To help our clients navigate the coronavirus (COVID-19) crisis, Keane & Beane is providing numerous Legal Alerts on a variety of issues. The information contained in this Legal Alert is applicable as of today, March 27, 2020.
On March 19, 2020, the U.S. Small Business Administration (“SBA”) began offering economic relief in the State of New York and certain adjoining counties in the form of low interest loans to assist small businesses weather economic impacts of the COVID-19. SBA assistance is now available nationwide. Applications can be submitted online at www.disasterloan.sba.gov/ela/. If you are interested, apply now as the response time from SBA is increasing daily. We are advised that the response time from SBA is currently greater than 40 days.
Earlier this week the U.S. Senate and today the U.S. House of Representatives passed a federal economic stimulus package. It is anticipated that the President will sign the bill. Our office is currently reviewing the legislation and will issue a Legal Alert with updated and additional information on economic relief available for small businesses as it becomes available.
Economic Injury Disaster Loan Program
Under the SBA Economic Injury Disaster Loan Program (“EIDL”), working capital loans will be available to help small businesses, private, non-profit organizations, small agricultural cooperatives and small aquaculture enterprises meet their ordinary and necessary financial obligations that these businesses cannot meet as a direct result of the COVID-19 pandemic. The loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid by businesses because of the impact of the pandemic.
Businesses seeking assistance are limited to loans of $2,000,000. The SBA may waive the cap if the business is a major source of employment. However, businesses are not necessarily entitled to loans of $2,000,000. The amount of each loan is limited to the economic injury of the business as determined by the SBA, less any business interruption insurance proceeds the business receives or to which it is entitled, and any other recoveries the business may have received.
The interest rate for small businesses is 3.75 percent. The interest rate is 2.75 percent for private non-profit organizations. The interest rate is fixed for the life of the loan.
The loan terms are limited to a maximum of 30 years. The SBA will determine the loan terms and the appropriate installment payments based on the financial condition of each borrower.
Applicants for loans under the EIDL will be required to meet credit requirements set out by the SBA. The businesses seeking capital must have a credit history acceptable to the SBA and be able to show the ability to repay the loan.
The businesses seeking loans will also be asked to put up collateral for loans over $25,000. However, the SBA will not decline a loan if a business does not have enough collateral. In that case, the SBA will require the business to pledge collateral that is available. The SBA will accept real estate as collateral.
Businesses that have not complied with terms of previous SBA loans may not be eligible under the EIDL program. This may include businesses that did not maintain required flood insurance and/or hazard insurance on previous SBA loans.
Applicants may be required to obtain and maintain appropriate insurance in order to obtain an SBA loan under this program. For example, if a business is located in a special flood hazard area will be required to purchase and maintain flood insurance.
The deadline to apply for an EIDL is December 21, 2020 but applications should be submitted as soon as possible.
Express Bridge Loan Program
The Express Bridge Loan (“EBL”) Program authorizes SBA Express Lenders to provide expedited SBA-guaranteed bridge loan financing on an emergency basis for disaster-related purposes to small businesses while those small businesses apply for and await long-term financing. Effective March 25, 2020, the SBA announced that the EBL Program would include small businesses adversely impacted by the COVID-19 outbreak that currently have a business relationship with an SBA Express Lender.
For the EBL Program, applicants must demonstrate the need for the desired credit. This includes certifying that the applicant does not have the ability to obtain some or all of the requested loan funds on reasonable terms from non-federal sources without SBA assistance.
For EBL loans made under the COVID-19 emergency declaration, the business applicant must have had an operating business as of March 13, 2020 and have been adversely impacted by the COVID-19 emergency.
Under the EBL Program, a business can access up to a maximum of $25,000 with a fast turnaround. The EBL must be repaid in full or in part by the proceeds from the EIDL that the business eventually obtains.
The EBL loan must be structured as a term loan. The maximum EBL loan term is seven years.
For the COVID-19 emergency declaration, the EBL loan proceeds must be used to support the survival and/or reopening of the small business. Additionally, the loan proceeds must be disbursed as working capital.
Because an EBL loan is limited to $25,000, a Lender may charge up to 6.5% over the prime rate, regardless of the maturity of the loan.
The SBA EIDL collateral policy applies to EBLs. Because the maximum amount of an EBL loan is $25,000, lenders are not required to take collateral for EBLs.
Consult Counsel Regarding Specific Questions
Given the fluidity of this rapidly developing situation, we encourage you to reach out to a member of the Keane & Beane Public Sector Practice Group with questions regarding specific situations. We note that there are legislative developments in Congress and New York which impact each of these questions, and which we are closely monitoring. Because of the frequent developments, you should consult counsel regarding specific questions.
For questions on the SBA Loans and other economic relief available for small businesses please contact Jennifer L. Gray or Jeffrey A. Cohen or any attorney in our Business Transactions Practice Group or Land Development & Zoning Practice Group.