Business Law Journal

While individuals are busy taking steps to protect themselves amid the rapidly changing circumstances created by the pandemic, small business owners are faced with the added challenge of maintaining operational continuity and protecting their businesses from the financial impacts of COVID-19.

Thankfully, certain governmental agencies are beginning to implement programs to provide financial assistance to small businesses.

Economic Injury Disaster Loans (EIDLs)

In response to the COVID-19 pandemic, the U.S. Small Business Administration (SBA), on March 16, 2020, announced its guidelines for its Disaster Loan Assistance, available in the form of Economic Injury Disaster Loans.

The SBA’s California Declaration #16332 (Disaster CA-00313), describes Economic Injury Disaster Loans (EIDLs) as working capital loans designed to help small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, non-profit organizations of all sizes to meet their ordinary and necessary financial obligations that cannot otherwise be met as a direct result of the disaster. These loans are intended to assist through the disaster recovery period.

The EIDLs are currently available to businesses in the California counties of: Alameda, Calaveras, Contra Costa, Los Angeles, Sacramento, San Diego, San Francisco, San Mateo, Sonoma & Tuolumne; and the contiguous California counties of: Alpine, Amador, El Dorado, Imperial, Kern, Lake, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Napa, Orange, Placer, Riverside, San Bernardino, San Joaquin, Santa Clara, Santa Cruz, Solano, Stanislaus, Sutter, Ventura & Yolo.

Guidelines and Criteria

The U.S. SBA announcement sets forth the following loan criteria:

Credit Requirements:

• Credit History – Applicants must have a credit history acceptable to SBA.
• Repayment – Applicants must show the ability to repay the loan.
• Collateral – Collateral is required for all EIDL loans over $25,000. SBA takes real estate as collateral when it is available. SBA will not decline a loan for lack of collateral, but SBA will require the borrower to pledge collateral that is available.

Interest Rates:

• The interest rate is determined by formulas set by law and is fixed for the life of the loan. The maximum interest rate for this program is 4 percent.

Loan Terms:

• The law authorizes loan terms up to a maximum of 30 years. The SBA will determine an appropriate installment payment based on the financial condition of each borrower, which in turn will determine the loan term.

Loan Amount Limit:

• The law limits EIDLs to $2,000,000 for alleviating economic injury caused by the disaster. The actual amount of each loan is determined by SBA on a case-by-case and takes into account various factors. If a business is a major source of employment, SBA has the authority to waive the $2,000,000 statutory limit.

Loan Eligibility Restrictions:

• Noncompliance – Applicants who have not complied with the terms of previous SBA loans may not be eligible.

Refinancing:

• Economic injury disaster loans cannot be used to refinance long term debts.

Insurance Requirements:

• To protect each borrower and the SBA, SBA may require applicants to obtain and maintain certain insurance coverage.

Application Process and Deadline

The SBA also notes that EIDL loan applicants should check with other agencies / organizations administering other grant or assistance programs to determine how an approval of an SBA disaster loan might affect their eligibility.

Applicants may apply online, as well as receive additional disaster assistance information and download applications at https://disasterloan.sba.gov/ela. Applicants may also call SBA’s Customer Service Center at (800) 659-2955 or email disastercustomerservice@sba.gov for more information on SBA disaster assistance.

Additional Programs

Acting quickly and decisively, the City of Los Angeles also responded with a small business microloan program.  This timely Small Business Emergency Microloan Program is intended to provide much needed financing to help strengthen small business enterprises during this time of uncertainty and potentially prolonged business disruptions.

The following criteria apply to the City of Los Angeles Small Business Emergency Microloans:

General Eligibility:

Credit:

• Principal business owner(s) must have reasonable and responsible personal credit history and an acceptable explanation for any derogatory marks. Bankruptcies and debt write-offs must be at least 12 months old.

Cash Flow:

• Businesses must show that historical profits were sufficient to service the requested debt and have been impacted by the COVID-19 outbreak.

Location:

• Primary business operation must be located within City of Los Angeles boundaries.

Microloan Use of Funds:

• Funds must be for reasonable and eligible working capital expenses.

Collateral:

• The need for collateral will be evaluated on a case-by-case basis.

Required Guarantors:

• All business owners who hold 20% or more ownership must guarantee the loan.

Co-Signer

• A co-signer with reasonable credit and sufficient income to repay the loan can be included as a guarantor to strengthen loan request applications.

Terms:

The micro loans will be available in amounts ranging from $5,000 to $20,000 with interest of either 0% for loans of 6 months to 1 year or 3% to 5% for loans with terms up to 5 years. There are no application fees. Business owners can apply for the Los Angeles Small Business Emergency Microloan Program by registering on the city’s secure log-in system here: https://cloud.bmisw.com/CityOfLA/Workflow/Enter/Microloan_Begin

Closing Thoughts

During these uncertain times, most people are focused on protecting the health and safety of their friends and loved ones. Business owners face the additional challenge of protecting their businesses from the financial impact of the COVID-19 pandemic. The good news for business owners is that some resources to support small business operations, such as those described in this article, are beginning to materialize.

As always, the attorneys in AALRR’s Corporate, Business, and Tax practice are here to help with guidance and expertise to support you and your business.