How to Apply for SBA Loans- A Source of Needed Relief

The daily lives of everyone have changed as virtually all schools, businesses and many public places have been forced to close. Individuals who were accustomed to going to their business every day are working from home and limiting their exposure to others.

As a result of these changes, many businesses are in the midst of a severe cash crunch. Revenue is not being generated at previous levels, while a great many expenses still need to be paid. One avenue available to companies is the Small Business Administration (SBA). The SBA is offering Economic Injury Disaster Loans of up to $2.0 million for every affected small business and not for profit organization.

At this juncture, all fifty states have been declared disaster areas. As a result, businesses and not for profit organizations can now accept online applications for the Economic Injury Disaster Loans. The link to access the loan application is DisasterLoan.sba.gov.

The loans may be used to pay fixed expenses, payroll, accounts payable and other bills that cannot be paid as a result of the pandemic. The interest rate is 3.75% for small businesses and 2.75% for non-profit organizations. Payment can be made for a period of up to ten years.

Applicants will be required to provide:

1. The last three year’s financial statements and tax returns.
2. The last three year’s personal financial statements and tax returns of any entity in which an individual has or had an interest of greater than 20%.
3. Accounts receivable and accounts payable aging schedules as of the loan application date.
4. Form 4506-T which allows the IRS to share your tax data with the SBA.

In addition to the above, there is a proposal afoot which, if approved by the United States Senate, would provide $300 billion for small businesses to meet immediate financial obligations. The proposal would further allow for the loans to be converted to grants as long as they are used solely for payroll and regular operating expenses. Another proposal under consideration would waive what is known as the 7(a) upfront guarantee fee and any annual borrower fees, while the loans are outstanding. In addition the SBA would guarantee up to 90% of the loan balance instead of the typical 75%, in order to entice banks to loan the necessary funds.

Currently, the SBA website is experiencing heavy traffic, so it may be best to access the website on off-hours. Withum is experienced in the SBA market and regularly helps clients prepare SBA loan applications and performs business valuations for banks that offer SBA loans. We will keep you apprised of any future developments as they arise. Please feel free to reach out to either Tom Reck or Brian McIntyre should you have any questions.

In addition to SBA loans, there are discussions regarding whether losses as a result of COVID-19 are covered by insurance. The New Jersey Legislature has discussed a bill that would force insurers to pay COVID-19 business interruption claims specifically disallowed by a virus exclusion. Our colleague, Jessica Hollobaugh, wrote about this in detail at: COVID-19 Business Interruption Losses and COVID-19: Recovering Business Interruption Losses. Please feel free to peruse these pieces. If additional states follow suit, we will update accordingly.

Finally, it appears that bankruptcy may be the best remedy, please see the article co-authored by Ken DeGraw and Sambla, Considering a Bankruptcy Filing?. Ken is well versed in bankruptcy matters, so please feel to reach out to him with any questions.

Please know that Withum understands your concerns and issues and will do our very best to assist you in these difficult times.