Application is now open for Minnesota small businesses to apply for Economic Injury Disaster Loan (“Disaster Loan”) assistance through the U.S. Small Business Administration (the “SBA”). Upon request from Governor Walz, the SBA issued an Economic Injury Disaster Loan declaration for the State of Minnesota pursuant to the Coronavirus Preparedness and Response Supplemental Appropriations Act.
Disaster Loans are available to Minnesota small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, non-profit organizations, regardless of the organization’s size. Companies that are unable to meet ordinary and necessary financial obligations due to Coronavirus (COVID-19) are eligible to apply for a Disaster Loan in order to assist with such financial obligations through the disaster recovery period until normal operations are resumed. The economic injury must have occurred sometime between January 31, 2020, and the date of the company’s application. Companies with sufficient credit available through other sources to cover ordinary and necessary financial obligations are not eligible for Disaster Loan assistance.
Maximum Loan Amount. Disaster Loan amounts will be determined by the SBA on a case-by-case basis, based on (1) the company’s actual economic injury sustained and (2) the company’s financial needs, with a maximum loan amount of $2,000,000.00 in most cases. In determining a company’s financial needs, the SBA will reduce the Disaster Loan amount based on (1) any amount of business interruption insurance proceeds available to the company and (2) any potential contributions that may be available from the company, its affiliates, and/or its owner(s).
Use of Funds. Loan proceeds may be used to cover any ordinary and necessary financial obligations, including without limitation payroll, accounts payable, and other ordinary costs of doing business. Loan proceeds may not be used to refinance existing debt.
Interest Rate. Interest on the Disaster Loan will be a fixed rate, which is determined by a formula set by law. The current Disaster Loan interest rate is 3.75% for small businesses and 2.75% for non-profits.
Repayment Term. The repayment term for a Disaster Loan will be determined based on each company’s individual ability to repay, up to a maximum term of 30 years.
Collateral. If available, the SBA will take a security interest in real estate or other assets owned by the company as collateral for the Disaster Loan. Companies lacking collateral to pledge as security for the Disaster Loan may still be approved for an unsecured Disaster Loan in an amount up to $25,000.00.
The current application deadline for a Disaster Loan is December 21, 2020.
Below is an initial list of forms and information that will be required in order to complete the application process:
- Disaster Business Loan Application – SBA Form 5 (or SBA Form 5C for sole proprietorships)
- Request for Transcript of Tax Return – IRS Form 4506T
- Complete copies of the company’s most recent Federal Income Tax Return
- Schedule of Liabilities – SBA Form 2202
- Personal Financial Statement – SBA Form 413 (for each (1) proprietor, (2) general partner, (3) managing member of a limited liability company, (4) owner of 20% or more of the company’s equity, (5) person providing a guaranty on the Disaster Loan)
- Monthly Sales Figures – SBA Form 1368
Loan applications will be evaluated by SBA loan officers, based on criteria such as the company’s credit history, ability to repay, and eligibility (based on the company’s location within a declared state and working capital losses due to the declared disaster).
Upon Disaster Loan approval, the SBA will send loan closing documents to the company and arrange for the initial disbursement. An SBA case manager will also be assigned to assist the company in meeting all Disaster Loan conditions and scheduling subsequent Disaster Loan disbursements.
Additional information, including SBA Disaster Loan Trainings, forms, and links for assistance are available online through the SBA’s website.
For further information on Disaster Loans, or any other business questions or concerns, please feel free to contact one of our business attorneys or call us at 320-251-6700.