Covering Your Business During COVID-19
There’s no way around it: COVID-19 crisis has changed life as we know it: closing schools, forcing us to take social distancing measures and causing businesses to slow or stop operations.
The good news? If your business has been impacted by the coronavirus, you’re eligible to apply for disaster relief loans through the U.S. Small Business Administration (SBA). There are two types of these loans available, which we’ll cover over the next two blog posts.
In this post, we’ll review the Economic Injury Disaster Loan (EIDL), also known as the SBA 7(b) Loan. You can apply for this loan between now and the end of the year — but it will only be granted to the first million people who apply and qualify, so you’ll need to act fast.
I’ll be covering this more in depth in my webinar, “The $2 Trillion Dollar CARES Act for Forgivable Loans, Funding, Tax Credits and Deferrals to Get Through COVID-19.” In the meantime, here are the basics of the 7(b) loan application:
How much money is available in the SBA Economic Injury Disaster Loan program?
The EIDL, or 7(b) loan, allows you to borrow up to a generous $2 million. Even better, if you borrow $200,000 or less, there’s no personal guarantee — so if your business closes down, you aren’t obligated to repay it. Amounts over $200,000 do have to provide personal guarantees from all owners.
Best of all, however, is that you can get $1,000 per employee (up to a maximum of $10,000) in the form of a grant advance — and even if you don’t get the loan, you don’t have to pay it back. You can apply for the grant based solely on your credit score, making the application easy.
You can even receive grant funds as soon as three days after submitting your application, which is great news for cash-strapped businesses. The decision regarding your total loan amount will come three or more weeks later.
What are the terms and interest rate?
Another great part about this loan is the low interest rate: just 3.75% for businesses and 2.75% for nonprofits (note that 501c(3) organizations are not eligible for this particular loan, but private foundations may apply).
The loan term is also generous, allowing up to 30 years to repay it. You can also defer payments entirely for the first year, giving impacted business owners some much-needed breathing room.
Who can apply?
Luckily, the guidelines are inclusive: Any small businesses with 500 or fewer employees and of any classification can apply — that goes for sole proprietors, LLCs, S-Corps and C-Corps, and even includes businesses without employees and independent contractors.
While the loan is available in all 50 states, only certain counties are eligible to apply. This can be tricky to determine, so if you want to see whether you qualify, I recommend scheduling a free consultation with me.
What can you spend it on?
Loan funds can only be spent on certain things:
- Existing debts
- Accounts payable, payroll, medical and sick leave
- Salaries and health benefits
- Mortgage payments, rent, utilities and insurance
- Any other existing debt that cannot be paid because of COVID-19
For this reason, I recommend opening up a separate bank account just for the 7(b) loan funds. That way, you won’t confuse them with your other expenses, ensuring the funds only go to the appropriate places.
How do I apply?
You can apply directly through the SBA website. While this application is more straightforward than the 7(a) loan, which we’ll cover next time, you may still have questions or want a hand completing the process. If you want to learn more, I’ll cover the ins and outs of both the 7(a) and 7(b) loans in my upcoming webinar, where we’ll also talk further about how to apply. Click here to register for this special event.
I highly recommend that any business impacted by COVID-19 apply for the EIDL. Even if you have outstanding debt with a higher interest rate, this loan provides an opportunity to cover that debt with a lower interest rate. I don’t know when we’ll see an opportunity like this again, so make sure you’re one of the first million to apply.
Of course, if you have specific questions about this loan or what your options are in the wake of the COVID-19 crisis, feel free to schedule a consultation with us. We may still be in the early days of the coronavirus, but we can get through it together — and we want to help your business survive and thrive in the midst of this new environment.
