This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. SBA disaster loan requirements. 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. 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. 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). 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. 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%. 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. 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. The amount of the relocation loan depends on whether you relocate voluntarily or involuntarily. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. The original tranche of PPP funding ran out in 14 days and many eligible businesses did not receive funding. SBA's affiliation rules confirm whether the … The business receiving the loan must be deemed a Small Business based on North American Industrial Classification System (NAICS) code, annual receipts, and the average number of people employed per pay period. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In general, the maximum SBA loan amount cannot exceed $5 million in aggregate across all loans … Owning a business requires daring and resilience, but even more grit is required when facing an unpredictable disaster. 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. - Your business must be experiencing a business loss related to COVID-19. Disaster loans are the only SBA financing program in which the federal agency lends directly to borrowers, instead of guaranteeing a percentage of other lender’s loans. updated information regarding disaster zones. The reduction penalty will not apply to the extent the borrower restores their workforce count and salaries/wages by June 30, 2020 to the level in effect on February 15, 2020. Click here for Foley’s Coronavirus Resource Center for insights and resources to support your business during this challenging time. 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. 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 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. Likenesses do not necessarily imply current client, partnership or employee status. The FAQs make it clear that borrowers and lenders may rely on the SBA’s guidance in the FAQs and the Interim Rule available at the time of application. Through this program, borrowers can access low-interest loans of up to $2 million directly from the SBA to repair or replace real estate or other assets damaged or destroyed in a declared disaster area. On April 24, 2020, the SBA issued guidance on how to calculate maximum loan amounts for each type of applicant (available here). However, many businesses are still in the dark about how they can (and can’t) spend the Small Business Administration’s (SBA) Economic Injury Disaster Loans (commonly referred to as EIDL). You will register on Pay.gov (under 1201 Borrower Payments) in order to schedule your repayment options. 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. Businesses can qualify for the expanded Small Business Administration (SBA) disaster loan program as long as they don’t employ more than 500 people. Typically, disaster survivors are required to repay SBA disaster loans in full. Your loan will be based on financial needs, regardless of whether your company suffered any property damage. For more information about recommended steps, please contact your Foley relationship partner. © 2020 Divvy. 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. The SBA also offers disaster funding for businesses that suffer due to natural disasters or physical damage. 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. We too want to help you survive, thrive, and spend smarter. (Here are some current recommendations for best business loans for bad credit). Payment of State or Local tax assessed on employee compensation. Collateral is any property or asset of value that a lender can use to balance the weight of a loan if there is substantial risk. 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. 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. Lenders may also require borrowers to complete additional paperwork. The Interim Rule also makes it clear that the loans will be made on a first-come, first-served basis. 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. 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. 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. Certifications, including those carrying the penalties described above, must be made about the uses of the loan proceeds. Lenders are only expected to perform a good faith review of the payroll cost calculations, the depth of which should be informed by the quality of the documents provided by the borrower. What if I don’t use the funds for payroll or rent, utilities, or interest payments? EIDLs under the CARES Act do not require personal guarantees for loans up to $200,000, but do require personal guarantees by owners of more the 20% of the borrower for loans in excess of that amount. Disasters which are not considered a physical disaster (such as the coronavirus pandemic versus a tornado or hurricane) fall under the umbrella of Economic Injury Disaster Loans rather than traditional SBA disaster loans. For purposes of the PPP, “payroll costs” include: * Important Note: Question 7 of the FAQs clarifies that the CARES Act exclusion of any employee compensation in excess of an annual salary of $100,000 applies only to cash compensation. State Governors can make Presidential or Agency requests that an area be considered to be affected by disaster. Applying for an SBA Disaster Loan. In the April 23, 2020 FAQ and April 24, 2020 Interim Final Rule, the SBA also established a “limited safe harbor” period and indicated that a borrower who repays a PPP loan in full by May 7, 2020 will be deemed by the SBA to have made the required certification in good faith. SBA Disaster Loan Requirements. A 2-year term (decreased from the maximum maturity of 10 years under the Act). Other circumstances that may qualify businesses for an SBA Disaster Loan include the wildfires in Oregon and California, and hurricanes affecting Louisiana and Texas. Typically, disaster survivors are required to repay SBA disaster loans in full. You will also be assigned a loan officer who will work with you through the duration of your loan. Companies in all 50 states, District of Columbia, and some U.S. territories are eligible for EDILs relating to economic injury caused by the COVID-19 pandemic. If you want to apply by phone, please call the FEMA Disaster Assistance Helpline: 1-800-621-3362 (also for 711 & VRS) TTY 1-800-462-7585; To apply for an SBA disaster loan, you may apply online at any time using the SBA's Disaster Loan Application. SBA Disaster Loans are a different game entirely. SBA Affiliation Rules for Calculating a Concern's Size. After exhausting the funding within 2 weeks, on April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act added $310 billion of funding for loans to be made under the PPP, $60 billion of which is set aside for PPP loans from small banks, community financial institutions, and credit unions. CIO Self-Deception Impacts Everyone and of Course Includes Cybersecurity! money, but that will count toward your loan forgiveness if you do receive a disaster loan. 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. Question 16 of the FAQs clarifies that payroll costs are calculated on a gross basis; provided that payroll costs do not include the employer’s share of payroll costs (e.g., FICA). Learn more about the SBA's size standards. Step 2: The SBA application review process begins. Online Portal Note: The SBA portal may experience high traffic volume and slow site responses. 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. 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. 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 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 pandemic. - According to SBA’s guide to size and affiliation rules, when calculating the size of your business, you must include the annual receipts and employees of your domestic and for… IMPORTANT NOTICE. Secretaries of Agriculture, Commerce, or even military entities can also declare disasters based on circumstances that are damaging to the public. 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. 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. An SBA disaster loan is a low-interest way to recover from the physical and economic damage caused by declared disasters. This might include a city, county, state, or country depending on the nature of the disaster. But if you’re looking to get a small business loan for the coronavirus disaster you’ll need to exhaust all other emergency loan options before being approved for an SBA disaster loan. As with any loan, the lender is assuming a risk and credit checks help lenders to be informed and to mitigate those risks. If you are interested in relocation, an SBA representative can provide you with more details on your specific situation. SBA Disaster Loan Application Process. Payroll Protection Program Loans and Economic Injury Disaster Loans. However, you ought to consider all of your sources for emergency funding 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 To qualify for an SBA disaster loan you must operate a business located within a declared disaster zone. SBA Disaster Loans. 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 … 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. The SBA sets the guidelines that govern the 7(a) loan program. This was not clear from the face of the CARES Act, and should be considered by borrowers pursuing a PPP loan. First-Come, first-served basis information regarding the need to own a business to for... 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