration to date.
The declaration of disaster enables some business to apply for a disaster loan to Small Business Administration (SBA), provided that the business is in an SBA declared disaster area. SBA provides low-interest disaster loans to businesses of all sizes, private non-profit organizations, homeowners, and renters. SBA disaster loans can be used to repair or replace the following items damaged or destroyed in a declared disaster: real estate, personal property, machinery and equipment, and inventory and business assets.
Furthermore, due to the COVID-19, small business owners in all U.S. states and territories are currently eligible to apply for a low-interest loan under the SBA’s Economic Injury Disaster Loan (EIDL) Program and SBA Express Bridge Loans (EBL). These EIDL and EBL are different from normal SBA loan programs in that they are direct loans from the SBA rather than SBA-guaranteed loans through lenders and they have up to a 30-year and 7-year terms, respectively.
SBA’S EIDL PROGRAM
The SBA’s EIDL 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.
Below is the 3-step process to apply for disaster assistance. You may also click HERE for the detailed guidance from SBA.
Who are qualified for SBA’s EIDL Program?
SBA’s EIDL Program is available for all small businesses, small agricultural cooperatives, and most private non-profit organizations in all U.S. states and territories. Churches, however, are considered religious organizations and are not funded by the SBA. They could only qualify if the church is operating a separate business.
The cannabis industry is also excluded from the scope of SBA’s EIDL Program.
Definition of a Small Business
The SBA usually benchmarks the average annual sales and/or average annual number of employees by industry in determining the size and scale of a small business.
Here’s a summary of historical criteria used per industry:
Agriculture – A maximum of $750,000 in average receipts is allowed.
Utilities – The maximum number of employees allowed ranges from 250 to 1,000 depending on the type of utility.
Manufacturing – The maximum number of employees allowed ranges from 500 to 1,500.
Information – The maximum number of employees allowed ranges from 500 to 1,500, and the maximum average of annual receipts permitted is $7.5 million to $38.5 million.
Finance and Insurance – The maximum number of employees allowed is 1,500, and the maximum average of annual receipts permitted is $32.5 million to $38.5 million.
Professional, Scientific, and Technical Services – The maximum number of employees allowed ranges from 1,000 to 1,500, or the maximum average of annual receipts permitted is $7.5 million to $20.5 million.
Health Care and Social Assistance – The maximum average of annual receipts permitted is $7.5 million to $38.5 million.
You may also visit SBA’s size standard website for more information.
How does SBA calculate annual receipts and number of employees?
Calculation of Average Annual Receipts
Generally, receipts are considered “total income” (or in the case of a sole proprietorship “gross income”) plus “cost of goods sold” as these terms are defined and reported on Internal Revenue Service (IRS). However, the following are not included in SBA’s definition of Receipts:
Net capital gains or losses;
Taxes collected for and remitted to a taxing authority if included in gross or total income, such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees;
Proceeds from transactions between a concern and its domestic or foreign affiliates; and
Amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker.
For size determination purposes, the only exclusions from receipts are those specifically mentioned above. All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income, and employee-based costs such as payroll taxes, may not be excluded from receipts.
For the purposes of EIDL and EBL, annual receipts of a concern that has been in business for three or more completed fiscal years means the total receipts of the concern over its most recently completed three fiscal years divided by three. Annual receipts of a concern which has been in business for less than three complete fiscal years means the total receipts for the period the concern has been in business divided by the number of weeks in business, multiplied by 52. Where a concern has been in business three or more complete fiscal years but has a short year as one of the years within its period of measurement, annual receipts means the total receipts for the short year and the two full fiscal years divided by the total number of weeks in the short year and the two full fiscal years, multiplied by 52.
Calculation of Average Number of Employees
In determining the number of employees, SBA counts all individuals employed on a full-time, part-time, or other basis. This includes employees obtained from a temporary employee agency, professional employee organization or leasing concern. SBA will consider the totality of the circumstances, including criteria used by the IRS for Federal income tax purposes, in determining whether individuals are employees of the business. The only exception is volunteers since they receive no compensation, including no in-kind compensation, for work performed.
The following are the considerations used:
The average number of employees of the concern is used (including the employees of its domestic and foreign affiliates) based upon numbers of employees for each of the pay periods for the preceding completed 12 calendar months.
