The PPP provisions of the CARES Act were further interpreted by the U.S. Small Business Administration (“SBA”) in eight interim final rules issued on April 2, 2020 (the “Interim Rule”), April 3, 2020 (the “Affiliation Rule”), April 14, 2020 (available here), April 24, 2020 (available here), April 27, 2020 (available here), April 28, 2020 (available here), April 30, 2020 (available here), and May 5, 2020 (available here), May 13, 2020 (available here), May 14, 2020 (available here), May 18, 2020 (available here) and Frequently Asked Questions issued on April 6, 2020 and updated through May 19, 2020 (the “FAQs”). According to FEMA, COVID-19 is a “disease or pandemic” which qualifies as the kind of disaster for which small businesses may appeal to federal and state governments for assistance. The FAQs and the information in the Loan Forgiveness Application provide some additional clarification regarding the application of the affiliation rules and interpretation of the CARES Act, including guidance on how to calculate “payroll costs” and how a relationship with a third-party payroll provider and/or Professional Employer Organization (“PEO”) should be viewed for purposes of the PPP. You do not need to own a business to apply for a disaster loan. As stated in the Affiliation Rule and FAQs, the remainder of businesses are subject to the SBA’s affiliation rules applicable to its business loan programs, summarized here in the Affiliation Guidance. are for small businesses, non-profit organizations, homeowners, and renters who may be experiencing financial hardship due to an acute circumstance beyond their control—usually a catastrophe or disaster. The SBA resumed accepting PPP applications from participating lenders on Monday, April 27, 2020 at 10:30 am EDT. For more information about recommended steps, please contact your Foley relationship partner. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. If you have sustained economic damage and need access to capital, the SBA describes their three step process: While this three step process sounds straightforward, there are various other steps you may need to take to be prepared for the loan review, including verifying eligible disaster zones, estimating your losses and financial need, and compiling your business story and community impact. While the SBA aims to be generous and helpful with loan assistance, in the case of disasters like the coronavirus pandemic there are strict requirements for qualifying businesses (in order to allow the SBA to help as many companies as possible). The SBA sets the guidelines that govern the 7(a) loan program. Other options for emergency small business loans include popular lenders like BlueVine, Lendio, and Fundera. SBA Affiliation Rules for Calculating a Concern's Size. SBA disaster loans are for small businesses, non-profit organizations, homeowners, and renters who may be experiencing financial hardship due to an acute circumstance beyond their control—usually a catastrophe or disaster. The FAQ issued on April 8, 2020 also clarified that the lender must make the first disbursement of the loan no later than 10 calendar days from the date of loan approval, so lenders and borrowers do not have much flexibility in choosing when the 8-week timeframe begins. This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. financed with an SBA guaranteed loan (or if SBA is in a junior lien position and an escrow account does not exist with the senior lienholder), borrower and lender may agree to establish an escrow account for the purpose of collecting & paying real estate taxes, hazard insurance, flood & earthquake insurance when applicable. The FAQs make it clear that lenders may use their own online systems and a form they establish that asks for the same information (using the same language) as the SBA borrower application. Small businesses with 500 or fewer employees, nonprofits, sole proprietors, and independent contractors, 6 months (under current SBA debt relief plan), Best virtual business conferences of 2020. Submit the form and we’ll reach out shortly to help you get started. Check the SBA website to see updated information regarding disaster zones throughout the country. Several different types of SBA disaster loans exist with different purposes, qualification requirements, and loan amounts. You may call for over-the-phone assistance at any time: 1-800-659-2955. Physical Disaster Loan: No Personal Guarantee Required. © 2020 Divvy. SBA Disaster Loan Requirements. This is different from prior Treasury guidance, which did not require that 75% of the loan be used for payroll costs if the borrower was not seeking forgiveness. On April 24, 2020, the SBA issued guidance on how to calculate maximum loan amounts for each type of applicant (available here). By now you’ve probably heard about the strict requirements surrounding the spending of Paycheck Protection Program money if you want your loan forgiven. Photographs are for dramatization purposes only and may include models. How hard is it to get an SBA disaster loan? However, the SBA’s website indicates that the funds will only be made available “within days following a successful application.” This advance is still essentially a grant and is not required to be repaid, even if an eligible borrower is ultimately denied an EIDL, but the amount of the advance must be deducted from any loan forgiveness amounts under a PPP