SBA Economic Injury Disaster Loan: What You Need to Know

This information is accurate as of Spring 2020. For the most up-to-date information, please visit: https://www.sba.gov/funding-programs/loans/covid-19-relief-options/eidl/covid-19-eidl .

We are proud to support entrepreneurs through this chaotic time via access to capital and educational opportunities. We are grateful to the SBA for our steadfast partnership during the coronavirus economic shutdown so that small business owners may weather this storm and recover.

The SBA is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of business shutdowns due to the Coronavirus (COVID-19). Upon a request received from a state’s or territory’s governor, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by President Trump, an Economic Injury Disaster Loan declaration.

This article addresses the qualifications, terms, and process for the SBA’s Economic Injury Disaster Loan Program, which is available currently to small business owners. Carlos Fernandez and Daniel Martiniello, of the Massachusetts District Office of the U.S. Small Business Administration, provided us with details so you can find out if you qualify for an SBA disaster loan, what the terms are, and how to apply so you can continue your business’s operations. Watch this webinar for information detailed in this article.

Qualifications: What businesses are eligible to apply for an SBA Economic Injury Disaster Loan?

SBA’s Economic Injury Disaster Loans are working capital loans available to small businesses and most private non-profit organizations. Fernandez says most small businesses are welcome to apply, but read on to make sure your business is eligible. In general, small business businesses that are directly affected by the disaster, businesses that offer services directly related to the businesses in the declaration, and all other businesses indirectly related to the industries that are likely to be harmed by losses in the community are eligible. For example, a manufacturer of widgets may be eligible as well as the wholesaler and retailer of the product.

According to the SBA website, at the time of this article’s publication, small business owners in all U.S. states and territories are currently eligible to apply for a low-interest loan due to Coronavirus (COVID-19). Martiniello advises you to double-check your county’s emergency status before you apply. Your state’s governor must declare that your state is in an economic emergency, but you also need to be sure the county in which your business is headquartered has also declared an economic emergency in order for you to be eligible to apply.

Eligibility and Criteria for Loan Approval

Not all businesses will be approved for an SBA Economic Injury Disaster Loan, so it’s important to understand the criteria for approval before you apply so you have a better understanding of whether your business might be approved or not.

Business Type

While most small businesses are eligible to apply, there are a few types of businesses that do not qualify for these loans. Agricultural enterprises, marijuana shops, casinos, racetracks, and other businesses that derive more than one-third of their annual gross revenue from legal gambling, religious organizations, and charitable organizations do not qualify for this loan program.

Credit History

Applicants must have a credit history that’s acceptable to the SBA. You may be contacted and asked to provide additional supporting financial documentation after you apply.

Business Viability and Repayment

SBA must be able to determine that the applicant’s business has the ability to repay the SBA loan based on your cash flow. The terms are favorable to the small business owner and they do not want to provide so much capital that you’re unable to pay the loan back.

Your business has to have been viable at the time the disaster took place, and the SBA must be able to assess that your business can make it through the disaster. The applicant business must be suffering working capital losses due to the declared disaster, not due to other reasons. These loans aren’t intended for businesses that were already experiencing losses before the disaster struck. These loans are also not meant for improvement or expansion, but to keep your operations going as if the pandemic didn’t impact your business.

Physical Location

The applicant business must be physically located in a territory or state and county that has declared an economic emergency in order to be eligible to apply. While your business might operate in multiple states, when making lending decisions, the SBA will look at the state and county your business is headquartered in for location-based eligibility requirements. The physical presence of your business, whether you are running a home-based business or a brick-and-mortar, must be tangible and significant. Again, make sure both your county and state have declared an economic disaster before applying.

Loan Use, Terms, and Interest Rates

These working capital loans may be used to pay expenses such as fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. The loans are not intended to replace lost sales, lost profits, or for expansion.

How much can I borrow?

Eligible entities may qualify for loans up to $2 million.

Interest rates, Loan Term, and Repayment

The interest rate for COVID-19 disaster loans is 3.75 percent for small businesses and 2.75 percent for non-profits organizations with terms up to 30 years. You can pay off the loan at any time with no penalties. The loans are granted with a 12-month deferment period, which means you don’t need to make a payment on the loan for 12 months to give your business time to recover. The rates are non-negotiable and are standard across the board for all businesses.

Collateral Requirements

Each loan is handled on a case-by-case basis. Economic Injury Disaster Loans over $25,000 require collateral. SBA accepts real estate as collateral when it’s available. SBA will not decline a loan for lack of collateral but requires borrowers to pledge whatever assets are available.

If you are approved for a $30,000 loan but don’t want to pledge collateral, Fernandez says you can reduce the size of your loan to $25,000 to avoid pledging collateral. At the time of approval, you are not required to accept the full amount of the loan, and you can request an increase as well.

SBA Disaster Loan Application Process

Please go to https://covid19relief.sba.gov/#/ to apply. There is no cost to apply. There is no obligation to take the loan, or the full amount of the loan if offered. Reminder, the maximum unsecured loan amount (without collateral) is $25,000. Applicants can apply for a $10,000 loan advance by selecting that option within the loan application. The loan advance can get sent out fairly quickly, usually within a few business days.

Disaster loan information and application forms may also be obtained by calling the SBA’s customer service center at 800-659-2955 (or 800-877-8339 for the deaf and hard of hearing). Phone lines are busy, and you might have to wait. You can also get answers and application forms by sending an email to DisasterCustomerService@SBA.gov.

If you want to apply using a paper application, do not submit the application to your local district office. Instead, paper applications should be mailed to:

U.S. Small Business Administration
Processing and Disbursement Center
14925 Kingsport Road
Fort Worth, TX 76155

Additional SBA Programs and Services

The SBA provides small businesses with business counseling, training and education, loans and other forms of capital, assistance gathering financial documentation and the loan application process, business development and opportunities to sell to the U.S. government, as well as disaster assistance. Martiniello says it’s important to be aware of the wide array of services the SBA provides beyond capital to help you through the current crisis. “These are free services provided via taxpayer money,” Martiniello says. For the SBA office nearest you, visit https://www.sba.gov/local-assistance.

As you navigate this unprecedented time in our nation’s history, it’s important to remember that the SBA and our great country are pulling together to help small businesses like yours to weather this storm and to come out on the other side victorious. Remember that all things are temporary, including this crisis. While we don’t know exactly when we can be assured that positive change is coming, the American economy will recover, and small businesses will prosper once again.