By Jason Watson, CPA

Posted Sun, March 22, 2020

The Small Business Administration has had SBA disaster loans in place for several years, but they were usually thought of in the context of hurricanes, fires, floods, etc. However, given the vagueness of the laws (which is good), the SBA economic injury disaster loans are available to small business owners affected by COVID-19.

More states are being added daily to the list of eligible states. While your state might not be eligible today, it is quite possible all 50 states plus District of Columbia will be included. Use the buttons below to get the most recent information.

Eligible entities may borrow up to $2 million dollars at 3.75% (2.75% for non-profits) up to 30 years. Eligibility for these working capital loans are based on the size (must be a small business) and type of business and its financial resources.

Here is a quick table highlighting the payments for various amounts and years.

	Years
Amount	10	15	20	30
250,000	2,502	1,818	1,482	1,158
500,000	5,003	3,636	2,964	2,316
1,000,000	10,006	7,272	5,929	4,631
1,500,000	15,009	10,908	8,893	6,947
2,000,000	20,012	14,544	11,858	9,262

SBA economic injury disaster loans are extremely friendly and fairly easy to get (from the underwriting perspective). The low rates and extended amortization make for very low-cost loans to help you to get through these hard times. They may take a little work but should be worth it. In addition, these loans are direct lending from the SBA and not serviced by a bank.

Applicants must meet the SBA requirements of a small business (500 employees or fewer, but there are other definitions based on NAICS code). Businesses must be directly affected by COVID-19 such as businesses that offer services directly related to the businesses in the declaration. Other businesses indirectly related the industry that are likely to be harmed by losses in their community are also eligible. For example, a manufacturer of widgets may be eligible as well as the wholesaler and retailer of the same product. In other words, the vertical distribution column might have multiple eligible businesses.

Ineligible entities include agriculture, religious and charitable organizations, gambling concerns (including casinos and racetracks) that derive more than 1/3 of their business from gambling, and… wait for it… the cannabis industry (which make sense since it remains illegal federally).

Like any loan, there are two components: collateral and debt service. Applicants must qualify for both. Many other SBA programs collateralize with real estate, but the SBA economic injury loans appear to not require real estate. This is a working capital loan, and working capital is an odd-duck from a collateral perspective (versus using the funds to buy equipment or real property which has a title to attach).

In addition, eligible entities for the SBA disaster loan must have acceptable credit history and be physically located in the declared county. Businesses must also demonstrate that they suffered working capital losses due to the declared disaster, and not a downturn in the economy or other reasons. This will be tricky. If you were manufacturing VCRs right when COVID-19 hit, the SBA might not consider your troubles a result of the coronavirus.

These working capital loans may be used to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. The loans are not intended to replace lost sales or profits or for expansion. Funds cannot be used to pay down long-term debt. We recommend forecasting at least 6 months-worth of the following expenses-

• Existing debt service
• Payroll
• Rent
• Accounts payables, and
• Other Expenses

These expenses should be expressed in a spreadsheet or table showing your future cash outflows. Huh? Confused? Need help? We can help!

The buttons below are PDFs representing the paper application. Our recommendation is to use the PDFs as a scratchpad to fully understand what the SBA requires. From there, use the online application process.

Here is the link for the online application-

In addition to the application stuff above, you will need the most recent tax return prepared and filed by the entity. If 2019 is unavailable, then the financial statements (balance sheet and income statement) for the period ending 12/31/19. In addition, businesses will need current year-to-date financial statements. Economic injury disaster loans require monthly historical sales figures for the 36 months prior to the disaster as well.

On the SBA sales figure form, it also reads “It can be helpful to provide a financial forecast to illustrate what the income and expenses for the business will be during the period affected by the disaster until normal operations resume. This is not required.”

Are your financial statements in good order? We can help!

Small business owners might need help with the SBA loan process. What we’ve discovered over multiple decades is that business owners are amazing widget makers… but are not always the best at translating their operations into loan-worthy financial statements and forecasts. Please recall that WCG is a business consulting firm who happens to also prepare tax returns. Our consultative approach to relationships has allowed us to affect change to business owners, and not just be IRS-compliant.

Since each situation is unique, we would need to chat with you to determine how much you want to do, and how much help you need from us. We also prepare business valuations which rely heavily on future cash flows, forecasts and risk. We can certainly add value to your application process. Click on the button below to schedule a consult.

Applicants may apply online using the Electronic Loan Application (ELA) via SBA’s secure website at https://disasterloan.sba.gov/ela

Completed paper applications should be mailed to:

U.S. Small Business Administration
Processing and Disbursement Center
14925 Kingsport Road
Fort Worth, TX 76155

Disaster loan information and application forms may also be obtained by calling the SBA’s Customer Service Center at 800-659-2955 (800-877-8339 for the deaf and hard-of-hearing) or by sending an email to [email protected].

Jason Watson, CPA is the Managing Partner of WCG Inc., a business consultation and tax preparation CPA firm located in Colorado Springs, and is the author of Taxpayer’s Comprehensive Guide on LLC’s and S Corps which is available online and from average retailers.