Part-time and temporary employees are counted the same as full-time employees.
If a concern has not been in business for 12 months, the average number of employees is used for each of the pay periods during which it has been in business.
Application Process and Processing Time
Small business can begin the application process online thru the SBA website. The SBA encourages online applications as opposed to paper applications.
The steps are outlined below:
Submit SBA Form 5 and signed Internal Revenue Service (IRS) Form 4506T (giving permission for the IRS to provide SBA the tax return information).
Demonstrate economic injury via loss in revenue—including anticipation of future loss—through the cancellation of contracts, events, conferences, and travel restrictions. Submit current information such as a personal financial statement, a schedule of liabilities and a copy of the company’s most recently filed Federal income tax return. Additional information may be required depending the circumstances.
Post-submission, you will be notified and your organization will undergo a credit check.
The SBA has stated they will attempt to be more flexible with credit ratings.
Per SBA, the goal is to have a decision for each application within 2 to 3 weeks after all requirements have been submitted. Once approved, SBA will prepare and send the Loan Closing Documents to applicants for signature. An initial disbursement will then be provided within 5 days after the receipt of the signed Loan Closing Documents.
A case manager will also be assigned to help loan applicants meet all loan conditions who will also schedule subsequent disbursements until loan applicants receive the full loan amount.
Other Key Considerations
Application Deadline – The deadline to apply is December 16, 2020.
Interest Rates – Interest rates are 3.75% for small businesses and 2.75% for not-for-profit entities.
Penalty – There will be no early payment penalties.
Fees – The SBA doesn’t charge fees for the loan.
Business Start Date – Organizations started in 2019 can still apply.
Effective March 25, 2020, SBA expanded the eligibility of the EBL Pilot Program to include small businesses nationwide adversely impacted under the COVID-19 Emergency Declaration. SBA also extended the term of the EBL Pilot Program through March 13, 2021.
Under the program, SBA Express Lenders can provide expedited SBA-guaranteed bridge loan financing on an emergency basis in amounts up to $25,000 for disaster-related purposes to small businesses located in communities affected, which is all U.S. states and territories in the context of COVID-19 pandemic. However, small businesses must have been operational when the declared disaster commenced and must meet all other 7(a) loan eligibility requirements as set forth in Electronic Code of Federal Regulations, 13 CFR §§ 120.100 through 1 120.111 and SOP 50 10 of the SBA Lender and Development Company Loan Programs. Visit the eCFR website and SBA website for further details.
Terms and Conditions for EBL
Credit Not Available Elsewhere — EBL applicants must demonstrate the need for the desired credit (i.e., they must meet the SBA’s “credit elsewhere” requirements). This means that the EBL applicant must prove that it does not have the ability to obtain some or all of the requested loan funds on reasonable terms from non-Federal sources, including the Lender, without SBA assistance.
Adverse Impact — Demonstrate the adverse impact of the COVID-19 to the business.
Multiple Loans — An EBL applicant may obtain only one EBL per Declaration.
Maximum Loan Amount — The maximum gross loan amount under the EBL Pilot Program is $25,000.
Maximum Maturity/Loan Term — The EBL must be structured as a term loan with a maximum term of 7 years.
Maximum Allowable Interest Rate — Lender may charge up to 6.5% over the Prime rate, regardless of the maturity of the loan.
Required Forms and Documents
SBA Form 1919 or Borrower Information Form
SBA Form 159 (only if you committed to pay an application fee to the Lender)
SBA Form 601 (if proceeds will be used for construction of more than $10,000)
Document Delivery Options for COVID-19 disasters
The best way to get application to the SBA is by submitting the required documentation and information online. However, if loan applicants are unable to provide some or all of the required information online, the SBA released alternative methods to deliver the documents to the SBA. However, please note that this may increase the processing time of application.
For Coronavirus Disasters Declared within the 50 US States or US Territory Disasters in American Samoa, Guam, or The Commonwealth of Northern Mariana Islands
U.S. Small Business Administration
Processing and Disbursement Center
Attn: ELA Mail Department
PO Box 156119
Fort Worth, TX 76155
By Email: Email completed document(s) as attachments to:
Note: Attachments in the email cannot be larger than 5MB due to the SBA’s size limitations on emails.
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