Has your small business faced financial pressure due to the coronavirus pandemic? The U.S. Small Business Administration (SBA) has promised to make disaster loans available for businesses in affected areas. Here’s how the loan works, who qualifies, how to apply—and how to get your loan forgiven if you default.
The SBA disaster loan program specifically serves people affected by natural disasters in the U.S. Normally, you don’t need to be a small business to apply; homeowners and renters also qualify. But if you’re looking for COVID-19 relief, you’ll need to be a small business or non-profit.
You can borrow up to $2 million if your business is physically affected by a disaster (such as a hurricane or earthquake), or $2 million for economic injury. The SBA is offering the latter to small businesses affected by coronavirus and the resulting economic slowdown.
If you qualify, the interest rate for an SBA disaster loan is 3.75% for businesses, and 2.75% for non-profit organizations. SBA loans have fairly long terms—generally 15 to 30 years—in order to make them affordable for small businesses.
Your loan is meant to give you working capital to keep your business running during the pandemic. You can use it to cover payroll, make interest payments, pay rent—the SBA isn’t picky. Once you qualify for a loan, it’s up to you to decide how you use it to fill the gaps in your revenue.
Further Reading: SBA Loans: A Complete Guide
Speak with a Bench expert to learn how we can do your bookkeeping for 2019 and 2020 at a 50% discount and get you the financial statements you need for a strong loan application.
You can apply for an Economic Injury Disaster Loan (EIDL) if you have no credit otherwise available (meaning, you don’t qualify for other loans), and your business has suffered severe economic hardship because of the pandemic.
Also, independent contractors who work for a separate business (eg. real estate brokers) can qualify if they’re able to prove they’re separate from that business (eg. the brokerage).
Other than that, the only requirement is that you operate in one of the states the SBA recognizes as being affected by the COVID-19 pandemic. As of March 20, 2020, their disaster declaration list includes:
For a complete, up-to-date list of states and counties qualifying for disaster assistance, visit the SBA.gov COVID-19 page.
You can apply for a loan through the SBA’s Disaster Loan Assistance portal.
When you apply, be prepared to provide the following:
In order to get an annual income statement, you’ll need up-to-date bookkeeping done. If you’re behind on your bookkeeping and you’re not sure how you’ll get financial statements together, Bench can help. We’ll do your catch-up bookkeeping at a discounted rate and get you all the financial statements you need to apply.
Have any questions at all about financing, bookkeeping, or taxes? Reach out to a Bench small business expert for a free consult. Learn more.
Once you apply, a loan officer will check your credit rating. Then they’ll check your income statements and tax returns to determine how badly your business needs the loan.
For loans over $25,000, the lender can require you post collateral. For loans under $25,000, you have the option of offering collateral if you believe it will increase the chances you’ll qualify for a loan, but the lender can’t request it.
That being said, the SBA won’t deny you a loan if you’re unable to come up with enough collateral; they’ll assess what you’re able to offer, and then take that as posted collateral.
After that, they’ll decide how much they’ll lend you.
Speak with a Bench expert to learn how we can do your bookkeeping for 2019 and 2020 at a 50% discount and get you the financial statements you need for a strong loan application.
It’s uncertain what future measures, if any, the federal government will take to relieve business debt. As the response to the coronavirus pandemic develops, you may have more options available for getting your loans forgiven. But here is the way SBA loan forgiveness has typically functioned up to this point.
After they pay off 50-75% of it, if the SBA doesn’t accept your offer to pay a portion of the remainder, they may move on to collection actions.
They’ll either use the Treasury Offset Program (TOP), or send you to the Fiscal Service department.
With TOP, any future tax refunds owed to you by the federal government will be taken to cover your debt to the SBA.
With Fiscal Service, the SBA may hire debt collectors, send collection letters, forward information to credit agencies, garnish wages, or even bring your debt to the Department of Justice to seek criminal prosecution.
