Everything You Need to Know about SBA Economic Injury Disaster Loans—and Some Things You Didn’t Even Know to Ask
UPDATE 03/26: Due to the amount of traffic on the Small Business Administration’s loan application website and long delays in processing time, the SBA is rerouting applicants to fillable PDF forms. Forms will need to be downloaded, filled out and uploaded to SBA’s Dropbox account.
On March 21, SBA funding became available for small businesses in Kansas and Missouri. The loans, which can go up to $2 million, can be used to pay financial obligations and operating expenses that could have been met if not for the coronavirus outbreak.
To get straight to it, below we have some questions, answers, tips and even hacks to help you put your best application forward.
TL/DR: We can help you sort this out. Just call MOSourceLink at 866-870-6500 and we connect you with Resource Partners that can help with paperwork. (Yep, those services are free.)
Here we go. Let’s start at the top.
So what about these Economic Injury Disaster Loans? What do they cover?
The SBA’s Economic Injury Disaster Loan offers up to $2 million for things like fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. Your loan amount will be based on your actual economic injury and your company’s financial needs.
What is “economic injury”?
Substantial economic injury means the business is unable to meet its obligations and to pay its ordinary and necessary operating expenses.
What are the terms?
The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible. Nonprofit organizations are also eligible. Those interest rates are 2.75%.
The term of the loans will not exceed 30 years, and repayment terms will be determined by your ability to repay the loan. Assistance is available only to small businesses that the SBA determines are unable to obtain credit elsewhere for requests over $350,000.
How do I apply?
You’ll apply through the government for an Economic Injury Disaster Loan, not through an SBA lender. Expect five months for loan processing.
What paperwork do I need to prepare?
Now we get real. At minimum, you’ll need:
Three years of business and personal tax returns
Personal financial statement
2019 Income Statement
2019 Balance Sheet
Here’s the why, wherefore and other documentation you may need, outlined by the awesome folks at the Missouri SBDC at UMKC.
Your local SBDC can help you gather your paperwork. (Use that link to find the contact information for the one closest to you.) In general, be ready to show last year’s month-to-month financials, and then project coming months to show discrepancies.
If your business wasn’t profitable last year, however, you probably won’t have a great chance to get a loan.
What are the pros and cons of applying for an Emergency Loan vs. leveraging an existing SBA lender?
In a nutshell, Emergency Loans have low rates and longer paybacks, but it’s a slow and complex process. There is no buffer between you and the government.
Working with an existing SBA lender on a traditional SBA loan will likely get you to the finish line faster, but rates will be higher and payback faster than the emergency loans.
You can apply for both simultaneously. Determine what is best for your business.
And help is just a phone call away. Your local SBDC can help walk you through the paperwork you’ll need and provide you with tips to put your best application forward.
What about other SBA loan programs? Have those expanded?
The expanded 7(a) loan program:
Allows for proceeds for payroll support, including paid sick leave
Waives fees for all 7(a) loans for one year
Provides loans of up to $5 million
For loans under $350K, charges interest of 5.75% and has a 10-year payback
Uses the typical 7(a) application process, through lender
Typically banks look for:
FICO 650 or higher
No bankruptcies for last five years
Two years in business
Positive cash flow last year
What if I have an SBA loan now?
If you are concerned about your ability to make loan payments over the next few months – it’s better to get ahead of it with your lenders and ask for support now.
When should I apply for a loan?
Before you desperately need it. In fact, take the time now to get your cash flow in order by lowering your expenses and revising your forecast/budget. (Do a best case/medium case/worst case.) Funding is limited and once it’s gone, it’s gone.
And borrowers beware: avoid short-term online loans with high interest rates . . . and expect scams.
So these loans will be popular. Any pro-tips to applying?
The Missouri SBDC at UMKC offer these application tips:
Get on the site on off peak hours because traffic is high and that the site does not like Google Chrome.
There is no blank on the application where a business would enter a loan request amount. The SBA will estimate a loan amount based upon the expenses shown on a business’ tax return (or latest P/L), credit and ability to repay.
Choose only “Economic Injury” on the application – no property losses should be entered.
If your small business doesn’t have its 2019 tax returns complete, you may enter a P/L for 2019.
Loan repayment will be deferred for 11 months (in other words, payments begin a year after closing). Note that interest will accrue after loan closing.
When an SBA Loan Officer offers a loan amount, you can ask for less or reject the loan entirely. If the business still hasn’t recovered and the initial loan has been exhausted, it may seek additional funding without completing another loan application.
The SBA advises us that the most authoritative source of assistance with the EIDL application is via their toll-free number and/or e-mail: