Through its Economic Injury Disaster Loan (EIDL) program, the U.S. Small Business Association (SBA) is providing low-interest EIDLs of up to $2 million to small business and non-profits affected by the COVID-19 pandemic. According to Jovita Carranza, the SBA Administrator, “[o]ur Agency will work directly with state Governors to provide targeted, low-interest disaster recovery loans to small businesses that have been severely impacted by the situation…The SBA will continue to provide every small business with the most effective and customer-focused response possible during these times of uncertainty.” State governors must request access to the EIDL program for businesses located in their states. Businesses in states where the SBA has declared a COVID-19 disaster, which includes New York (and nearly every other state), may apply.
Small businesses, small agricultural cooperatives, and most private nonprofit organizations are eligible to apply. Loans are available to cover accounts payable, debts, payroll, and other bills that the business cannot pay as a direct result of the COVID-19 pandemic. These loans cannot be used to refinance long-term debts. The loans will carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits. Loan repayment terms vary by applicant, up to a maximum of 30 years.
Eligibility is based on the financial impact of the pandemic. The SBA has indicated that applicants for an EIDL must have a credit history acceptable to the SBA and show the ability to repay the loan. Applicants can have an existing SBA loan and still qualify for this disaster loan but the loans cannot be consolidated. It is worth noting, however, that applicants who have violated the terms of previous SBA loans may be ineligible for an EIDL.
Applicants should have the required supporting documentation prepared, including certain financial information (e.g. a list of current debts and liabilities, most recent tax returns, 2020 year-to-date profits and loss statements, and a personal financial statement).
It is not yet clear what the SBA will require from applicants in terms of collateral; however, loans in excess of $25,000 will require some collateral even if it is not sufficient to cover the entire loan. Businesses with existing secured credit facilities will likely need the consent of their existing lenders to take an EIDL and grant a security interest to the SBA.
The deadline to apply for these loans is December 21, 2020.
Further information about this loan program, including an online application, can be found here. Applicants may call the SBA Disaster Assistance Customer Service Center at 1-800-659-2955 for help with the application.
If you would like more information on the Economic Injury Disaster Loan program, please contact a member of our Corporate practice group at 585.232.6500 or 716.853.1616.