Emergency Loan Program for Small Businesses and Non-Profits Impacted by COVID-19

By Peter Bosman and Charles Kabugo-Musoke

In addition to threatening the health and safety of people across the United States and the world, the coronavirus (COVID-19) outbreak has already had a significant impact on many small businesses and non-profit organizations. As part of the federal response to these economic stresses, Congress passed the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (P.L. 116-123) (the “Act”), which was signed into law on March 6, 2020.  The Act includes, among other things, a provision for the U.S. Small Business Administration (the “SBA”) to offer Economic Injury Disaster Loans (“EIDLs”) to small businesses and non-profit organizations facing economic losses related to COVID-19.

The EIDL program is not, itself, new (the SBA has been making disaster loans since 1953). The Act, though, classifies COVID-19 as a “disaster,” bringing resulting losses under the program’s approximately $7 billion coverage, and allowing state and territory Governors to request that EIDLs be made available in their jurisdictions. Once a request has been received and the applicable state or territory has been declared eligible for relief, the SBA activates its EIDL program, making low-interest federal disaster loans available to be used for working capital, payment of fixed obligations, payroll, and other ordinary operating expenses that can’t be paid because of COVID-19’s impact. 

Below are some important points to note under the current EIDL rules. This is not intended to be comprehensive guidance on the EIDL program – only an introduction and suggested resources. As COVID-19 evolves, federal policy may also change to respond to that evolution in a variety of ways. We are, of course, happy to answer questions or discuss directly anything mentioned here in greater detail. 

• Businesses must be considered “small businesses” as defined by the SBA. The standards for size eligibility vary based on the industry in which a business operates, and they may take into account annual revenue and employee numbers. For example, a full-service restaurant or a fitness center would be considered “small” if it has $8 million or less in revenue, whereas a software publisher would still be considered “small” with $41.5 million or less in revenue. Applicable standards for various industries may be found on the SBA table of size standards, but the determination may be complex (and include affiliated entities), so we encourage you to seek the advice of counsel as appropriate. 

• EIDLs are extended directly by the federal government – not by banks or other lenders – but credit requirements still apply, including demonstration of credit-worthiness and potential collateral requirements. All determinations are made on a case-by-case basis. 

• Loan amounts may be up to $2 million, but will be determined by the SBA based on the financial impact to a given enterprise from COVID-19. 

• Loans will be available to entities without other credit available. Those entities with access to other sources of credit are not eligible for assistance. Businesses with outstanding loans should review the credit documentation for such loans to confirm whether the consent of existing lenders would be necessary for an EIDL. 

• Interest rates are fixed at 3.75% for small businesses and 2.75% for non-profit organizations. 

• SBA offers loans with long amortization periods, up to a maximum of 30 years. However, terms are determined on a case-by-case basis, based upon each borrower’s ability to repay. 

• EIDLs are not available in all states and counties, and a state’s or territory’s Governor must request that SBA make a declaration of assistance in order for the program to be applicable. A list of currently-eligible areas may be found on the SBA’s COVID-19 assistance website. For North Carolina businesses, the EIDL program became available on March 18, 2020, following a request from Governor Roy Cooper. 

• Applicants may apply for loans online, receive additional disaster assistance information, and download applications through the SBA's secure website. Applicants may also call SBA’s Customer Service Center at (800) 659-2955 or email disastercustomerservice@sba.gov for more information on SBA disaster assistance. The number of applications for EIDLs is likely to be significant, so please keep that in mind both when determining when to apply and when interacting with the SBA as loans are processed. The SBA is currently estimating it will take between eight and 21 days to process loan applications, subject to application volume and the nature of the specific business. Disbursement of loan proceeds is estimated to take an additional five days after approval.

As the COVID-19 outbreak unfolds, we urge you to be safe, and we wish for the very best of health and outcomes for all. We also understand that protecting your business will be critical for you during this uncertain time, and Smith Anderson will continue to provide updates on potential sources of relief, as well as other COVID-19–related topics. Small business or non-profit owners may also wish to visit the SBA’s COVID-19 assistance website for additional guidance and resources.

If you have any questions related to this alert, please do not hesitate to contact your regular Smith Anderson lawyer or any other member of our firm. Additionally, please visit and bookmark our firm’s Coronavirus (COVID-19) Business Resource Center which is continuously updated with useful materials and resources related to COVID-19. This tool has been made available to ensure our clients and the broader business community stay informed on key issues that may impact their operations and to navigate the related business and legal issues during these challenging times.