It would be a gross understatement to say that the COVID-19 pandemic and its economic fallout is devastating small businesses in Michigan and across the country. Following Governor Whitmer’s “Stay Home, Stay Safe” order, storefronts are closed, customers and clients are sheltering in place, hard-working employees are idle and unpaid, no cash is coming in, and there is no perceivable end in sight.
These business owners – and you may be among them – desperately need financial assistance to stay afloat during the crisis. Fortunately, the U.S. Small Business Administration (the “SBA”) is offering low-interest loans of up to $2,000,000 for small businesses in states and territories affected by the pandemic.
Economic Injury Disaster Loans for Michigan, Indiana, and Ohio Businesses
Pursuant to the recently enacted Coronavirus Preparedness and Response Supplemental Appropriations Act (the Act), the SBA can issue, upon a request by a state’s governor, an Economic Injury Disaster Loan (EIDL) declaration for that state. Such a declaration allows the SBA to offer EIDLs to qualifying businesses that they can use to “pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.”
In Michigan, the SBA issued an EIDL declaration by identifying Disaster No. MI00081. Under that declaration, businesses in the following counties are currently eligible to apply for an EIDL:
- All counties within the State of Michigan.
- The contiguous Indiana counties of Elkhart, La Porte, LaGrange, St. Joseph and Steuben.
- The contiguous Ohio counties of Fulton, Lucas, and Williams.
- The contiguous Wisconsin counties of Florence, Forest, Iron, Marinette, and Vilas.
Loan Terms and Conditions
When reviewing an application for an EIDL, the SBA will consider the applicant’s credit history and ability to repay the loan. Additionally, businesses seeking an EIDL in an amount over $25,000 will need to pledge collateral for the loan. The loans have a maximum fixed interest rate of 3.75 percent for small businesses and 2.75 percent for non-profits, and long-term repayment options of up to 30 years are available.
The actual amount of each loan is limited to the economic injury as determined by the SBA, less business interruption insurance and other recoveries up to the administrative lending limit. The SBA also considers potential contributions that are available from the business and/or its owner(s) or affiliates. If a company is a significant source of employment, the SBA has the authority to waive the $2,000,000 statutory limit on EIDLs.
How to Apply for an SBA Loan
Small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, non-profit organizations located in the counties listed above can apply for an EIDL online at https://disasterloan.sba.gov/ela/.
Applications must be filed no later than December 21, 2020. While the online application process is the fastest way to obtain a decision regarding loan eligibility, an applicant has the option of submitting a paper application by mail or in person at any SBA Disaster Recovery Center. Filing an in-person claim provides the opportunity to receive one-on-one help from an SBA representative.
Three-Step Application Process
The EIDL application and approval process involves three steps:
- Submit your application for an EIDL along with any required supporting documents (see below) either online, in person at an SBA Disaster Recovery Center, or by mail.
- An SBA loan officer will determine your eligibility during processing, after reviewing any insurance or other recoveries. The SBA can make a loan while your insurance recovery is pending.
- The loan officer will work with you to obtain all the necessary information needed to reach a loan determination. The SBA’s objective is to make a decision on the application within two to three weeks.
- The loan officer will contact you to discuss the loan recommendation and next steps.
- The SBA will prepare and send you Loan Closing Documents for your signature.
- Once the SBA receives the signed Loan Closing Documents, it will make an initial disbursement of $25,000 to you within five (5) days.
- A case manager will be assigned to work with you to help you meet all loan conditions. The case manager will also schedule subsequent disbursements until you receive the full loan amount.
- The SBA may adjust your loan after closing due to changing circumstances, such as reducing the loan due to your receipt of additional insurance proceeds.
All EIDL applicants must submit a significant amount of documentation to the SBA for their applications to be considered and approved. Your loan officer and/or case manager will assist you in ensuring that you submit the proper information and materials.
The SBA requires the following documentation to process your application:
- Completed and signed Business Loan Application (SBA Form 5).
- IRS Form 4506-T completed and signed by the applicant business, each principal owning 20.0 percent or more of the applicant business, each general partner or managing member, and any owner who has more than a 50.0 percent ownership in an affiliate business. Affiliates include business parents, subsidiaries, and/or companies with common ownership or management.
- Complete copies, including all schedules, of the most recent federal income tax returns for the applicant business. If these documents are not available, the applicant must provide an explanation.
- Personal Financial Statement (SBA Form 413) completed, signed, and dated by the applicant (if a sole proprietorship), each principal owning 20.0 percent or more of the applicant business, and each general partner or managing member.
- Schedule of Liabilities listing all fixed debts (SBA Form 2202 may be used).
The SBA may also request the following additional information:
- Complete copies, including all schedules, of the most recent federal income tax returns for each principal owning 20.0 percent or more of the applicant business, each general partner or managing member, and each affiliate when any owner has more than a 50.0 percent ownership in the affiliate business. Affiliates include, but are not limited to, business parents, subsidiaries, and/or other companies with common ownership or management.
- If the most recent federal income tax return has not been filed, a year-end profit and loss statement and balance sheet for that tax year are acceptable.
- A current year-to-date profit and loss statement.
- SBA Form 1368 providing monthly sales figures.
Call Us for Assistance With Your SBA Loan Application
We know this is an unprecedented, unnerving, and uncertain time for business owners. Kreis Enderle remains steadfastly committed to providing guidance, counsel, and advocacy to help our clients weather the storm.
If you have questions regarding obtaining an SBA emergency loan or have any other concerns or issues related to the COVID-19 pandemic, please contact the Business Law Practice Group at Kreis Enderle today.