Everyday more businesses are forced to close their doors to keep up with the ongoing health and safety standards and revenue is plummeting. The government is working to provide economic relief to American businesses, and some of the relief solutions are already available. The SBA (Small Business Administration) has extended their disaster loans to small businesses and private non-profits affected by COVID-19.
The loans are low interest and long-term. The repayment plans go up to 30 years and the interest rates are 3.75% for a small business and 2.75% for nonprofits. Disbursement from the loan is meant to pay for things like fixed debts, payroll, accounts payable and any other bills that your business cannot afford to pay because of a loss of revenue that can attributed to COVID-19.
To apply for a disaster loan from the SBA, here are a few things you’ll need to consider
Lenders at the SBA are looking for the “5 C’s”.
Capital
You will need some working capital to make a down payment on your disbursement. This assures lenders that you will also be making loan payments and handling your disbursement responsibly.
Credit
Often, the owner of the business’ credit history will be a factor in whether the business is accepted for a loan. Owners with solid credit scores and a history of paying off debt will attract lenders.
Capacity
No matter how long-term your repayment plan, you will have to illustrate an ability to pay off the loan eventually. The lender will generally take things like your annual revenue during a good year into account.
Collateral
You will need property to guarantee the loan. That is, you’ll need to have an asset that the lender can rely on for repayment in the event you default on your loan payments.
Character
The character of the business owner taking out the loan is also important to lenders. They will generally look at your past business experience to determine what kind of businessperson you are. For example, have previous enterprises of yours gone bankrupt? Have you been sued? Lenders will look at these factors and more when deciding on your character
The SBA’s decision is faster when your application is submitted online.
The SBA recommends that applications are submitted through their secure website for the quickest response times. However, paper applications can be mailed to the SBA. Because the SBA is a government entity, the paper application can also be dropped off at a local disaster recovery center.
Submitting your application online does not mean you are more likely to be approved for a loan. However, your application will enter the queue for review immediately after submission, so it does mean you are more likely to get a decision sooner. Those awaiting a response on a paper application will have to wait for the postal service. Keep in mind that postal delivery can be delayed several days by a disaster.
There is a deadline for each disaster.
The deadline for applying for a disaster loan for economic injury is 9 months after the day the emergency is declared. The SBA may elect to issue extensions, though. Any extensions or changes will be listed on the SBA’s website and we advise you to check the website regularly for updates.
There are required documents you’ll need to add to your application.
All required documentation included with your application needs to be complete and accurate. It also needs to be signed by each principal owning 20% or more of the business. These principal signatures need to be collected once each for any owner who has more than a 50% ownership in the business and any affiliate businesses.
The required documents include:
This form gives the IRS permission to provide the SBA with your tax return information.
- Current financial statement
- Current schedule of liabilities, including all fixed debts
The SBA does have a format they recommend for the schedule of liabilities on their website. However, the document can be filled out in whatever format you’d prefer to use.
- A copy of your most recently filed federal income tax return
- IRS Form 8821
This is a Tax Information Authorization Form, which gives authorized organizations permission to access your tax information. IRS Form 8821 only needs to be included with online applications.
- Contact information for all applicants
- Social security numbers for all applicants
- Your Employer Identification Number (EIN)
- Insurance information
- Personal Financial Statement (SBA Form 413)
This form is used by the SBA to analyze your ability to repay the loan. This is used to determine your character and creditworthiness.
Each of these forms needs to contain correct information and be signed and dated to ensure quick processing.
Applying for a disaster loan can be overwhelming. Consider hiring an outsourced accountant from MCDA to help you compile your records and ensure that your application is accurate. A professional accountant may mean the difference between rejection and acceptance of your SBA Disaster loan application.
MCDA will be running a discounted rate special for all of our professional accountants helping small businesses with SBA loan applications. Call us today for a free consultation and to book your appointment.