In 1953, the United States created the Small Business Administration (SBA) in order to help small business owners and entrepreneurs pursue the American Dream. They are the only cabinet-level federal agency dedicated to small businesses and are in charge of providing counseling, capital, and expertise. Through them, small businesses and entrepreneurs are able to receive funding. Among that funding are three very important programs: the Economic Injury Disaster Loan (EIDL), the Express Bridge Loan (EBL), and the Debt Relief program.
Economic Injury Disaster Loan
The Economic Injury Disaster Loan is a loan that will provide economic relief to small businesses and non-profit organizations that are currently experiencing a temporary loss of revenue. In order to be eligible, businessowners need to meet the following requirements:
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- Businessowners have 500 or less employees whose principal place of residence is in the United States or operate in a certain industry that meets the applicable SBA employee-based size standards for said industry.
- You are an individual who operates under a sole proprietorship, an independent contractor, or are an eligible, self-employed individual, and you were in operation on February 15th, 2020.
- You must agree to let the SBA review your tax records.
- You are not engaged in any activity that is illegal under federal, state, or local law.
- You are not an individual who employs nannies or housekeepers.
- You are not the businessowner of 20-percent or more of an equity whose applicant is incarcerated, on probation, on parole, or has been convicted of a felony in the last five years.
- Your business is not controlled by someone who has obtained a direct loan from the SBA or other federal agencies, or is currently a delinquent or has defaulted in the last seven years, causing loss to the government.
If you meet those requirements, your business will receive a loan of up to two-million dollars. The Economic Injury Disaster Loan is based on your actual economic injury as determined by the SBA to spend on paid leave, maintaining payroll, and mortgage or lease payments, making it a forgivable loan. Payments are deferred for one year and the maturity is up to 30 years.
As mentioned, the loan can be used for paid leaves, maintaining payroll, and mortgages or lease payments. However, it can also be used for costs related to the continuation of group healthcare benefits during paid sick, medical, or family leaves, insurance premiums, and rent, utility, and interest payments on other debts incurred before February 15th, 2020. Businessowners cannot use said loan for qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Pub. L. 116–127), dividends, and to refinance previous debts.
Express Bridge Loan
The EBL program has been in place since 2017 to assist businesses in presidentially declared disaster or emergency areas. On March 25th, 2020, the program was expanded in order to make small businesses nationwide eligible if they had been affected by COVID-19.
The eligibility requirements are the same as the Economic Injury Disaster Loan. However, the EBL can exclusively be obtained through a qualified SBA Express Lender with whom the business already has a relationship, and only per their declaration. A relationship with a lender’s affiliate will not satisfy the requirements of an existing banking relationship. Once 45 days have gone by from the day they apply, businessowners can receive a loan of up to $25,000. Since the EBL is a bridge loan, the first disbursement should occur within 45 days of the lender’s receipt of the SBA number and must occur no later than 90 days from that date. If the first disbursement is not made within 90 days from receipt of an SBA loan number, the EBL will be cancelled.
The EBL is structured as a term loan and revolving lines of credit are not permitted. The maximum term is seven years. When the loan is granted, the lender may require the EBL borrower to pay the loan in part. However, they will be required to pay it in full if the borrower is approved for long-term disaster financing that allows loan proceeds to be used for EBL reimbursement. If the borrower does not obtain long-term disaster financing, the loan must be amortized over a maximum term of seven years. The maximum allowed application fee is two percent of the loan amount, or $250—whichever is greater. A late fee must not exceed five percent of the scheduled EBL payment, and only reasonable direct costs of liquidation should be charged. No other fees or costs shall be charged to an EBL applicant or borrower by the lender or any third party. This includes referral, brokers, or any similar fees.
In order to apply for an SBA Express Bridge Loan, an applicant must provide the following to the lender:
- IRS Transcripts, or equivalent paperwork.
Lender must submit a signed IRS Form 4506-T (Transcript Request Form) to the IRS to verify the existence of the business as of the date the applicable disaster commenced and confirming the EBL applicant has filed required tax returns.
For businesses in operation prior to the disaster but not long enough to have tax filing requirements, the lender must provide an acceptable alternative to verify the existence of the business as of the date the applicable disaster commenced.
- Acceptable documentation proving existing banking relationship between the lender and the applicant.
Current bank statements, an existing bank note, or other official bank documents that reference the EBL applicant’s business address.
- Satisfactory FICO Small Business Scoring Service Score (SBSS Score).
The minimum SBSS Score for an EBL loan is 130.
- Satisfactory personal credit score.
The personal credit score of each guarantor must be satisfactory under the lender’s standards for its similarly sized, non-SBA guaranteed commercial loans.
All EBL proceeds must be used exclusively to support the survival or reopening of the small business. Lenders must certify in the credit memorandum that the EBL will be used by the business for such purposes, and this certification must be included with any guarantee purchase request to the SBA. For purposes of the COVID-19 emergency, the EBL must be disbursed as working capital.
This Debt Relief program will provide immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans disbursed prior to September 27th, 2020. Under it, the SBA will pay six months of principal, interest, and any associated fees. However, this relief is not available for the Economic Injury Disaster Loan and the Paycheck Protection Program (PPP).
Borrowers do not need to apply for assistance, it will be given automatically provided as follows:
- For loans which are not on deferment, the SBA will begin making payments on the next due payment will make six monthly payments.
- For loans which are currently on deferment, the SBA will begin making payments on the next due payment after the deferment period has ended and will make six monthly payments.
- For loans made after March 27th, 2020 and fully disbursed prior to September 27th, 2020, the SBA will begin making payments when the first payment is due and will make six monthly payments.
These are three of the most well-known programs the SBA offers smalls businesses and entrepreneurs. It is important to take a close look at their requirements and to apply once the correct documentation has been gathered. You may realize your business is eligible for multiple loans, but you should select the one that would benefit you best. Luckily, there are plenty of funding opportunities through the SBA.