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SBA Issues Updated Criteria for States Requesting Disaster Assistance Loans for Small Businesses Impacted by COVID-19

03/19/2020

By: Ryan Tucker

Generally, an SBA Disaster Assistance Loan can provide a business with up to $2 million to meet working capital needs or normal business operating expenses.1 Specifically, the SBA revised their disaster loans to provide assistance to businesses to pay fixed debts, payroll, accounts payable and other bills that otherwise would be difficult to pay because of COVID-19’s impact.2 The interest rate of these loans for small businesses is 3.75%. The interest rate for non-profits is 2.75%.3 

On Monday, March 16, 2020, Governor John Bel Edwards formally requested that the U.S. Small Business Administration (the “SBA”) implement an SBA “declaration to provide assistance in the form of SBA Economic Injury Disaster Loans for the Louisiana parishes of Orleans and Jefferson as a result of the Novel Coronavirus (COVID-19) worldwide pandemic.”4 By making this request, Governor Edwards established one of the “five ways in which disaster declarations are issued which make SBA disaster loans possible.”5

The next day, on March 17, 2020, “as part of the Trump Administration’s aggressive, whole-of-government efforts to combat the Coronavirus outbreak (COVID-19) and minimize economic disruption to the nation’s 30 million small businesses, U.S. Small Business Administration Administrator Jovita Carranza issued revised criteria for states or territories seeking an economic injury declaration related to Coronavirus (COVID-19).”6 In a nutshell, the SBA revision did two things. First, it relaxed the requirements for states seeking assistance. Second, it expanded access to that assistance to the entire state requesting it.

As a result, the SBA may now make an economic injury declaration for Louisiana and/or any other state requesting assistance. Because Governor Edwards requested assistance for Louisiana, the ball is now in the SBA’s court, so to speak.

When the SBA makes an economic injury declaration, it will publish a notice in the Federal Register and/or use the local media to inform potential loan applicants about what assistance is available and how they may obtain that assistance.7 Accordingly, businesses in need of assistance should be on the lookout for notices published in either the Federal Register or local media.

Considering the fluid nature of the situation, Lugenbuhl is carefully monitoring the Federal Register and local media for any developments and will provide updates as circumstances evolve.

As of now, the SBA has not issued a declaration for the State of Louisiana. Instead, the SBA has issued declarations for the following states: Arizona, California, Colorado, Connecticut, Idaho, Maine, Maryland, Massachusetts, Montana, Nevada, New Hampshire, New York, North Dakota, Oregon, Rhode Island, Texas, Utah, Virginia, Washington, Washington D.C., Wyoming, and New Mexico.8 Until March 17th, the SBA made its disaster declarations on a parish-by-parish or county-by-county basis. Now, however, under the recently revised and relaxed requirements, the SBA’s disaster declarations apply statewide. Accordingly, businesses may become eligible for assistance when the SBA issues a declaration affecting any portion of their state.

Whether a business is a “small business” depends on the number of its employees or its annual revenue in millions of dollars.9 The SBA has set requirements for each sector and subsector of commerce. For example, a business engaging in Port and Harbor Operations, Marine Cargo Handling, Navigational Services to Shipping, or Other Support Activities for Water Transportation must have les than $41,000,000.00 in annual revenue to qualify as a “small business.”10 A general rule of thumb, however, is that a business qualifies as a small business if it “is independently owned and operated” and “is not dominant in its field of operation.”11

If it qualifies, a business may apply for an SBA disaster loan online, in person, or by telephone.12 The SBA will then review the business’s credit, estimate the amount of the business’s loss, and determine the business’s eligibility for a loan. Typically, the SBA tries to make a decision on each application within 2-3 weeks. At this point, however, it is unclear whether this timeframe will be affected (shortened or lengthened) as a result of COVID-19. When a business is approved it must send its signed loan closing documents to the SBA. Within 5 days of receiving these documents, the SBA will make an initial disbursement of $25,000.00 for economic injury. The parties will arrange the future disbursements between themselves.13

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[1] Disaster Loan Assistance, U.S. Small Bus. Admin., https://disasterloan.sba.gov/ela/Information/BusinessPhysicalLoans (last visited March 18, 2020).

[2] Press Release

[3] Id.

[4] Letter from John Bel Edwards, Governor, State of Louisiana, to Tanya Garfield, Director, Field Operations Center – West, U.S. Small Business Administration (March 16, 2020) (Letter).

[5] Disaster Loan Program, 13 C.F.R. §123.3(a) (2016).

[6] Press Release, U.S. Small Bus. Admin., SBA Updates Criteria on States for Requesting Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19) (March 17, 2020) (Press Release).

[7] Id. at (b).

[8] The SBA has issued ten COVID-19 disaster declarations affecting counties of:  (1) New Mexico, Arizona, Colorado, Texas, and Utah [Declaration]; (2) California [Declaration]; (3) Washington, Idaho, and Oregon [Declaration]; (4) Maine and New Hampshire [Declaration]; (5) Connecticut, Massachusetts, New York, and Rhode Island [Declaration]; (6)  Nevada, Arizona, California, Idaho, Oregon, and Utah [Declaration]; (7)  the District of Columbia, Maryland,  and Virginia [Declaration]; (8) Rhode Island, Connecticut, and Massachusetts [Declaration]; (9) Utah, Arizona, Colorado, Nevada, New Mexico, Wyoming [Declaration]; and (10) Montana, Idaho, North Dakota, and Wyoming [Declaration].

[9] 13 C.F.R. § 121.301 (2020); 13 C.F.R. § 121.201 (2019).

[10] 13 C.F.R. § 121.201 (2019).

[11] 15 U.S.C. § 632.

[12] See The Three Step Process: Disaster Loans, U.S. Small Bus. Admin., https://disasterloan.sba.gov/ela/Documents/Three_Step_Process_SBA_Disaster_Loans.pdf

[13] Id.

 

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