As businesses are forced to close their doors to keep up with health and safety standards, their revenue is dropping. The government is working to provide economic relief to American businesses, and some of those relief solutions are already available. The U.S. Small Business Administration (SBA) has extended their disaster loans to small businesses and private non-profits affected by COVID-19.
The loans are long-term and low interest. The repayment plans go up to 30 years and the interest rates are 3.75% for small businesses and 2.75% for nonprofits. Disbursement from the loan is meant to pay for things like fixed debts, payroll, accounts payable and any other bills your business can’t afford to pay because of a loss of revenue attributable to COVID-19.
To apply for a disaster loan from the SBA, here are a few things you’ll need to consider.
Lenders at the SBA are looking for the 5 C’s.
You will need some working capital to make a down payment on your disbursement. This assures lenders that you will also be making loan payments and handling your disbursement responsibly.
Often, the owner of the business’ credit history will be a factor in whether the business is accepted for a loan. Owners with solid credit scores and a history of paying off debt will attract lenders.
No matter how long-term your repayment plan, you will have to illustrate an ability to pay off the loan eventually. The lender will generally take things like your annual revenue during a good year into account.
You will need property to guarantee the loan. That is, you’ll need to have an asset that the lender can rely on for repayment in the event you default on your loan payments.
The character of the business owner taking out the loan is also important to lenders. They will generally look at your past business experience to determine what kind of businessperson you are. For example, have previous enterprises of yours gone bankrupt? Have you been sued? Lenders will look at these factors and more when deciding on your character.
The SBA’s decision is faster when your application is submitted online.
To apply for an SBA loan, you can submit your paperwork online or by mail. The SBA recommends that applications are submitted through their secure website for the quickest response times. However, paper applications can be mailed to the SBA. Because the SBA is a government entity, the paper application can also be dropped off at a local disaster recovery center.
Submitting your application online does not mean you are more likely to be approved for a loan. However, your application will enter the pool for review immediately after submission, so it does mean you are more likely to get a decision sooner. In contrast, those awaiting a response on a paper application will have to wait for the postal service. Keep in mind that postal delivery can be delayed several days by a disaster.
There is a deadline for each disaster.
The deadline for applying for a disaster loan for economic injury is 9 months after the day the emergency is declared. The SBA may elect to issue extensions, though. Any extensions or changes will be listed on the SBA’s website.
There are required documents you’ll need to add to your application.
All required documentation included with your application needs to be complete and accurate. It also needs to be signed by each principal owning 20% or more of the business. These principal signatures need to be collected once each for any owner who has more than a 50% ownership in the business and any affiliate businesses.
The required documents include:
This form gives the IRS permission to provide the SBA with your tax return information.
- Current financial statement
- Current schedule of liabilities, including all fixed debts
The SBA does have a format they recommend for the schedule of liabilities on their website. However, the document can be filled out in whatever format you’d prefer to use.
- A copy of your most recently filed federal income tax return
- IRS Form 8821
This is a Tax Information Authorization Form, which gives authorized organizations permission to access your tax information. IRS Form 8821 only needs to be included with online applications.
- Contact information for all applicants
- Social security numbers for all applicants
- Your Employer Identification Number (EIN)
- Insurance information
- Personal Financial Statement (SBA Form 413)
This form is used by the SBA to analyze your ability to repay the loan. This is used to determine your character and creditworthiness.
Each of these forms needs to contain correct information and be signed and dated to ensure quick processing.
Applying for a disaster loan can be overwhelming. Consider hiring an outsourced accountant to help you compile your records and ensure that your application is accurate. A professional accountant may mean the difference between rejection and acceptance of your SBA Disaster loan application.
The information provided is based upon facts that were available at the time of publication and are subject to change. NOW CFO makes no warranties, express or implied, or representations as to the accuracy, completeness or timeliness of the information provided. NOW CFO cannot be held liable for any claims or damages that result from reliance on this information.