Relief for Small Businesses: SBA Economic Injury Disaster Loans and COVID-19

While state governments and public health officials continue to urge Americans to help slow the spread of the novel coronavirus (COVID-19) through social distancing, these isolation measures are having immediate and significant negative impacts on our economy.  Many businesses, especially small businesses, do not have the financial resources to maintain their profitability, or in many cases viability, during a sustained period of economic hardship.

In response to these challenges, on March 6, 2020, the U.S. Small Business Administration (the “SBA”) announced it is expanding its “Economic Injury Disaster Loan Program” to include small businesses and non-profits impacted by COVID-19.

What is the SBA Economic Injury Disaster Loan Program and who can apply?

The SBA’s Economic Injury Disaster Loan program provides small businesses (< 500 employees), small agricultural cooperatives and private non-profits that have sustained a “substantial economic injury” with working capital loans of up to $2 million to help overcome the temporary loss of revenue associated with the COVID-19 pandemic.  “Substantial economic injury” means that the business is unable to meet its obligations and to pay its ordinary and necessary operating expenses.

What are the loan terms - how can loan proceeds be used?

Economic Injury Disaster Loans may be obtained in principal amounts up to $2,000,000.  The SBA may make unsecured loans up to $25,000.  Loans over $25,000 require collateral. The annual interest rate is 3.75% for small businesses and 2.75% for non-profits.  The SBA offers loans with long-term repayments, up to a maximum of 30 years, in order to keep payments affordable. In addition, repayment of the Economic Injury Disaster Loans is automatically deferred for a period of twelve months, with interest accruing  during this period. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay. The loan proceeds may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.

How to apply:

Unlike other SBA sponsored loans that involve intermediary lenders, Economic Injury Disaster Loans are made directly by the SBA.  Interested businesses should apply online at https://disasterloan.sba.gov/ela/.