Need a lifeline? What to consider when applying for a disaster loan

by Meg White

While the details of congressional efforts to ease the economic pain of the COVID-19 pandemic are still being worked out, there’s one lifeline that indie brokerages and others can start digging into now: disaster relief loans from the Small Business Administration.

Not everyone in the U.S. is eligible yet because businesses must be located in an affected area (as stated by a disaster declaration). But Charlie White, a lender relations specialist with the Small Business Administration office in Springfield, Illinois, said it’s only a matter of time before that distinction covers the whole country.

“If you can prove that your sales have gone down during the coronavirus outbreak, you can apply,” White told Illinois business owners in a webinar about the loan program Wednesday. He did note that businesses with a physical presence will have an easier time. “I think it will be difficult to prove you had economic injury if you don’t have a brick-and-mortar because people can still access you online.”

In order to qualify, entities must be qualified as small businesses under the SBA’s definition. Though the qualifications vary depending on the sector, White estimated that “99% of businesses in Illinois are considered small” by the agency’s definition. Real estate brokerage offices, defined by the U.S. Census bureau under the North American Industry Classification System number 531210, must have less than $8 million in annual revenue to qualify as a small business.

White offered these tips to entrepreneurs who are thinking about applying for an SBA loan:

Don’t wait

If you think you might need these funds, fill out your application now. There are no fees to apply, and there’s no obligation to accept a loan if you are approved for one. “Submit your application as soon as possible,” White said, noting that competition for funds will only increase. “Eventually all 50 states are going to be eligible for this program.”

While he did add that the most common delays in processing an application are due to missing data, White encouraged business owners to “do your best to complete the required forms.” If there’s something missing, most issues can be sorted out after you apply, when a loan officer gets in touch with you for next steps. Also, if you haven’t filed your 2019 tax-year return yet, you can proceed with your 2018 numbers.

White noted that while it usually takes about 21 days to process an SBA loan request, they are trying to move faster in light of current events. While time is of the essence for applicants, he also noted that, “Right now, there is no limit on your time to apply because we have not seen the end of this pandemic.”

Keep in mind that, if you file multiple tax returns for multiple business concerns and you want to apply for funds for more than one, you will likely have to file separate applications. This might be the case if you have rental properties that are handled under your personal tax return, for example. However, if you have different businesses under the same tax return, that can likely be handled under one application.

Don’t hesitate because you’ve been turned down by others

White noted that the application process is “not as stringent as most banks,” so small business owners who haven’t been able to secure a loan on the private market shouldn’t assume the outcome will be the same at the SBA. There’s no minimum credit score, and “you can have a couple of hiccups in your credit history” and still be approved, according to White.

Your creditworthiness will be determined by whether or not you had the ability to repay a loan before the coronavirus outbreak, not your current liquidity levels. There’s no collateral required for loans of less than $25,000, and even if you’re requesting more, a lack of collateral is not a reason for the SBA to decline a loan application.

In addition to tax returns, you’ll need your profit-and-loss balance sheet for 2019 as well as an interim statement of business activity in the last 90 days or so. The main thing the SBA needs to understand is how your business has been impacted by the coronavirus pandemic. It’s also important to calculate how much money your business needs in the form of “annual working capital.” This is basically how much money you need to keep your business running for an entire year. By dividing this number by 12, you can get an idea of what you’ll need on a monthly basis.

Default to your computer, rather than your phone

“Hold and wait times are getting rather long on the phone,” White said. “It is kind of all-hands-on deck at the SBA office right now.” That’s why it’s better to email any questions you may have to your local office or to disastercustomerservice@sba.gov.

Also, file your application online rather than sending in a paper version for faster turnaround time. One additional benefit of filling in the form online is that it’s easier to see which fields are required (marked with an asterisk), so it’s harder to skip information that the SBA needs to know.

Some points of confusion that often come up whether applicants are online or filling out a paper form are defining who’s requesting the money and how much is needed. Right up top, business owners might be tempted to start filling in their names, but White clarified that “the applicant will be the business name” not the business owner’s name. “Later on, it will ask who the owner is, which would be you.”

Later on, the form asks if the applicant owns any other businesses. Recalling that the applicant is the business (and not the owner), “Almost everybody will check ‘business entity owner: no,’” even if they themselves own several businesses, White clarified. “This is where everybody gets tripped up.”

Another spot that tends to be confusing for applicants is the blank space on page three of the application. Online, it’s a 4,000-word capacity dialogue box. White noted that, since there’s no official space to put in the size of the loan being requested, small business owners can use this space to note how much money they’re requesting and “follow that up with how you determined that number, to justify it.”

Don’t be shy about asking for help

White noted that his office is holding two webinar training sessions (at 11am and 3pm) daily for small business owners in Illinois and encouraged entrepreneurs to reach out to their local district officers or disaster field offices at the SBA. You’ll find more information about services at the Illinois district office here. You can also reach out to the office via email at illinois.DO@sba.gov or phone: 312.353.4528. 

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