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SBA coronavirus disaster loans: Is your business eligible?

March 27, 2020

By Carson Maricle

Businesses suffering an economic injury as a result of the COVID-19 pandemic may be eligible for a low-interest Economic Injury Disaster Loan (EIDL) or other programs from the U.S. Small Business Association (SBA). The purpose of the EIDL program is to provide economic support to small businesses in order to continue operations during the COVID-19 pandemic. The information outlined below is subject to change as the pandemic continues and new legislation is passed. The procedure and terms of the EIDLs are determined on a case-by-case basis, but the following provides a high-level summary of the programs and application process.

Hand stopping domino line from fallingWho is eligible for an EIDL?

To be eligible, the applicant business must:

  • Be located within a declared disaster area;
  • Be a “small” business;
  • Have suffered a substantial economic injury as a result of the COVID-19 pandemic;
  • Have an acceptable credit history;
  • Have the ability to repay; and
  • Be unable to obtain credit elsewhere.

Each of the eligibility criteria is summarized below:

  • Declared disaster area: The entire United States has been declared a disaster area for purposes of the EIDL program.
  • Small business”:
    • The business must be a small business, small agricultural cooperative, small aquaculture business, or small non-profit organization, and not be operating in an industry deemed ineligible by the SBA.
      • The SBA’s definition of “small” varies by industry and is determined by published size standards based on the number of employees and/or the applicant’s average annual receipts.
      • The SBA may consider subsidiaries and affiliates of the business in determining whether the business is a “small” business.
  • Substantial economic injury resulting from the COVID-19 pandemic:
    • This includes businesses directly injured by the COVID-19 pandemic as well as those indirectly affected to industries that are likely to be harmed by affected businesses. A loss of anticipated profits or a drop in sales is not considered substantial economic injury for purposes of the EIDL program.
  • Acceptable credit history: The business’ credit history must be acceptable to the SBA.
  • Ability to repay: The SBA must determine the applicant is able to repay the loan.
  • Unable to obtain credit elsewhere: The applicant and its affiliates and principal owners (owning 20 percent or more) must have exhausted all reasonably available funds and be unable to obtain credit from another source on reasonable terms.

Terms and Permitted Uses

  • A business may borrow up to $2 million for economic injury.
  • Borrowed funds may be used to pay fixed debts, payroll, accounts payable, and other bills that cannot be paid because of the disaster’s impact. The loans are not meant to replace lost sales or profits or for expansion.
    • EIDL proceeds cannot be used to:
      • Refinance indebtedness incurred prior to the COVID-19 pandemic.
      • Make payments on loans owed to another federal agency.
      • Pay tax penalties resulting from negligence or fraud or any non-tax criminal fine or penalty.
      • Repair physical damage.
      • Pay dividends or other disbursements to owners, except for reasonable remuneration directly related to the performance of services for the business.
  • The interest rate is 3.75 percent (2.75 percent for non-profit organizations).
  • EIDLs are payable over a term of up to 30 years. The term will be based on the business’ ability to repay. Some EIDLs are now eligible for 12-month deferment.
  • There are no fees or early payment penalties.
  • Collateral is required for loans in excess of $25,000 to the extent such collateral is available. Owners of more than 20 percent of the applicant business may be required to guaranty the EIDL.

How to apply

The following documents are required for the SBA to reach a loan decision:

  • Business Loan Application (SBA Form 5) completed and signed by business applicant.
  • IRS Form 8821/4506-T completed and signed by applicant business, each principal owning 20 percent or more of the applicant business, each general partner or managing member, and for any owner who has a 50 percent or more ownership in an affiliate business. (Affiliates include, but are not limited to, business parents, subsidiaries, and/or businesses with common ownership or management.)
  • Complete copies, including all schedules, of the most recent federal income tax returns for the applicant business and affiliates, or an explanation if not available.
  • Personal Financial Statement (SBA Form 413 may be used) completed, signed and dated by the applicant (if a sole proprietorship), each principal owning 20 percent or more of the applicant business and each general partner or managing member.
  • Schedule of liabilities listing all fixed debts (SBA Form 2202 may be used). (For applicant company and each affiliate.
  • Complete copies, including all schedules, of the most recent federal income tax returns for each principal owning 20 percent or more of the applicant business, each general partner or managing member, and each affiliate. (An affiliate is described as any company that anyone owns 20 percent or greater of applicant company also owns 20 percent or greater in another company)
  • If the most recent federal income tax return has not been filed (2019), a year-end profit and loss statement and balance sheet for that tax year for 2019 should be included for applicant company and each affiliate.
  • A current year-to-date profit and loss statement.
  • SBA Form 1368 providing monthly sales figures.

There is no cost associated with applying for an EIDL, nor is there an obligation to take the loan if the SBA approves the application. An applicant has six months to provide new information and submit a written request for reconsideration in the event a loan request is denied. Applicants are encouraged to submit their applications electronically using the SBA’s website.

The SBA generally responds to a loan application within two to three weeks, although response times are expected to be longer due to the number of loan applications resulting from the pandemic.

Proposed legislation

In addition to the EIDL program, Congress is considering a number of bills that would impact the disaster loan program and other federal programs, including the SBA 7(a) program that offers loans by third-party lenders to eligible businesses.

Among the proposals included in Senate Bill 3548, the Coronavirus Aid, Relief, and Economic Security Act or "CARES Act" includes proposals to expand the SBA 7(a) loan program to address growing needs of certain businesses, to be funded with $300 billion of new appropriations.

The CARES Act has passed in the Senate and, at the time of this writing, was expected to pass in the House in the next few days. The CARES Act is expected to make a portion of an SBA 7(a) loan equal to certain costs of maintaining payroll eligible for forgiveness, subject to limitations. It is also expected that the CARES Act may be limited to businesses with fewer than 500 employees even if the business does not otherwise meet the SBA’s traditional definition of a “small” business.

Congress is also considering appropriating funds for Small Business Interruption Loans, which would be used to fund payroll for a period of time, subject to limitations and restrictions.

If you have questions about the federal government programs available to mitigate the impact of the COVID-19 pandemic on your business, please contact Carson Maricle or visit Greensfelder’s COVID-19 resources page at

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