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SBA Announces Direct Loans for Businesses Amid COVID-19 Disruptions

During a press conference on March 11, 2020, President Trump announced the Small Business Administration (SBA) is providing SBA Disaster Relief Lending to small businesses and private nonprofit organizations.

This program will offer low-interest loans of up to $2 million. While any SBA loan requires significant documentation, the tradeoff includes benefits in the form of longer repayment terms, a low-interest rate- 3.75% for small businesses, 2.75% for private nonprofits- and higher loan maximums. If you find your sales or operations significantly impacted by state-mandated curfews, social distancing or other coronavirus consequences, this program may be an option for your business.

To qualify: The business must prove it has been negatively economically affected by COVID-19, can show that financing is not available elsewhere and meets the small business threshold criteria.

Additionally, each state’s governor will need to request that the Disaster Assistance Loans be open to their state.

Financing cannot be available elsewhere: A lack of working capital and loss of revenue for operating costs related to COVID-19 is sufficient proof for this criteria. A working capital loan through the SBA can have repayment terms up to ten years, instead of three years with a traditional bank. The repayment structure could prove that that financing wouldn’t be available or feasible since the low-interest rate and ten-year term could prevent a negative cash flow for the company via projection analysis.

What is needed: Some of the items required to apply for the loan include:

  • Three years of company financials and tax returns
  • Three years of personal financial statements and tax returns of any 20%+ owner
  • AP aging
  • AR aging
  • Projection analysis of the estimated impact of COVID-19 on the recovery and cashflow timeline
For more information or questions on how to begin the process of applying, please contact a member of Withum’s professional group.

General SBA Loans: Aside from the Disaster Relief Lending program, conventional SBA loans are also an option. While the paperwork requirements are similarly extensive, SBA does offer loans up to $5 million, with interest rates adjusted quarterly at WSJ Prime Rate, plus a percentage. In addition to longer terms, another advantage of SBA loans is smaller down payments on fixed asset acquisitions, which are typically 20-25% but can be as low as 10% for SBA.

Our trusted advisors are here to help navigate this unprecedented wave of business disruption. We will work with you to see how this program or others can help your company get through these tumultuous times. Please reach out to Withum for more information or to learn how to begin the process of applying.

Author: Karen Koch Reilly, CPA | kkoch@withum.com

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