The Small Business Administration has announced it will provide Disaster Assistance Loans to businesses and not-for-profit organizations affected by COVID-19.  

Business owners still have many questions about how the loans will work. Vic Farlie, business development officer at the Office of Economic Development, put together a FAQ for our local business community to explain things as understand it today, which we are sharing with you here. For more detailed  information, see the SBA’s COVID-19 website.   

The City of San Jose will be assisting small businesses in learning more about and applying for the loans, through the technical assistance our BusinessOwnerSpace partners,  see below. 

What is an SBA-approved Economic Injury Disaster Loan?

If your business or not-for-profit has suffered substantial economic injury in a declared disaster area, you may be eligible to apply for an SBA Economic Injury Disaster Loan. These loans generally offer up to $2 million in assistance to businesses experiencing temporary loss of revenue. The key terms of these loans are:

--A 3.75% interest rate for small businesses without credit available elsewhere. (Businesses able to get credit elsewhere are not eligible.) 

--A 2.75% interest rate for nonprofits.

--A maximum 30-year term, determined on a case-by-case basis, based upon each borrower’s ability to repay.

How does a business apply for an Economic Injury Disaster Loan? 

First, the federal government still needs to take some steps before these funds can flow to businesses. San Jose is working with Santa Clara County to help expedite the process, and we’ll post an update when it’s complete. 

Once the funds are made available, a business should be able to apply to the SBA either online or by mail. The applicant must provide substantial financial detail to analyze the applicant’s creditworthiness. You can use the services of a CPA or a technical expert, but the SBA will not pay for these services. 

Free advice can be sourced from local Technical Assistance providers. San Jose works with a network of these partners called businessownerspace.com that provide low- or no-cost services. Partners available to help prepare loan paperwork are MBDA, SBDC, and SCORE.

Additional information on the process is available through the SBA.  

What is the maximum loan amount limit? 

Disaster loans generally max out at $2 million, but if a business is a major source of employment the SBA has the authority to waive that limit. 

What can the loan be used for? 

These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The loans are not approved to refinance the long-term debts of a business. 

What credit requirements does the SBA use to determine the application? 

The SBA typically use the following criteria when considering an application:

--An acceptable credit history.

--An ability to repay.

--Collateral is required for all loans over $25,000. 

Does the SBA take into account any insurance policy that may be applicable? 

Yes. If a business has business interruption insurance, or other relevant claims, then the SBA may reduce the amount of the loan. 

What evidence demonstrates economic injury? 

Examples can include:

--Financial statements from the bank and cash flow statements demonstrating the impact on the business prior to and since the onset of the disaster.

--Written evidence of cancelled orders that have a material impact on the cash flow or profitability of the business since the onset of the disaster.

--Proof of layoffs or reduced hours for staff as a consequence of a decline in income or cancelled orders.  

How long does it take for an Economic Injury Disaster Loan to be approved? 

The SBA’s goal is to arrive at a decision on applications within 2-3 weeks.  

If you have questions, contact Vic Farlie, victor.farlie@sanjoseca.gov or 408 535- 8230.