Last updated: July 10, 2020
Businesses are facing new challenges as they continue to navigate the ongoing novel coronavirus (COVID-19) pandemic. According to the latest U.S. Census Bureau Small Business Pulse Survey, 82.5% of businesses surveyed experienced a “moderate or large negative effect” from COVID-19, with 42.5% of businesses reporting a drop in revenue.
In addition to providing ongoing counselling support and relaxed eligibility criteria for their Economic Injury Disaster Loan program, the SBA has launched several new types of loans to help small businesses navigate the ongoing difficulties caused by COVID-19.
Here’s what you need to know about the recent changes to SBA disaster relief options:
Revised SBA Disaster Assistance Loan eligibility criteria
On March 17, 2020, the federal government announced revisions to two criteria for businesses seeking SBA Disaster Assistance Loans.
- Faster, easier application process for states seeking an economic injury disaster loan declaration. States no longer need to prove that businesses have been impacted in all counties or parishes.
- Expanded statewide access to SBA Disaster Assistance Loans for Small Businesses. SBA Disaster Assistance Loans are now available statewide following an economic injury declaration. This applies to current and future disaster declarations related to COVID-19.
These changes to eligibility criteria make it easier for businesses to acquire an Economic Injury Disaster Loan declaration, which in turn makes SBA Disaster Assistance Loans available to small businesses and not-for-profit organizations statewide. As of June 1, 2020, businesses in all states are eligible for SBA disaster assistance funding.
SBA Disaster Relief Options
The CARES Act, signed into law on March 27, 2020, contained $376 billion in relief for American workers and small businesses. In addition to traditional SBA funding programs such as 7(a) loans and the existing Economic Injury Disaster Loan, the CARES Act established four new temporary loan programs designed to address the ongoing COVID-19 outbreak.
Let’s take a look at the funding options available to businesses impacted by COVID-19.
1. Economic Injury Disaster Loans
Traditionally used by businesses impacted by natural disasters such as hurricanes, tornadoes, or flooding, SBA Economic Injury Disaster Loans are also available to businesses suffering as a direct result of COVID-19.
- Up to $2 million available for each small business
- 75% interest rate for small businesses, and 2.75% interest rate for not-for-profits
- Long-term repayment plans are available up to a maximum term of 30 years. Terms are determined on a case-by-case basis.
How to apply
Historically, SBA Disaster Assistance Loans have had an average approval and disbursement time of 4 weeks, but the SBA has streamlined their application process to accelerate approvals and provide funding as quickly as possible. Their updated online application takes approximately 2 hours to complete.
8.5% of businesses surveyed as part of the Small Business Pulse Survey requested EIDL funding between June 14 and June 20. Having timely access to capital will be critical to the success of many small businesses throughout the COVID-19 pandemic.
How to use Economic Injury Disaster Loans
Economic Injury Disaster Loans are designed to help businesses overcome loss of revenue experienced as a result of a natural disaster. While these loans are traditionally granted to businesses rebuilding after a natural disaster such as a hurricane or tornado, they are also available to businesses impacted by pandemics such as COVID-19, and can be used to:
- Pay fixed debts
- Maintain payroll and accounts payable
- Cover other bills and expenses
Apply for an Economic Injury Disaster Loan.
2. Paycheck Protection Program
The newly-launched Paycheck Protection Program (PPP) is a temporary expansion of the traditional SBA 7(a) loan. The PPP offers a direct incentive for small businesses to keep their employees on the payroll by offering temporary loan forgiveness to all businesses who retain employees throughout the pandemic.
Loan forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease.
- The SBA will forgive all 7(a) loans for 6 months if employees are kept on the payroll for 8 weeks, provided the funding is used for payroll, rent, mortgage interest, or utilities. At least 75% of funding must be used for payroll to be eligible for loan forgiveness.
- No collateral or personal guarantee is required, and no fees are applied
- Loans reach maturity at 2 years
- 1% interest rate
How to apply
75% of businesses surveyed as part of the Small Business Pulse Survey requested PPP funding between June 14 and June 20.
Business owners can apply for PPP through any existing SBA 7(a) lender, as well as any federally insured depository institution, federally insured credit union, or participating Farm Credit System.
The following businesses are eligible for the Payroll Protection Program:
- Any small business that meets the SBA’s size standards
- Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern with greater than 500 employees or that meets the SBA industry size standard if they employ over 500 workers
- Any business with an NAICS code that begins with 72 (Accommodations and Food Services) and that has more than one physical location and less than 500 employees per location
- Sole proprietors, independent contractors, and self-employed workers
How to Use Paycheck Protection Program funding
PPP funding is designed to help businesses keep their workforce employed during the COVID-19 crisis. Funding must be used for:
- Mortgage interest
At least 75% of funding must be used for payroll in order to be eligible for loan forgiveness.
Learn more about the SBA’s Paycheck Protection Program.
3. Economic Injury Disaster Loan Advance
The Economic Injury Disaster Loan Advance offers up to $10,000 in fast economic relief for businesses currently experiencing difficulties caused by COVID-19.
- Advances up to $10,000 are available
- Funding does not need to be repaid
How to apply
Due to overwhelming demand, the SBA stopped processing EIDL Advance applications on April 15, 2020. As of June 15, new applications are being accepted from all eligible small businesses and U.S. agricultural businesses. Applicants who have already submitted an application will be processed on a first-come, first-served basis.
Learn more about the Economic Injury Disaster Loan Advance.
4. SBA Express Bridge Loans
Express Bridge loans up to $25,000 are available for businesses that currently have a relationship with an SBA Express Lender. These can be term loans or loans used to bridge the gap while applying for a direct SBA Economic Injury Disaster Loan.
- Funding up to $25,000
- Fast turnaround
- Repaid in full or in part by proceeds from standard Economic Injury Disaster Loan
How to apply
Businesses with an urgent need for cash while waiting for decision and disbursement on an Economic Injury Disaster Loan may qualify for an Express Bridge Loan.
Learn more about SBA Express Bridge Loans.
5. SBA Debt Relief
SBA Debt Relief offers financial reprieve for small businesses with new or existing SBA loans, excluding PPP or Economic Injury Disaster Loans.
- The SBA will pay 6 months of principal, interest, and any associated fees owed for all current 7(a), 504, and Microloans as well as new 7(a), 504 and Microloans disbursed prior to September 27, 2020
- Not available for Paycheck Protection Program or Economic Injury Disaster Loans
How to apply
You do not need to apply for SBA Debt Relief—it will be automatically provided as follows:
- For loans not on deferment, the SBA will begin making payments with the next payment due, and will make six monthly payments.
- For loans currently on deferment, the SBA will begin making payments with the next payment due after the deferment period has ended, and will make six monthly payments.
- For loans made after March 27, 2020 and fully disbursed prior to September 27, 2020, the SBA will begin making payments with the first payment due on the loan and will make 6 monthly payments.
Learn more about SBA Disaster Relief.
6. Exporting Assistance
Loans specifically for businesses that achieve sales through exports are also available, including:
- Businesses that export directly overseas
- Businesses that export indirectly by selling to a customer that then exports their products
This funding can be used to help these businesses respond to opportunities and challenges associated with trade.
Learn more about Exporting Assistance.
SBA Disaster Relief Options
Relaxed eligibility criteria for SBA Disaster Assistance Loans and expanded funding programs will make it easier for small businesses in designated states and territories to access funding that will help them weather the ongoing coronavirus (COVID-19) outbreak.
Businesses that need working capital fast or that are rejected by the SBA may be able to access the funding they need through alternative lenders like Greenbox Capital. Our Funding Advisors are standing by to help you understand alternative funding options.