By Jondi Gumz
This article is an update to “SBA Disaster Loans Available”. Click Here to read the original article
Many small business owners in Santa Cruz County closed and restaurants have laid off employees because of “shelter in place” orders to slow the spread of the contagious coronavirus COVID-19.
A faster loan will soon be available from U.S. Small Business Administration under the Coronavirus Aid, Relief and Economic Security Act signed into law March 27.
CARES Act loans at 4 percent interest for businesses with up to 500 employees, are part of the Paycheck Protection Program and can be used for payroll, mortgage payments, rent, utilities and insurance.
The loan has a formula: The average monthly payroll for the past 12 months times 2.5, with the maximum amount of $10 million. Assuming you keep the same level of workforce, this loan will be forgiven, potentially up to 100 percent.
The form asks for the adjusted gross income on the 2019 tax return. Once the rules are posted, the loan approval time is expected to be 1-3 days.
Brandon Napoli, director of the Santa Cruz Small Business Development Center, which offers free advice to business owners, is hearing the same question from retail store owners, massage therapists and salon owners: How much of the loan might be forgiven?
The standard disaster loan does not offer loan forgiveness.
Disaster Loan Process
The SBDC, based at Cabrillo College, put on a free webinar March 19 with SBA officials explaining how to apply online for the standard economic injury disaster loan and to expect a response in two to three weeks.
The webinar was fully subscribed at 88 people, some of whom had already closed their doors and others who had laid off employees. At least 92 more got on the wait list and got access to a replay.
Tallula Preston and David Purgason, owners of the startup Fruition Brewing in Watsonville, spent a half a day March 18 to apply online and got an email saying “received—in review.”
David Purgason and Tallula Preston, founders of Fruition Brewing, applied for a disaster loan.
The maximum loan size is $2 million. The interest rate is 3.75 percent for for-profit businesses and 2.75 percent for nonprofits to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the COVID-19 outbreak. The deadline to apply is Dec. 16.
Heather Luzzi, director of the Sacramento SBA, which oversees 22 counties, said hundreds of employees had been brought on to deal with the “surge” of applications and she expected “a strain on resources.”
The SBA loan application process has been used many times after a disaster, whether drought, flood, or fire. But it hasn’t been used for an economic disaster that is ongoing, for which there is no end in sight.
The online forms require the employer identification number and ask questions that may require a check of the Secretary of State’s website or a consult with an attorney or accountant. If the business owner misinterprets what the SBA wants, then the application will be rejected, and the process must start over.
Estimate Losses
One question is the amount of the economic loss, hard to answer since it’s unknown when closed businesses might reopen.
SBDC advisor Sunita Maharaj recommended putting down three months of operating income and with an “e” after the number to denote “estimate.”
Other questions ask about debt, liabilities and salaries. Ancillary forms are required, such as Form 413, a personal financial statement of the business owner, and Form 4506-T, authorizing the SBA to order a transcript of the tax return. A credit report will be reviewed; there is no minimum credit score.
The SBA will be more lenient with people who have been unable to repay debt but a default on a federal loan means no federal disaster loan.
Loans over $25,000 require collateral.
Almost all businesses will likely be considered, according to SBDC advisor John Connelly.
Small business owners were advised to call the local SBDC to get free assistance walking through the form to fill it out correctly.
Luzzi said business owners must use their local SBDC office. Employees at those offices are working but callers sometimes get voice mail.
Sole proprietors are eligible. Airbnb rentals with past income and Lyft and Uber drivers may be eligible.
Expansion of an existing business to a new location might qualify but cannabis businesses are not eligible.
The application process is first in, first out. Luzzi suggested owners get their application in as soon as possible. There is no prioritizing by the number of years in business, or for businesses forced to close by the state.
Luzzi said nonprofits are not eligible for personalized assistance from an SBDC advisor, whose goal is to help for-profit businesses, but they can get help from an SBA staffer.
•••
Applicants may apply online at https://disasterloan.sba.gov/ela. For informaiton, call SBA’s Customer Service Center at (800) 659-2955 or email [email protected]. To reach the Small Business Development Center at Cabrillo College, call 831-479-6136 or go to www.santacruzsbdc.org.