loan, described above. in order to schedule your repayment options. Business Physical Disaster Loans: Repair or replace disaster‐damagedproperty owned by the business, including real estate, inventories, supplies, machinery and equipment. before applying to the SBA, as disaster loans may only apply to businesses without any other options. SBA Office of Disaster Assistance | 1-800-659-2955 | 409 3rd St, SW. Washington, DC 20416 Principal and interest deferred for 6 months. Another option for small businesses is the SBA’s existing EIDL Program, which was expanded by the CARES Act and provides for longer-term loans with favorable borrowing terms. On May 5, 2020, the SBA issued FAQ 43 extending the limited safe harbor to May 14, 2020 and, in light of additional guidance regarding the necessity standard issued on May 13, 2020, the SBA further extended the limited safe harbor to May 18, 2020. Typically, disaster survivors are required to repay SBA disaster loans in full. SBA's affiliation rules confirm whether the … SBA disaster loan requirements include: According to DistasterLoanAssistance page on SBA, “After a Presidential disaster declaration, you must first register with the Federal Emergency Management Agency (FEMA). The EIDL program has a number of requirements relating to the location of your business, the type of business you run, headcount, and your time in business. - Your business must be experiencing a business loss related to COVID-19. EIDLs may be used for payroll and other costs as well as to cover increased costs due to supply chain interruption, to pay obligations that cannot be met due to revenue loss and for other uses. Divvy identifies qualified customers using a number of factors including Divvy payment history and growth of your business. [UPDATE - MAY 20, 2020] On May 15, 2020, the SBA issued its Loan Forgiveness Application, which provided several important clarifications. The SBA sets the guidelines that govern the 7(a) loan program. Costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums, Mortgage interest obligations (but not principal), Interest on debt incurred prior to the loan, Refinancing of SBA EIDLs that are made between January 31, 2020 and April 3, 2020. mortgage interest on mortgages that had been in place prior to February 15, 2020, rent with respect to leasing agreements that had been in place before February 15, 2020, and. Notably, the CARES Act waives the SBA’s affiliation rules for determining PPP program eligibility for certain specific categories of businesses, including businesses in the Accommodation and Food Services Industry with 500 or fewer employees, businesses operating as a franchise that are assigned a franchise identifier code in the SBA Franchise Directory (available here), and businesses that receive financial assistance from a licensed Small Business Investment Company. PPP loans are 100% federally guaranteed loans for small businesses intended for companies to maintain their payroll levels and allow partial loan forgiveness, as described below. The affiliation rules used for this purpose are different than the affiliation rules used for purposes of establishing whether a company is subject to the paid sick leave and expanded FMLA requirements under the Families First Coronavirus Response Act (FFCRA), which uses the integrated employer test under the FMLA. The legislation also expanded the separate Economic Injury Disaster Loan Program (the “EIDL” Program) with $10 billion of additional funding under the CARES Act, and an additional $10 billion in funding added on April 24, 2020, bringing the EIDL Programs grants total to $20 billion. SBA Change of Control Guidance Does Not Work for Insolvent PPP Borrowers, Podcast Episode 28: Adria Warren, Partner, USPTO To End First Action Interview Pilot Program, Hoffman Comments on Expiration of FFCRA in SHRM, Yelkin Highlighted by Texas Lawyer for Pro Bono Work, Foley Represents AST SpaceMobile in $1.8B Go-Public Deal, Horton, Lodge Published in Reuters Westlaw IP About Themes in Public Comments Related to AI Patent Policy, Florida Bar Health Law Section Advanced Health Law Topics & Certification Review 2021, Florida Bar Health Law Section: Representing the Physician 2021, American Telemedicine Association EDGE Conference. Businesses of any size are eligible. (signed into law on Friday, March 27, 2020). • Insurance premiums and healthcare benefits. Loans up to $2M ; 30-year terms ; Interest rates of 3.75% for small businesses (2.75% for non-profits) First payment is 12 months from the date of the promissory note Subject to guidance from the SBA, these applicants would also appear to still be subject to the SBA’s affiliation rules governing financial assistance programs. To qualify for an SBA disaster loan you must operate a business located within a declared disaster zone. Additional Eligibility Criteria and Requirements for Certain Pledges of Loans for the Paycheck … Accordingly, do not act upon this information without seeking counsel from a licensed attorney. Entities previously eligible to receive SBA EIDLs, including small business concerns, private nonprofit organizations and small agricultural cooperatives, remain eligible for such loans under the more favorable terms authorized by the CARES Act. SBA Disaster Loans. Learn more about ways your business can save with Divvy—the free expense management platform for small and medium businesses. a delivery