SBA Issues Guidance and Disaster Loans
You may be living in a state or county that has issued “shelter-in-place” orders and noticed your local small businesses have closed completely or greatly reduced their hours of operation. Walking my dog around D.C. lately, which is eerily quiet, I have noticed my local dry cleaner only open a few days a week and local coffee shops closed until April.
Due to these “shelter in place” orders and mandatory closures, in certain circumstances, many small businesses have suffered and may continue to suffer from revenue losses. To alleviate those losses, the Small Business Administration (SBA) has taken several steps to help small businesses across the country during the COVID-19 pandemic. SBA issued guidance for lenders looking to provide relief to members and more opportunities for small businesses to obtain capital due to the pandemic.
Disaster Assistance Loans
On March 12th, SBA announced that small businesses could apply for Economic Injury Disaster Loans (Disaster Loans) to help offset the impacts from COVID-19. Disaster Loans, up to $2 million, may be used to pay for fixed debts, payroll, accounts payable, and other bills that cannot be paid due to the disaster. In order to obtain a Disaster Loan, a state or territory must first request assistance from the SBA and then, the agency will issue a disaster declaration.
To offer greater flexibility, SBA revised the criteria for applicant states and territories seeking Disaster Loan assistance to provide a faster and easier qualification process. Under the revised criteria, a state or territory would need to certify that at least five small businesses within the state or territory have suffered a substantial economic injury. The previous criteria required states to certify that at least five small businesses suffered a substantial economic injury with at least one business located in each county or parish. You can check your state’s approval status here.
Loan Deferments
Loan deferments are just one of the many ways that lenders can offer assistance to small businesses during this time. The NCUA, as part of an Interagency Statement, encourages credit unions to meet the financial needs of members affected by COVID-19.
On March 10th, SBA issued Information Notice 5000-20004 reminding 7(a) lenders of their unilateral authority to provide temporary relief to borrowers with deferred payments in certain circumstances. Lenders may grant a deferment of up to six consecutive months for loans sold on the secondary market. Lenders may grant a one-time deferment of up to 90 days without requiring prior investor consent for loans not sold on the secondary market. This information notice expires on March 1, 2021. If your credit union is a 7(a) lender, then you may provide members with additional relief with deferred payments.
On March 23rd, the SBA announced automatic deferment of existing disaster loans through the end of 2020. This alleviates the need for borrowers to request deferment from the SBA. This became effective upon the announcement and automatic deferment ends December 31, 2020.
Additional resources for small businesses related to COVID-19 can be found on SBA’s website.
Legislation
Congress is also stepping up to the plate to alleviate the economic injury to small businesses.
Keeping Workers Paid and Employed Act
This bill was introduced by Senators Marco Rubio (R-FL), Susan Collins (R-ME), and Lamar Alexander (R-TN). The bill is included as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Senate’s proposed “Phase III” stimulus plan that provides for emergency assistance to individuals, families, and businesses. Some highlights include:
- Increasing SBA Express Loans from $350,000 to $1,000,000,
- Increasing lenders with delegated authority to make determinations of a borrower’s eligibility and creditworthiness without going through the SBA,
- Expanding use of 7(a) funds for payroll, paid sick leave, mortgage payments, and other debt obligations,
- Increasing the guaranteed portion of the loan to 100 percent,
- Waiver of borrower and lender 7(a) fees,
- Deferment of loan payments for up one year, and
- Loan forgiveness options.
The CARES Act provides greater flexibility in the total amount a borrower can obtain and use of funds. It is likely that additional Congressional and SBA efforts will be made to alleviate the financial stress on small businesses.
If you have any questions, please reach out to me at kschafer@nafcu.org. Stay safe and wash your hands!
My “shelter-in-place” partner in crime:
