Economic Injury Disaster Loans – COVID-19
The swift and decisive actions taken by both state and federal governments in light of the COVID-19 situation have had a profound impact. Many believe the economy has entered a period of contraction with a recession likely if broad financial support, including loans, grants, and other relief, is not offered. This is against the backdrop of a warning by Treasury Secretary Steven Mnuchin that if no Congressional assistance is provided, it’s possible that unemployment rates will reach 20%. It’s obvious there are many businesses in New Jersey and Pennsylvania that currently, or soon will need assistance managing expenses such as payroll, facilities, and equipment leases and for expanded employee leave and other benefits. The situation is made worse because many don’t know where to turn for help or what programs are available. The good news is companies experiencing loss due to COVID-19 can now apply for a Small Business Administration (SBA) Economic Injury Disaster Loans (EIDLs) to receive a needed boost in working capital. To help clients, prospects, and others, Klatzkin has provided a summary of key program details below.
Economic Injury Disaster Loans
This loan program is designed to provide relief to businesses in disaster areas that have experienced a significant loss. Until recently, broad access to these loans was prohibited because the business had to be located in a federally declared disaster zone. However, in early March, it was announced that the state of New Jersey and Pennsylvania would automatically be designated as such. This now permits small businesses, non-profit organizations, and other private companies to apply for a working capital loan to assist through the recovery period.
Loan Program Details
To qualify for a loan, the SBA has determined the following credit requirements must be met, including:
- Credit History– Applicants must have a credit history that meets established minimums as determined by the SBA.
- Repayment – Applicants must demonstrate their ability to repay the loan at a future date.
- Collateral – The SBA requires collateral for all EIDL loans over $25,000, including real estate. It’s important to note a loan will not be declined because of insufficient collateral, but additional documentation demonstrating the ability to repay the loan is required.
Interest Rates & Terms
The interest rate is currently set at 3.75% for small businesses without access to other lines of credit, and the rate for non-profits is 2.75%. There are long-term repayment options available to make payments affordable highlighted by a maximum term of 30 years. However, terms are determined on a case by case basis, which will ultimately determine the terms.
EIDLs offer up to $2M in assistance to small businesses but the amount is limited to the economic injury as determined by the SBA. Eligibility is based on a company’s total debt obligations, operating expenses due during the disaster period plus amounts needed to maintain adequate working capital, and the expenses and working capital amounts that could have been met had the disaster not occurred.
Loan Approval Process
The loan approval process is typically 2-3 weeks from the date an application is submitted. Once approved, it can take up to five additional days for fund disbursement. Similar to traditional loans and lines of credit, an individual loan officer will be assigned to manage loan servicing.
The financial stress exerted on businesses during the COVID-19 crisis has forced many to seek immediate funding to maintain operations. There are several options available in addition to EIDLs, including both new loans and loan guarantees, which are expected to be approved by Congress this week. If you need assistance with the EIDL loan application process, or with another COVID-19-related issue, Klatzkin can help. For additional information, click here to contact us.