With the increasing closures and shelter in place orders issued in attempt to slow the spread of the COVID-19 pandemic, there is an ongoing and immense burden placed on businesses ­in staffing, in decreased demand, along with mandated shutdowns. Considering that businesses with fewer than 500 employees make up a bulk of all businesses in the United States, this would have a massive effect on the greater economy. To alleviate this in part, President Trump had signed the Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020. This permits the United States Small Business Administration ("SBA") to make an Economic Injury Disaster Loan declaration ("EIDL") in response to a governor's request to the SBA. On March 13, Governor Gavin Newsom had issued a request, and on March 16, the SBA made its declaration.

What Can Small Businesses Get?

Small businesses (as defined by the SBA) and non-profit organizations can now apply at https://disasterloan.sba.gov/ela by December 16, 2020 for loans up to $2,000,000. However, this cap may be waived if the small business can show that it is a major source of employment as determined by the SBA. The loan amounts will be limited to the economic injury the business suffered, as determined by the SBA, less business interruption insurance and other recoveries that the business may make.

What Does the EIDL Entail?

Ultimately, EIDLs will be determined on a case by case basis dependent on the specifics of the business applying. The EIDLs will have rates set forth by statute, but will have a maximum loan rate of 4% for small businesses, with non-profits having an interest rate of 2.75%. These loans may have a term up to a maximum of 30 years, with installments determined by the SBA based upon the financial health of the business and its capacity to repay the loan. Importantly, these loans will have some limitations. While the loans may be used to pay fixed debts, payroll, accounts payable and other bills that otherwise would be unable to be paid, the following are prohibited:

1. Using proceeds for indirect administrative expenses; and
2. Use of the EIDL funds as a means of refinancing other long-term debts.

Currently, no solid timeline has been put in place for these loans, but the SBA is aiming to reach a decision within 2-3 weeks, with a disbursement made within five days after receiving signed closing documents.

Who Can Apply?

Small businesses and non-profits in the following counties can apply for EIDLs: Alameda, Alpine, Amador, Calaveras, Contra Costa, El Dorado, Imperial, Kern, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Napa, Orange, Placer, Riverside, Sacramento, San Diego, San Francisco, San Mateo, San Bernardino, San Joaquin, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tuolumne, Ventura & Yolo. However, if a business has previously been found in non-compliance with an SBA loan, that business may not be eligible.

While the ultimate effects of this pandemic remain unknown, it may be prudent to start now, determine if you qualify, and be ready to apply for an EIDL as soon as the total cost to your business can be determined.