As of Wednesday, March 18th, Illinois has been declared eligible for the SBA’s federal emergency loan program, through which the SBA is directly making funds available to eligible small businesses who do not have existing access to working capital in order to help ease the economic impact of the Coronavirus.
Based on the currently available SBA information, here is how the process works:
- Any such Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available statewide to small businesses and private, non-profit organizations to help alleviate economic injury caused by the Coronavirus (COVID-19). This will apply to current and future disaster assistance declarations related to Coronavirus.
- SBA’s Office of Disaster Assistance will coordinate with the state’s or territory’s Governor to submit the request for Economic Injury Disaster Loan assistance.
- Once a declaration is made, the information on the application process for Economic Injury Disaster Loan assistance will be made available to affected small businesses within the state.
- SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
- The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible, and 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.
- SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
For updates on the program and for more information on how to apply, visit: https://disasterloan.sba.gov/ela/.
Current Lenders – Speak with your Bank – Now:
Your current lender will be in the best position to assist with short term needs. Outside of the SBA and assistance available from the State, establishing a new lending relationship at this time will be difficult. Alternative lenders may be a source of capital; however, you need to be mindful of their repayment terms. Improving cash flow and access to capital are some of the most important measures any business can be making as they prepare for the road ahead.
The financial position and capital needs of every business is different. The following are a few strategies worth exploring that are some of the more likely forms of relief available at the moment:
Suspend Principal Payments on Term Loans:
- Using an amortization table, you can identify the portion of each payment going to principal each month. Modifying the loan to an interest-only basis will provide some relief on each monthly payment, by continuing to satisfy the interest that is accruing,
- A full deferral of both the principal and interest payment can prove difficult to obtain. By defining a specific period for the need and agreeing to service the interest, you place yourself in a better position to obtain the relief you are seeking.
Re-advance on Commercial Mortgages:
- Term loans have the advantage of creating equity in underlying assets as the loan is repaid. As such, looking to that equity can be a way of accessing cash in the short term. Depending on how your loan was documented, it may be possible to modify the loan without creating a new loan and a new set of documents.
- The fact that the mortgage loan is already in place and some collateral is available, this route may prove easier than establishing a mortgage filing.
Mind your Accounts Receivable:
- Every business is paying close attention to their cash and working capital positions. This will invariably lead to companies stretching their payables. While some extension is to be expected, business owners and credit managers must be mindful of customer balances and work to keep them in acceptable parameters. Offering small discounts in exchange for early payment can be a proactive way of collecting outstanding receivables.
Please let us know what your experience is with the SBA, or if you should have any questions.