On Thursday, March 12, 2020, the U.S. Small Business Administration (the “SBA”) announced that it would work directly with state governors to provide disaster recovery loans to small businesses that have been impacted by COVID-19. Historically, the SBA has required that any state or territory impacted by a disaster certify that at least five small businesses have suffered a substantial economic injury as a result of a disaster, with at least one business located in each declared county or territory. In addition, the SBA has typically made disaster assistance loans available to small businesses within counties identified as disaster areas by the state governor.
On Tuesday, March 17, 2020, the SBA announced that it would relax the criteria required to seek SBA disaster assistance:
-
- States or territories are now only required to certify that at least five small businesses within the state or territory have suffered substantial economic injury, regardless of where those businesses are located; and
- Disaster assistance loans will be available statewide following an economic injury declaration. This will apply to current and future disaster assistance declarations related to COVID-19.
On that same day, Governor Greg Abbott requested designation from the SBA’s Economic Injury Disaster Declaration in order to access the Economic Injury Disaster Loan program for the entirety of the state of Texas. If granted, small businesses in Texas, regardless where such small businesses are located in Texas, may apply for a long-term, low-interest disaster relief SBA loan. As of the date of this article, Texas has not been granted such designation.
Below are general terms for SBA’s Economic Injury Disaster Loans:
-
- Amount: SBA’s Economic Injury Disaster Loans will offer up to $2,000,000 in assistance for small businesses.
- Interest: The interest rate is 3.75% for small businesses without credit available elsewhere.[1] The interest rate for non-profits is 2.75%.
- Terms: The loan term will be determined on a case-by-case basis dependent on each borrower’s ability to repay; however, can be up to 30 years.
- Use: Loan proceeds can be used for payment of fixed debts, payroll, accounts payable, and other bills that can’t be paid due to COVID-19’s impact.
Once the SBA approves of Texas’ designation, it will open up loan applications. Small businesses can apply for the loan at this link. Although the particular requirements for applications are not yet released, we can predict that the SBA will likely require financial statements, schedules of liabilities, and potentially certifications of the business regarding COVID-19’s impact thereto. Once the SBA receives an application for a disaster assistance loan, it typically takes 2-3 weeks to make a credit decision. Due to the probable large number of applicants for the Economic Injury Disaster Loans offered due to COVID-19’s impact, however, it may take more time for the SBA to make a credit decision.
[1] It is unclear how the SBA will verify whether the business has credit available elsewhere.
Jasmine Vu is a Corporate and Securities attorney with the law firm of Cantey Hanger LLP. She is a graduate of the University of Houston Law Center and the University of Texas at Austin. Ms. Vu focuses her practice on mergers and acquisitions, securities offerings, commercial lending, and other business transactions. For more information call 817-877-2843 or visit www.staging.poised-team.flywheelsites.com.
This article is for information purposes only and is not intended to be legal advice or substitute for consulting an attorney. We recommend that you discuss your particular situation with your attorney when you need legal advice.