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SBA Offers Disaster Assistance Loans to Small Businesses Impacted by COVID-19

Commercial Financial Services Alert Melissa McCord

Small businesses suffering substantial economic injury as a result of the novel Coronavirus may qualify to receive federal disaster relief loans from the U.S. Small Business Administration (SBA).

The low-interest loans--up to $2,000,000 per loan--are available to small businesses, most private nonprofits, and small agricultural cooperatives in all U.S. states and territories as part of the SBA’s Economic Injury Disaster Loan Program.

Small businesses may use the loans for working capital--to pay accounts receivable, fixed debts, payroll and other bills. Businesses with available credit are not eligible for the program.

Terms of the loans vary depending on the borrower, based upon ability to repay. Some businesses may qualify for long-term loans of up to 30 years. The interest rate is 3.75% for small businesses and 2.75% for nonprofits. The loans do not carry a prepayment penalty.

The definition of “small business” is industry-dependent, based on number of employees, dollar volume of business, net worth, net income, and other appropriate factors. In general, most manufacturing companies with 500 employees or fewer, and most non-manufacturing businesses with average annual receipts of under $7.5 million, may qualify as a small business. The SBA has developed a Size Standard Tool to help applicants in determining whether they qualify as a small business.

To qualify for a loan, the applicant must show that it has suffered a “substantial economic injury,” which means economic harm that results in the applicant’s inability (i) to meet its obligations as they mature, (ii) to pay its ordinary and necessary operating expenses, or (iii) to market, produce, or provide its products or services.

Applicants can apply online for an SBA disaster assistance loan here. The SBA provides an overview and timeline of the application process.

As with all aspects of COVID-19, this is a fluid and rapidly changing environment and SBA loan applicants should closely monitor developments. For example, on Thursday, March 19, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was introduced in the Senate. Among other things, the CARES Act includes a $300 billion package which if enacted would expand the existing SBA Section 7(a) loan program to provide loans of up to $10 million for qualifying small businesses, with opportunities for loan forgiveness in the future.

You can find more information about the SBA’s Disaster Loan Program here or contact your Quarles & Brady attorney or

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