Managing the Commercial Impact of the Coronavirus: Small Business Administration Loan Program

"You don’t want to be complacent. You always want to be ahead of the curve.” Dr. Anthony Fauci, M.D., Director of National Institute of Allergy and Infectious Diseases

Small and medium-sized businesses impacted by the COVID-19 outbreak and looking for solutions may find some relief from the disaster loan assistance program administered by the U.S. Small Business Administration (SBA). SBA’s Economic Injury Disaster Loan Program provides low-interest loan assistance after a disaster and is designed to provide small and medium-sized businesses with necessary working capital until normal operations can resume.  

Because the scale and geographic scope of the coronavirus are unprecedented, Congress and the Trump Administration are considering proposals to expand or expedite the SBA’s ability to provide emergency loan assistance to small businesses suffering economic injury as a result of the current COVID-19 public health emergency.  One of the critical challenges facing the SBA will be its ability to process and act on the sheer volume of Economic Injury Disaster Loan applications it will receive in the coming days and weeks. To address that concern, as well as the need for loan assistance by small businesses across the nation, forthcoming coronavirus relief/stimulus legislation may change some of the criteria for the SBA Economic Injury Disaster Loan assistance for businesses impacted by the COVID-19 mitigation measures being implemented by federal, state, and local governments.  We will continue to monitor the latest developments and provide updates as warranted on the SBA’s authority to provide economic assistance to small businesses impacted by the COVID-19 public health emergency.   

Key elements of the SBA’s Economic Injury Disaster Loan Program are as follows: 

• Loan Amounts. Loan amounts are based on a company’s actual economic injury and financial need, up to $2 million per loan.   
  
  
• Loan Use. The money can be used to meet financial obligations and operating expenses that the company would otherwise have been able to meet had the disaster not occurred.
  
  
• Loan Eligibility. Small businesses seeking an Economic Injury Disaster Loan must:
  
  
  • (i) be located in a declared disaster area, 
    
    
  • (ii) be a small business, small agricultural cooperative or nonprofit organization; and 
    
    
  • (iii) have suffered substantial economic injury.  Substantial economic injury means the business is unable to meet its obligations and to pay its ordinary and necessary operating expenses. 
    
    Disaster Area declarations are issued by the SBA on its own authority, or at the request of a state or territory’s Governor. Twenty-one states are already recognized COVID-19 disaster areas, but we expect the list to continue to expand as more Governors request SBA to issue Economic Injury Disaster Loan assistance declarations for their states.  See the complete list of current SBA Declared Disaster Areas here. 
    
    
• Loan Terms. 
  
  
  • 3.75% fixed interest rate on loans to for-profit companies.
    
    
  • 2.75% fixed interest rate on loans to non-profit companies.
    
    
  • Up to 30-year term and amortization (determined on a case-by-case basis).
    
    
• How to Apply. Those that qualify can apply online for the Economic Injury Disaster Loan here. Additionally, the company will need to provide a signed and dated IRS Form 4506-T giving permission for the IRS to provide SBA your tax return information.
  
  
• Additional information. Additional information is available at the SBA disaster assistance customer service center.  Call 1-800-659-2955 (TTY: 1-800-877-8339), or e-mail disastercustomerservice@sba.gov.  

In summary, it is important for small and medium-sized businesses to take additional steps now in order to mitigate their risk of suffering negative impacts from the coronavirus. For more information about recommended steps, please contact your Foley relationship partner. For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the CDC and the World Health Organization. 

Foley has created a multi-disciplinary and multi-jurisdictional team, which has prepared a wealth of topical client resources and is prepared to help our clients meet the legal and business challenges that the coronavirus outbreak is creating for stakeholders across a range of industries.

Click here for Foley’s Coronavirus Resource Center to stay apprised of relevant developments, insights and resources to support your business during this challenging time. To receive this content directly in your inbox, click here and submit the form.