By Frank Panzeca – Clark Schaefer Hackett
As you likely know, President Trump recently unveiled specific funding programs designed to make businesses more resilient to Coronavirus-related economic disruptions.
As part of the Coronavirus Preparedness and Response Supplemental Appropriations Act, the SBA will work directly with state governors to provide targeted, low-interest disaster recovery loans to businesses that have been severely impacted by the Coronavirus.
This announcement has sparked many questions. The details are still developing, but here’s what we know now:
- Up to $2 million in assistance is available per business; loans below $25,000 do not require collateral; loans above $25,000 will require some collateral. No applications will be turned down based on a collateral shortfall.
- These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible. The interest rate for non-profits is 2.75%.
- SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
- Applicants cannot use the loan proceeds to refinance debt, or buy property, plant or equipment. They may use the proceeds for loan payments, tax payments, A/P, and general operating expenses. They are advised to keep receipts for the expenditure of funds for 3 years in case of an Audit.
- There are no prepayment penalties.
Process for Accessing SBA’s Coronavirus (COVID-19) Disaster Relief Lending
Upon a request received from a state’s or territory’s governor, SBA will issue under its own authority, an Economic Injury Disaster Loan declaration.
The governors of Kentucky, Indiana, Ohio and Michigan (among many other states) have applied for approvals.
There are many areas within our region already eligible to apply and more states and territories are being added daily.
You can check to see if your county is in an approved designated area by using this search tool. Search carefully as there can be multiple different area classifications depending on your state and county.
Applicants must also meet the SBA’s definition of a small business. To help you understand if your business meets the requirements, here is a link to the SBA’s table of small business size standards.
Although you can seek guidance on the program from your banker, it does not have the ability to apply for you. Businesses seeking access to these funds will have to apply directly to the U.S. Government.
It is critical that you take the time to accurately complete the filing process. The most common process delays are from invalid filings.
Once the application is submitted, assuming the forms are correctly filled out, the SBA is estimating two to three weeks for approval and an additional week for funds to be disbursed. Filing the application can be daunting but we can assist you with certain parts of the process.
Again, the details around this program are evolving. We are following the developments closely and will offer updates as information becomes available. Contact a CSH advisor with questions at (513) 241-3111.
Other info to use as needed:
The forms and links required for submission are provided below:
- SBA Form 5
- IRS 4506-T
- SBA Personal Financial Statement (PFS)
- SBA Schedule of Liabilities
- Business and personal Tax Returns (three years of actual filings; does not have to include 2019).
Anecdotal feedback from lenders:
- Businesses seeking less than $500,000 are currently experiencing a simpler process that is more predicated on an applicant’s credit score.
- Timelines are progressing quicker than anticipated and estimated, but that will most assuredly slow down once the volume of applications begins to swell (as more states are approved).
- SBA is sending $25K to applicants upon approval; balance will be remitted in less than 30 days.
- Requests greater than $500,000 undergo a more stringent lending process with a full application and submission of standard financial packages; longer evaluation times are certain.
- Guidelines at the SBA have been to cap loan requests to 50% of Gross Profit.
- Loan will be secured with a UCC filing against business assets; personal assets may be required as collateral as well.