vehicle) while you wait for coronavirus regulations to expire, or possibly a short term business loan just to get through a couple of weeks. Part of their function is to provide financial support in response to disasters. (which gives permission for the IRS to release your tax return to the SBA). The amount of the relocation loan depends on whether you relocate voluntarily or involuntarily. include popular lenders like BlueVine, Lendio, and Fundera. Repayment terms are usually crafted to meet the needs and ability of the business as well. As with any loan, the lender is assuming a risk and credit checks help lenders to be informed and to mitigate those risks. A 2-year term (decreased from the maximum maturity of 10 years under the Act). What if I don’t use the funds for payroll or rent, utilities, or interest payments? EIDLs under the CARES Act are based on a company’s actual economic injury determined by the SBA (less any recoveries such as insurance proceeds) up to $2 million. To qualify for an SBA disaster loan you must operate a business located within a declared disaster zone. The CARES Act waives the requirement for the borrower to demonstrate that it is unable to obtain credit elsewhere. These loans may help cover a gap in insurance coverage, or simply provide a sustaining financial bridge until insurance claims can be processed and funds dispersed. The Small Business Administration (SBA) was created to support and entice small businesses in the United States. SBA disaster loan requirements. Because disaster loans come from the SBA itself, you won’t have lenders adding their own requirements. Moreover, the applicant must acknowledge that the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments. Home and Personal Property Loans If your home or other personal property were damaged in a natural disaster, you could apply for a home and personal property loan with the SBA. SBA Disaster Loan Program Frequently Asked Questions Whattypes of SBA Disaster Loans are available? Therefore, non-cash benefits, including employer contributions to defined benefit and defined contribution retirement plans, payment for the provision of group health care benefits and insurance premiums, and payment of state and local taxes assessed on employee compensation, are not counted in calculating the cap and, therefore, those non-cash benefits may be included as a payroll cost, even for employees who have cash compensation in excess of $100,000 on an annualized basis. The FAQ response clarifies that borrowers should use a twelve-month period to calculate the number of employees, either by using their average employment over the same twelve-month period used to calculate their average monthly payroll costs, or by using what the FAQs describe as “SBA’s usual calculation” found in its regulations. Be prepared with the necessary documentation: SBA disaster loans are expedited, so you can expect your disaster loan to start incremental payments in 1-3 weeks (or seven to 21 days). The Affiliation Rule and Affiliation Guidance clarified the affiliation principles that apply to applicants. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on Friday March 27, 2020, introduced the Paycheck Protection Program (the “PPP”) with an initial $349 billion in funding and the goal of preventing job loss and small businesses failure due to losses caused by the COVID-19 … Loans are offered through any existing SBA 7(a) lender or through any eligible and participating federally insured depository institution, federally insured credit union, Farm Credit System institution and certain other approved depository or non-depository financing providers. Unlike most typical SBA loans, the PPP Loans are unsecured loans requiring no collateral, no personal guarantee, and no showing that credit is unavailable elsewhere. money, but that will count toward your loan forgiveness if you do receive a disaster loan. In addition to a traditional installment loan, you may consider a one-time line of credit to help cover payroll or business adjustments (e.g. Generally, SBA disaster loans will offer you the best rates, terms, and affordable financing. Some businesses will rebound quickly and be able to repay the loan easily, while others may need more money and more time to adapt to the economic climate created by the pandemic. If applicable, please note that prior results do not guarantee a similar outcome. Keep in mind—these loans are designed to be as accessible as possible, so don’t be afraid to apply and work with the SBA, even if you have bad credit or lack of collateral. Your business must be located in an area that's already considered a disaster area. The loans may be used for the following expenses/costs from February 15, 2020 through June 30, 2020: Note, however, that (i) the Interim Rule clarifies that at least 75% of the loan amount must be used for payroll costs and (ii) only a subset of these uses may be forgiven, as explained in more detail below. You may call for over-the-phone assistance at any time: 1-800-659-2955. Both the Economic Injury Disaster Loans (EIDLs) and Paycheck Protection Program (PPP) loans are provided by the SBA, but they offer different solutions to small businesses. Such borrowers shall not be deemed to have made an inaccurate certification of eligibility solely on that basis. For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the CDC and the World Health Organization. