SBA Disaster Loans: What Business Owners Need To Know Now
As we are all painfully aware, the Corona Virus pandemic has led us to an unprecedented business environment. There is no doubt that every business will be affected, but small business owners are perhaps facing the largest challenges.
In order to assist small businesses, the Federal Government has authorized Disaster Assistance through the Small Business Administration (SBA) in response to the coronavirus. This past Wednesday, we conducted an “Emergency Podcast” to discuss this program and help business owners understand the most important elements of this program. Our guest, Jenn Loges, Founder and COO of One Degree Capital here in the DC area, has over 18 years of experience in business financing, having directly served over 5,000 clients throughout the nation in that time. She and her husband Rod help business owners sort through financing options to determine which route is the best option. She has extensive knowledge and experience in the SBA financing world and we asked her to share the critical things a business owner needs to know about this program. This post is a synopsis of the highlights of this conversation:
The basics of the program:
The Site: Details of the program are defined on the SBA Website:
Loan Program: This program provides federally funded emergency loans, not grants.
Terms: Loans may be up to $ 2,000,000 at 3.75% interest for as much as 30-year terms.
Credit Worthiness: Because these are loans, applicants must be credit-worthy, and the application requirements are similar to any other SBA loan. You will be asked to provide tax returns, business financial statements, and personal financial status.
Eligible Areas: This program has historically been authorized for specific geographically-limited disasters such as hurricanes. Due to the widespread effect of the virus, as of March 17, SBA has modified the guidelines to allow the entire state to be approved. Each state governor must request authorization. If your state is not currently listed on the SBA site, contact your governor’s office and urge them to request approval.
Guidance for Application:
Estimates of Loss: The purpose of this program is to provide working capital to small businesses, based on an estimate of “lost revenue”. Therefore, an estimate of how much revenue you have lost and anticipate losing in the future is the basis of the request. Basically, SBA is looking for an honest 90-day assessment.
Submit Early: Given the uncertainty of the duration of this crisis, you may be unsure of how much to request. Jenn suggests submitting an application as soon as possible to establish initial funding. If the crisis continues and there is a need for additional funding, you may apply for additional funds as needed.
Time Frame: The program has historically taken 2 to 3 weeks for approval. Given the anticipated demand, the approval may take longer.
Receiving Funding: upon approval, it is normative to receive $ 25,000 immediately and additional funds over time.
Other Cash Management Recommendations:
Lines of Credit: Currently, the general tenor of banks is that they will continue to honor current agreements. However, if you hold a Line of Credit with a bank, ensure you understand your covenants. A downturn in revenue may render you non-compliant with your agreement and therefore unable to draw on that line. You may consider drawing on your existing line now to tide you over until you can establish your SBA loan.
Unemployment: Many businesses have had to cut way back on employee work-hours. Affected employees may be eligible for unemployment compensation. However, remember an employee must actually be laid off to receive that benefit. These are hard decisions, however, this is a mechanism that is in place to care for employees in tough times.
Taxes: The IRS has extended the required dates for tax submission to July 15th. If you believe you will owe taxes, you may want to consider delaying filing. However, if you believe you have a refund coming, Jenn recommends filing sooner to expedite your refund.
Vendors: Most businesses have accounts payable that are owed to vendors. Delaying payments to vendors can be a strategy to conserve cash. Please remember, though that your vendors are in a similar situation as you find yourselves. Jenn indicated that personal communication is essential in times like these – where we are all working together for each other’s welfare. If you must delay a payment, call that vendor and talk it through.
Rent: Often rent is one of the largest expenses for any business. Consider talking to your landlord to negotiate a payment deferral plan.
Jenn concluded by suggesting that any owner who has questions to set up a meeting with her here.
For more, please listen to the podcast at: https://ennislp.com/podcast.
It’s our hope that as we navigate these uncharted water, that we’ll all pull together. If there are other questions you would have on keeping your business running and healthy , we’re happy to talk and point you to resources that will be helpful to you. Please feel free to contact us at 301-859-0860 or email@ennislp.com.