SBA Disaster Loan - EIDL and PPP Considerations

 PPP  “Paycheck protection loan” 

• Principal based on prior year payroll
  • Need to supply payroll returns and employee data
• Potential for funds to be “forgiven” grant
• Two programs available as of June 3, 2020
  • 8-week 75% payroll 25% other costs
  • 24-week 60% payroll and 40% other costs
• Pros and Cons for both that need to be carefully considered
  • These need to be explored on a case by case basis
  • Keep tight records of:
    • Payroll costs (burdened)
    • Rents and mortgage interest
    • Utility payments
    • Essential costs to maintain business operational 
  • Need to have good accounting/bookkeeping records
    • Comparing period for loan proceeds vs. previous year
    • Submit to bank with request for forgiveness

EIDL "Economic Injury Disaster Loan” 

• Long term loan
  • Up to 30 years
  • Low interest rate
  • No penalty for early payoff
  • No forgiveness (no grant)
• Loan principal is based on lost earnings not payroll
  • Based on earnings and COGS
  • No collateral if $25,000 or less
  • Collateral required if over $25,000
• Periodic financial statements will be required
• MUST be used for working capital
  • Can not use to expand business or purchase new equipment

SBA Express Bridge Loan

• Available from lenders directly
  • Faster funding/underwriting
• Loan will need to get paid back or rolled into disaster relief loan

SBA Disaster Loan Credit Requirements

• Credit History: Applicants must have a credit history acceptable to SBA.
• Repayment: Applicants must show the ability to repay the loan.
• Collateral: Collateral is required for all EIDL loans over $25,000.
  • SBA takes real estate as collateral when it is available.
  • SBA will not decline a loan for lack of collateral, but SBA will require the borrower to pledge collateral that is available (owner’s personal houses might need to be pledged! For loans over $25,000)

Tips for Loan preparation

• Shareholder / Owner’s credit will be pulled, be prepared
  • Obtain a copy of every owner's credit report (Experian, Equifax, and Transunion)
  • If credit scores are under 700.
    • Prepare a statement explaining the areas of issues in the credit
• Use the credit report to build the debt (liabilities) portion of Personal Financial statement
  • Identify debt that is listed both on the individual’s (owner) personal credit and on business balance sheet (have that narrative ready)
• Draft a Loan narrative to include:
  • How the loan proceeds will be used
  • Business Plan and keeping employees on staff
• Draft Financial projections that show the post-interruption numbers
  • Show you are a profitable business that can repay the loan
• Beyond the loan application and submitting tax returns, proactively prepare:
  • A Personal Financial Statements for all owners (SBA form 413)
  • Business Debt Schedule SBA form 2202
  • Have books completed up to last month prior to loan application
  • Monthly sales figures from internal accounting records
    • 3 years historic, plus current year with estimate/forecast – SBA form 1368
  • Have all 4506-T Forms readily signed for personal and business tax returns
  • Have copies of extensions filed for 2019 returns (if extension was filed)

We express our thanks to Hector Garcia, CPA for assembling the information used to prepare this page