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you are interested in relocation, an SBA representative can provide you with more details on your specific situation. Wondering what the SBA disaster loan requirements are for the coronavirus? The SBA also offers disaster funding for businesses that suffer due to natural disasters or physical damage. One option for you may be to apply for an SBA disaster loan. You may use your SBA disaster loan to relocate. . The good news is that your small business can receive a coronavirus emergency loan through an alternative lender that will often be easier and faster than the process for an SBA disaster loan. For an independent contractor, the sum of payments of any compensation or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment or similar compensation (not in excess of more than $100,000 in 1 year, prorated). A disaster may have strapped you with unintended consequences, but that doesn’t mean your business needs to wither under the pandemic. In cases like the current environment, where the disaster may not be covered by insurance, the SBA specifically administers loans through the, how disasters are classified and declared, turn to FEMA, list of areas that have been officially declared disaster zones. What is the SBA Loan Forgiveness Program? Question 34 of the FAQs clarified that agricultural producers, farmers and ranchers can qualify for a PPP loan if the business, combined with its affiliates, has 500 or fewer employees, falls within the $1 million revenue size-standard, or qualifies under the “alternative size standard” referenced above. , SBA loan minimum credit requirements fall around 620-640. The response to Question 14 of the FAQs provides additional clarification regarding how businesses should calculate their employee headcount for purposes of eligibility under the employee-based size standards applicable to the PPP. In this new guidance, the SBA set forth different standards for borrowers whose PPP loans, combined with those of their affiliates, are under $2M and those over $2M. The requirements … The SBA loan requirements on maximum loan terms vary by SBA loan type. Be sure to carefully read all fine print and weigh multiple options before applying for an emergency small business loan to help you survive the coronavirus economic disaster. SBA Disaster Loans. Lenders may also require borrowers to complete additional paperwork. EIDL: A personal credit check is required for all owners with 20% or more ownership. If you are interested in all other disaster loans, then CONTINUE. This will likely be addressed on a case-by-case basis for businesses affected by coronavirus. For example, the SBA may consider your business property as collateral for a large loan in the event you were unable to meet the terms of the loan. SBA Emergency Cash Grants were available for small business owners as part of the CARES Act EIDL program but were quickly exhausted and no longer available. Other circumstances that may qualify businesses for an SBA Disaster Loan include the wildfires in Oregon and California, and hurricanes affecting Louisiana and Texas. These loans may help cover a gap in insurance coverage, or simply provide a sustaining financial bridge until insurance claims can be processed and funds dispersed. You will be required to complete the disaster loan application as well as submit IRS Form 4506-T (which gives permission for the IRS to release your tax return to the SBA). The EIDLs have up to a 30-year term and amortization (determined on a case-by-case basis). The SBA first attempted to make this clarification on May 5, 2020, through its addition of Question 44 to the FAQs, which stated, consistent with the Act and the existing SBA regulations, that “For purposes of the PPP’s 500 or fewer employee size standard, an applicant must count all of its employees and the employees of its U.S. and foreign affiliates, absent a waiver of or an exception to the affiliation rules.” FAQ 44 also explained that “Business concerns seeking to qualify as a ‘small business concern’ under section 3 of the Small Business Act (15 U.S.C. Certifications, including those carrying the penalties described above, must be made about the uses of the loan proceeds. If you have sustained economic damage and need access to capital, the SBA describes their, While this three step process sounds straightforward, there are various other steps you may need to take to be prepared for the loan review, including verifying. SBA Disaster Loans are a different game entirely. SBA disaster loans are SBA loans used for recovery from a declared physical or … Applications for EIDLs should be submitted directly to the SBA, while PPP loans will be available from SBA-approved lenders and the other lenders approved by the SBA to make PPP loans. In summary, the alternative period may only be used for payroll costs incurred or paid, and is the 8-week period commencing with the borrower’s first company payroll following the disbursement of the loan. Coronavirus Resource Center:Back to Business, Every Tuesday 19 January - 02 February 2021, SBA Loans Under the CARES Act - Updated as of May 20, 2020. Declared Disaster Area: SBA disaster loans are only available to small businesses that are located within a “declared disaster area”. