SBA and disaster relief loans could save your business. Here’s how to determine which one may be right for you.
If your small business needs financial assistance during these uncertain times, you may find yourself applying for a Small Business Administration (SBA) loan. Inc. columnist Ami Kassar, who advises business owners on access to capital, has been hosting a series of free webinars that continue every day this week to answer questions about loans. Here, Kassar breaks down the differences between two SBA loans you may want to consider.
Here’s what you need to know:
SBA Emergency Injury Disaster Loan (EIDL)
This type of loan is now available as part of the government’s response to the coronavirus. Keep in mind, even though you’re applying through the SBA, the lender is the government–not a bank–so it will likely take longer to approve than a traditional loan.
This emergency loan also requires a personal guarantee, such as a lien on your business and your home. “They’re not free money,” Kassar said. “It is a loan application, and it takes time to get them and you’re going through the government.”
At this point, all states and territories are disaster zones. To qualify for this emergency loan, you have to show “substantial economic injury,” which means you’re unable to meet obligations or pay your regular expenses, and you’re unable to obtain credit for more than $350,000 elsewhere. Up to $2 million in assistance is available, but the exact amount will be based on how much your business has been affected. You can apply online.
Traditional SBA Loan
Kassar expects government legislation will be approved in the next few days to increase the budget for standard SBA loans and allow business owners to use them for payroll support, including sick leave.
If you have an existing SBA loan, the SBA is encouraging lenders to work with you on payments, so you’ll want to contact your lender, Kassar said.
What to Do Before You Apply for a Loan
- File your taxes now, particularly if 2019 was a strong year, and prepare a personal financial statement.
- Put together three years of business and personal tax returns. If 2019 tax returns are not available yet, lenders will want to see your year-end 2019 financials and the personal financial statement, if you own more than 20 percent of the company. Be sure to put together your monthly operating expenses from March through September of 2019. This data will be an important part of your loan application, Kassar said.
- Provide forecasts and budgets for 2020–ideally a best-case, an expected-case, and a worst-case scenario for your company. Kassar said this will show lenders you have taken the time to think about it.
- Prepare a debt schedule.
Finally, if you’re considering a loan, keep in mind the emergency loan offers lower rates and longer payback periods, but it will likely be a slow and complex process. Alternatively, the standard SBA loan may get you to the finish line faster, but rates will likely not be as low.
Author:Brit Morse. Inc. Staff Writer