30 Mar Economic injury disaster loans for creative businesses during the COVID-19 crisis
As the COVID-19 pandemic continues, we hope that you, family, friends, and clients are staying healthy and safe. Like most of us, you may be wondering about available relief as payroll, rent, and other business expenses coming due April 1 add new challenges. Borrowing working capital may be one solution. Creative businesses and freelance creators across Oregon can now apply for low-interest Economic Injury Disaster Loans through the Small Business Administration. Here are some basics of this lending option.
What you can do now
Creative businesses and freelancers seeking a Small Business Economic Injury Disaster Loan should consider applying immediately even if they are unsure whether they will ultimately borrow the full amount offered by the SBA. Emergency advances of up to $10,000 on these loans may be available, and application details are due to be released by mid-April. If borrowing will be needed to help your business make it through the COVID-19 crisis, consider applying for a loan now. Reapply for an advance as soon as applications become available.
Amount available to borrow
Loans of up to $2 million are available. Your loan amount will be based on an estimate of actual financial impact on your business assuming that the effects of the COVID-19 outbreak will continue for approximately six months. The SBA will calculate the estimate by reviewing the expenses that the business would normally incur over a six-month period.
Loan rates and repayment
The interest rate is 3.75% for small businesses, including sole proprietors and freelancers, and 2.75% for non-profits. Repayment may be spread over up to 30 years. The actual payment schedule of a loan for your business will depend on ability to repay.
Forgivable paycheck protection loans
Loan forgiveness means that the applicable amount is treated as a cancelled debt. The CARES Act generally provides for loan forgiveness in an amount equal to the cost of retaining workers and maintaining payroll over the period March 1 through June 30, 2020. The amount forgiven will be reduced by the amount of any payroll reductions during this period.
Information needed for the loan application
The CARES Act waives certain application requirements for COVID-19 disaster loans. Applicants are no longer required to be unable to obtain credit elsewhere is waived or have been in business for the year before disaster declarations were made. Rules requiring a personal guarantee on advances and loans of $200,000 or less are also waived.
Other changes may follow as the SBA begins implementing the CARES Act. For example, the new law permits approving disaster loans based solely on the applicant’s credit score. If the SBA decides to implement that basis for approval, it cannot require the applicant to also submit tax returns. This would speed up the approval process and reduce the burden for applicants of gathering and submitting information. The SBA must issue regulations to implement the CARES Act by mid-April, and we will continue to bring them to your attention. For now, assume that the usual disaster loan information requirements will remain, subject to the waivers discussed above. Under those requirements, loan applications must be supported by the following:
- Personal financial statements by the applicant, each owner of at least 20% of the business, and each managing member of a limited liability company (LLC) or general partner of a partnership;
- Information on any available business insurance coverage;
- A complete copy of the most recent Federal income tax return; and
- A Schedule of Liabilities listing all fixed debts.
The SBA may also request a current year profit-and-loss (P&L) statement, and a detailed, one-year projection of business income and finances.
Further information and guidance
Inspiration Spaceship continues to monitor coronavirus impacts on the creative business community. The firm’s COVID-18 Creative Community Spotlight is a collection of alerts, articles, updated and curated links, programs, and other resources meant to help creative professionals facing pressing challenges in the coronavirus outbreak.
For additional information on any aspect of the coronavirus situation or to discuss your specific situation, please schedule a call. We are here and ready to talk with you.