SBA Economic Injury Disaster Loans

Florida now qualifies for low interest federal disaster loans from the U.S. Small Business Administration (SBA).  These loans are available to small businesses and certain private non-profit organizations suffering severe economic injury due to COVID-19.  These loans offer up to $2 Million in assistance with interest rates of 3.75% for small business and 2.75% for non-profits.  The loans, known as Economic Injury Disaster Loans (EIDL), will provide working capital to eligible small businesses and non-profits directly and indirectly affected by COVID-19. 

The loans will be available to all small businesses (i.e., businesses with 500 employees or less), and include S-corporations, small agricultural cooperatives, small aquaculture businesses and most private non-profit organizations.  Types of eligible industries include hotels, restaurants, retailers, recreational facilities, manufacturers, sports vendors, owners of rental property, travel agencies and wholesalers. 

An eligible private non-profit organization is a non-governmental agency or entity that currently qualifies for a tax exemption under IRS Code, Sections 501(c), (d) or (e), or has satisfactory evidence from the State that it is a valid non-profit organization or doing business under Florida law.  Eligible private non-profit organizations include, without limitation, nursing home facilities, food kitchens, educational facilities, senior citizen centers, daycare centers, playhouses, community centers, shelters, and rescue organizations. 

Ineligible non-profit organizations include:

• Agricultural enterprises primarily engaged in the production of food and fiber, ranching and raising of livestock, aquaculture and all other farming and agriculture related industries.
• Religious enterprises.
• Charitable organizations.
• Gambling concerns that derive more than 1/3 of their annual gross revenue from legal gambling activities.
• Casinos and racetracks.
• Real estate developers primarily engaged in subdividing real property into lots and developing it for resale on their own account.

The loans are for working capital only, and may only be used for payments on fixed debt, payroll, accounts payable and other bills that would have been paid if a disaster had not occurred.  Proceeds are not intended to replace lost sales or profits, and may not be used for business expansion.

Eligible entities may qualify for loans of up to $2 Million depending on business size and financial resources.  Repayment terms may be as long as thirty (30) years. 

Loans under $25,000 will not require collateral.  For loans greater than $25,000, the SBA will request collateral, and will take a second or third lien position on real estate where available.  A loan will not be denied for lack of collateral, but the SBA will require the borrower to pledge what is available.

To be eligible, the applicant business must be physically located in a county where a disaster has been declared and have suffered a working capital loss due to the declared disaster.  A post office box, alone, will not suffice.  The physical presence must be tangible and significant.  Loan eligibility also requires a credit history acceptable to the SBA and a demonstrated ability to repay the loan. 

The loan funds will come directly from the U.S. Treasury.  As such, applicants apply directly to the SBA’s Disaster Assistance Program at Disasterloan.sba.gov.  There is no cost to apply and  there is no obligation to take the loan or to take the full amount of the loan offered.  Applicants can have an existing SBA Disaster Loan and still be eligible for an EIDL. 

Basic filing requirements include completion of a SBA loan application, a tax information authorization (IRS Form 4506T) for the applicant, its principles and affiliates, complete copies of the applicant’s most recent Federal Income Tax Return, a schedule of liabilities (SBA Form 2202) and the applicant’s personal financial statement (SBA Form 413).  The SBA may also request a complete copy, including all scheduled, of the most recent Federal income tax return for all principles, general partners or managing members, a year end profit and loss statement and balance sheet if a tax return is not available, a current profit and loss statement and SBA Form 1368 providing monthly sales information.  Filing electronically is recommended and will be faster. 

If a loan is approved, the funds will be delivered electronically and in tranches.  The full amount of the loan will not be provided all at once.  If more funds are needed, an applicant can make a request for an increase upon the submission of supporting documentation.  If an applicant is denied, the applicant can apply for reconsideration after six (6) months.  For more information, applicants can visit https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources or call 800-695-2995.

Emergency Bridge Loans

Small business organizations may also be eligible for short-term emergency bridge loan relief.  These loans offer up to $50,000, interest free for one year.  Loans of up to $100,000 may be available depending on the circumstances.  If not paid in one year, the loan will be considered in default, and will bear interest at 12% per annum until paid in full. 

To be eligible, a business must have been established prior to March 9, 2020, be for-profit and privately held with at least 2 but no more than 100 employees, and must have with a place of business in Florida.  1099 workers count toward the employee count.  Eligible businesses must also be able to demonstrate an economic injury as a result of COVID-19. 

Businesses not eligible include:

• Businesses deriving more than 1/3 of its gross annual revenue from legalized gambling activities
• Businesses engaged in illegal activity
• Businesses that present live performance of indecent sexual nature or derive more than 2.5% of gross revenue from the sale of products or services from, or the presentation of any indecent sexual nature.
• Businesses that have a primary purpose of facilitating polyamorous relationships.
• Massage parlors
• Hot tub facilities
• Escort services

Loans will only be made to individuals who, individually or collectively, own at least 51% of the equity of the business.  The borrower will be required to certify that the loan proceeds will only be used to maintain or restart a business.  A borrower will also be required to certify that the loan will be repaid from the proceeds of insurance claims, other loans applied for or to be applied for, or other financial assistance received. 

Applications, together with supporting and requested documentation, must be submitted to the Florida Small Business Development Center by May 8, 2020.  For more information, borrowers may visit  http://www.floridajobs.org/rebuildflorida/businessrecovery or call 833-832-4494. 

As always, our team at RumbergerKirk is here to assist you as we all work through this crisis together.