NICOLA, GUDBRANSON & COOPER, LLC
Support for Small Businesses
March 27, 2020
During the COVID-19 Pandemic and related economic crisis, Nicola, Gudbranson and Cooper, LLC will continue to assist our clients and make them aware of ways to navigate through these uncertain times. This past week, the Small Business Administration (SBA) approved a request by Governor DeWine to make Ohio small businesses eligible for SBA Disaster Loans for economic injuries related to the pandemic. These loans are intended to provide much needed help to impacted small businesses so they may support their employees and manage ongoing operational costs.
What is an SBA Disaster Loan?
Under the SBA Disaster Loan Program, the maximum loan amount is $2 million for approved applicants with a maximum term of 30 years. Payments may be deferred for one year, but interest on each loan accrues from the time of disbursement at an annual rate of 3.75% for for-profit small businesses and 2.75% for not-for-profits. The Wall Street Journal Prime Rate today is 3.25%. The terms of each loan, including amount of disbursement, are determined by the SBA for each applicant on a case-by-case basis.
What Businesses are Eligible Under the SBA Disaster Loan Program?
Ohio businesses eligible for the SBA’s Disaster Loan Program will have fewer than 500 employees and need funds to meet financial obligations, such as payroll, and operating expenses which otherwise could have been met had the COVID-19 pandemic not occurred. Businesses will not be eligible to receive funds to cover lost profits.
Businesses requesting loans greater than $25,000 will be required to pledge the same amount in collateral, such as real estate, with a lien position of no lower than third. If a business applicant lacks the collateral to match their loan, it must then pledge whatever collateral it has available. The SBA will review each application and limit the amount offered under each loan by its determination of the borrower’s need and ability to repay.
The SBA will also review an applicant business’s financial history and deem it ineligible if the applicant has bad credit, has defaulted on a prior SBA loan, or has credit available through another source, such as a business line of credit. Borrowers with preexisting SBA Disaster Loan(s) who are otherwise eligible may be eligible for an SBA Disaster Loan made necessary by COVID-19 but, if approved, they may not consolidate multiple SBA Disaster Loans.
Additionally, not all businesses are eligible for these loans. Agricultural businesses, religious organizations, charitable organizations, gambling businesses, and casinos are examples of businesses that are not eligible.
How to Apply
Small businesses hoping to receive an SBA Disaster Loan are required to fill out an application with the following forms which may be completed by mail or online (except for IRS Form 4506-T as provided below):
- SBA Form 5 – Business Loan Application
- SBA Form 413 – Personal Financial Statement, required by everyone with ownership of 20% or greater
- SBA Form 2202 – Schedule of Liabilities
- IRS Form 4506-T – Request for Transcript of Tax Return, required for the applicant entity and everyone with ownership of 20% or greater (download form, complete, sign, upload as PDF)
- Additional information may be required, such as business or personal tax returns, year-end and/or interim financial statements, and monthly sales figures.
These forms will require you to provide personal information, including previous addresses and surnames, information on current and former debts and other liabilities, and other general information that would typically be found on tax returns or a business plan.
It is free to apply for these loans and an applicant is not obligated to accept the loan if approved. It’s recommended due to the expected volume that interested businesses in Ohio apply for SBA Disaster Loans online at disasterloan.sba.gov, or call (800) 659-2955 to have an application mailed to you or for additional assistance.
When Will the Funds Be Disbursed?
Typically, borrowers should expect funds to be disbursed from an SBA Disaster Loan less than a month after applying. However, due to the expected large volume of applications due to COVID-19, delays for disbursement should be expected but have not been confirmed.
In the event you require funds faster, the SBA does offer alternative products for small businesses under different terms through non-profit and commercial lending partners for loans up to $50,000 and $350,000 respectively.
Other Help Available
- Many banks have announced measures to provide disaster relief assistance. The American Bankers Association has provided a master list of those banks (updated through today) at httpw//www.aba.com/about-us/press-room/industry-response-coronavirus.
- Also, in Ohio, health insurers are required to provide the option of deferring premium payments, interest free, for up to 60 calendar days from their due date, allowing employers to defer their payments while keeping their employees insured.
- Some private companies are providing grants and other benefits to businesses facing difficulties due to the COVID-19 pandemic. For example, for businesses that are eligible, Facebook has announced $100 million in cash grants and ad credits for up to 30,000 small businesses. Grants can cover operational costs and obligations such as rent. https//www.facebook.com/business/boost/grants.
- Finally, the Ohio Attorney General has provided a warning regarding COVID-19 related scams. Before pursuing any program solicited by a government agency or other entity, please contact that agency or entity separately and directly to verify their authenticity, review the Attorney General’s website, or contact an attorney for consultation on how to proceed.
Nicola, Gudbranson, & Cooper, LLC will continue to monitor changes as they occur and provide updates as necessary. If you should require any assistance related to the current crisis, or for any other matter, please do not hesitate to contact our attorneys and we will be happy to help.