Federal disaster loans for small businesses impacted by COVID-19 are now available. Let’s check out the following:
- How the coronavirus effects on the economy are impacting small business
- How economic injury disaster loans can help affected companies
- What other financing opportunities are available to small businesses
- What other measures the government is taking to provide economic relief
Coronavirus Effects on Small Businesses
The coronavirus economic impact is rippling through multiple layers of the economy:
- Consumer self-quarantines and government-imposed quarantines cut into domestic consumer spending and business revenue
- Employee quarantines lower the availability of workers
- International travel restrictions hamper export sales and logistics chains
- Stock market drops translate into less investor money available for businesses
These developments are exerting a large, negative impact on certain industries. The restaurant and travel industries face a high risk of sharp declines in customers. Companies heavily dependent on Chinese manufacturers could suffer supply chain distress.
However, other industries are facing the crisis from a stronger position. The surging demand for online shopping has prompted Amazon to hire an additional 100,000 warehouse and delivery workers. Industries such as healthcare, home food delivery and home exercise and entertainment providers could also see increased demand.
Business owners should also realize that the coronavirus is only one factor influencing current economic trends. Other recent factors driving the stock market include:
- Uncertainty about the outcome of the 2020 U.S. elections
- Oil price warfare between Saudi Arabia and Russia
Taking a wider perspective can help business owners assess the coronavirus’s impact in better context.
Economic Injury Disaster Loans
In response to the coronavirus crisis, the White House and Congress have legislated the Coronavirus Preparedness and Response Supplemental Appropriations Act (H.R. 6074). Among other provisions, the act allocates an additional $20 million to the Small Business Administration (SBA) Disaster Loans Program Account. This injection of funds will support the administration of SBA federal disaster loans to small businesses impacted by the coronavirus.
SBA federal disaster relief loans provide low-interest loans to business and homeowners recovering from declared disasters. Under H.R. 6074, this program has Congressional authorization to extend SBA low-interest disaster loans to companies impacted by the coronavirus.
SBA Economic Injury Disaster Loan Terms, Eligibility and Application Process
SBA disaster loans for small business offer financing up to $2 million for small businesses suffering economic disruption from the coronavirus. These loans are designed to help companies suffering a substantial economic injury that leaves them unable to pay their obligations and cover necessary operating expenses. Loans can be used to cover costs such as payroll, accounts payable, fixed debt and other expenses that companies can’t pay due to the coronavirus crisis.
Additionally, small businesses and non-profits that apply for this Economic Injury Disaster Loan (EIDL) are eligible to receive up to a $10,000 grant, which they do not have to repay. These funds could be available within 3 business days after submission of the EIDL application. The specific grant amount will be based on a business’s annual revenue and cost of goods sold over the past 12 months. If you meet the minimum requirements to apply for the disaster loan, the grant will be available to you whether or not your loan application is approved.
What Are the Terms?
Terms are available for up to 30 years. Interest rates are 3.75% for small businesses without credit available elsewhere and 2.75% for nonprofits.
SBA economic injury disaster loans for coronavirus relief are currently available to all small businesses and non-profits with fewer than 500 employees in the U.S.
How to Apply
To apply for SBA disaster assistance:
- Apply either online, in person at a disaster center or by mail. The SBA will then review your credit, estimate your losses and assign a loan officer to assess your eligibility and guide you through the application process.
- You can check the status of your application through your online account and through email updates. If the SBA approves your loan, you will receive closing documents to sign. After the SBA receives your signed documents, you will receive an initial disbursement within 5 days. A case manager will work with you to distribute additional disbursements, help you meet all loan conditions and make any adjustments.
As with any loan, your odds of applying successfully depend on the creditworthiness of your business. You stand the best chance of approval if you have a strong credit history and a solid business plan to demonstrate your ability to repay your loan.
Other Financing Resources
Federal disaster loans only represent one financing option available to small businesses affected by the coronavirus. Because you can only qualify for SBA small business loans for disaster relief if you do not qualify for other types of financing, you should first explore whether you qualify for alternative forms of financing before pursuing an economic injury disaster loan. Other financing options include:
- Other SBA low-interest loans
- Non-SBA loans
- Business lines of credit
- Business credit cards
- Merchant cash advances
Other SBA Low-Interest Loans
The SBA’s disaster loan program represents just one of the SBA low-interest loan programs available to small businesses. The SBA’s most popular program, the 7(a) program, provides amounts up to $5 million for purposes such as covering working capital, repaying debt, paying for expansions and purchasing land or equipment. The SBA has backed an averaged 50,000 7(a) loans a year, totaling $30 billion. To help small business owners stay afloat during the widening economic shutdown caused by the coronavirus, President Donald Trump has asked to raise this loan allowance to $50 billion.
Other loan programs provide smaller amounts on an express basis or to underserved communities. While considering a federal disaster loan, you might wish to check whether you’re eligible for some of these other SBA loans.
In order to qualify for any SBA loan, you must have first explored other financing options. If your business has a track record of consistent revenue and a good credit rating, you could qualify for a term loan. Term loans provide immediate access to large sums of capital that can be borrowed for most business purposes at favorable rates and terms. Term loans are available from both traditional lenders such as banks as well as online lenders.
Business Lines of Credit
Another major financing option is a business line of credit. This works similar to a credit card, providing your company with a credit limit you can borrow against. You only pay interest on the amount you borrow. The amount available gets replenished as you repay what you borrow, so this type of financing is also referred to as a revolving line of credit. Unlike a credit card, a business line of credit deposits borrowed funds directly into your business bank account, so you can use it to fund checks as well as to make direct purchases. Business lines of credit often offer higher limits and better rates than credit cards.
Business Credit Cards
Business credit cards represent another financing option for businesses. Like business lines of credit, they allow you to draw funds within a set credit limit. You can spend funds directly on purchases, or you can withdraw cash advances, usually for an additional fee and at a higher rate. Where business lines of credit work well for funding larger expenses, business credit cards work well for paying smaller ongoing expenses, such as utility payments, web hosting fees or office supplies.
Merchant Cash Advances
A merchant cash advance is not a loan, but an advance extended based on the strength of your projected sales. Your lender advances you money based on your commitment to repay them through a percentage of your future sales. This type of financing can work well if your business model involves a high volume of accounts receivable from credit card sales, as in industries such as restaurants, retail and salons.
Other Government Relief Measures
In addition to Economic Injury Disaster Loans, the White House and Congress are providing relief to businesses affected by the coronavirus. These measures include:
- The Coronavirus Aid, Relief and Economic Security (CARES) Act. The government has allocated $349 billion to help small businesses keep workers employed. Known as the Paycheck Protection Program, the initiative provides federally-guaranteed loans to small businesses that maintain their payroll during this emergency. These loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.
- Business payroll tax relief to allow companies to retain more revenue to cover operating expenses
- Tax deferment for those affected by the coronavirus
As the government’s response to the crisis develops, other relief methods may be explored, debated, implemented and adjusted to ongoing needs.
Fight Back Against the Coronavirus by Exploring All Options
Federal government disaster loans and other financing options provide a variety of potential relief resources for companies suffering from the effects of the coronavirus. If you’re concerned about your company’s finances, make sure to explore all the resources available to you, including SBA disaster loans and other business loan options.