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The Small Business Administration’s Inspector General raised serious concerns about potential rampant fraud in a federal disaster-loan program providing coronavirus relief. Businesses need to understand both programs as well as the additional financial and other relief (including an Emergency Relief loan program for eligible small and mid-size employers) that may be available under the CARES Act in order to make short- and long-term planning decisions. Check the SBA website for a current list of areas that have been officially declared disaster zones to determine if you fall in a qualified area. Payroll Protection Program Loans and Economic Injury Disaster Loans. Note, however, that (i) at least 75% of the forgiven amount must be used for payroll costs and (ii) the amount of the PPP loan forgiveness may be reduced if the borrower reduces the number of employees or salaries and wages (for employees with annual salaries of $100,000 or less) by more than 25%. As with any loan, the lender needs to consider your ability to pay back the loan in full. As explained above, Question 14 of the FAQs reconciles these two requirements, providing that borrowers may base aggregate payroll costs and employee counts on either calendar year 2019 or the 12-month period preceding the application. The Interim Rule also makes it clear that the loans will be made on a first-come, first-served basis. Coming off what was a record-breaking year for wildfires and storms in many areas of the country, it’s nice to know the SBA is looking out for small business owners. State Governors can make Presidential or Agency requests that an area be considered to be affected by disaster. To qualify for an EIDL under the CARES Act, the applicant must have suffered “substantial economic injury” from COVID-19. The form of SBA borrower application is available (here) but each participating lender may provide its own form. Step 2: The SBA application review process begins. These programs provide assistance to many businesses that may not meet the customary small business thresholds. If you are in need of an SBA disaster loan larger than $20,000-25,000, it is likely that the lender will insist on some form of collateral to complete the loan process. The PPP loan program is available for eligible small businesses, including sole proprietors, and non-profits, veterans organizations and tribal business concerns, to provide a forgivable loan to cover payroll and other costs. Additionally, while companies may be eligible for loans under both programs, they are unable to seek recovery under the EIDL for the same costs that are covered by a PPP loan. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. However, the SBA 7(a) loan requirements provide the baseline for most of the types of loans. You can also apply directly to SBA from your DisasterAssistance.gov account: The fastest way to apply for an SBA disaster loan is through their online portal. The Interim Rule and FAQs clarify that independent contractors of a borrower do not count for purposes of the borrower’s PPP loan amount or forgiveness calculations. The SBA will forgive principal and interest payments up to the amount you spend for two months on the areas that meet SBA loan criteria: You will not need to pay back Economic Injury Grant money, but that will count toward your loan forgiveness if you do receive a disaster loan. Research your options and don’t hesitate to apply for an SBA disaster loan to help your small business survive the economic impact of the disaster at hand and come out on the other side thriving. More information regarding the need to document decisions surrounding the certification process can be found here. As a lender, these conditions determine which businesses you can lend to and the type of loans you can give. In general, EIDLs are targeted towards more long-term funding for any use, while PPP loans are targeted towards short-term relief in order to keep employees on the payroll. In conjunction with the issuance of the Affiliation Rule, the SBA also issued a two-page explanation of the affiliation principles applicable to the PPP (the “Affiliation Guidance”). In general and subject to certain SBA exclusions, to be eligible for a PPP loan, a business must, after applying the affiliation rules, if applicable: (i) be a small business concern under the SBA’s employee-based or revenue-based size standards, or, (ii) meet both tests of the SBA’s “alternative size standard” as of March 27, 2020, which are: (1) maximum tangible net worth of the business is not more than $15 million; and (2) the average net income after Federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million, or. If you’re approved for an SBA disaster loan due to economic losses caused by coronavirus, you will begin receiving your funds fairly quickly. Whereas applicants for the previous types of loans are heavily vetted during the application process, the goal of disaster loans is to get the money disbursed quickly to distressed areas. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In response to the imminent threat of such catastrophes, the Small Business Administration (SBA) provides loans for those affected by related damage, evacuation, or business closures. In order to qualify for an SBA disaster loan, the Small Business Administration will perform a routine credit check to ensure you qualify against the SBA’s credit score requirements. 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