SBA Disaster Loan Assistance: How to Get Your Share (It's Not Too Late!)

A lot of small business owners and independent contractors got really excited in early April when the White House announced $349 billion in Small Business Administration (SBA) loans to try to keep small businesses and independent contractors afloat during the COVID-19 pandemic. Lawmakers promised the loan application process was going to be simple and involve little documentation so the cash could get where it’s needed fast. It was touted that business owners could receive an emergency $10,000 grant—essentially free money—while waiting for their loan to be approved.

Even though these loan programs were fraught with rapidly changing information, misinformation, and confusion, millions flocked online to try to grab the low-cost cash. Now those programs are pretty much tapped out. But Congress is hoping to fill the pipeline with a second wave of assistance.

So, here’s what you need to know.

Related: Coronavirus Content & Resources

Coronavirus Small Business Loans

These ambitious SBA disaster loan assistance programs are trying to keep the economy going by putting paychecks in the hands of employees who work at small businesses or are self-employed. For the purposes of these loans, a small business is defined as having fewer than 500 employees.

There are more than 30 million such businesses in the U.S., and they’re big players in our national GDP. They make up 99 percent of firms in our economy and create more than two-thirds of new jobs, according to the SBA. Add an additional 10-15 million independent contractors (who file tax returns)—and there’s a lot of people vying for these loans.

Given these programs were unprecedented and massive in scope, there have been many hiccups along the way. The SBA website crashed a number of times from the sheer volume of applicants, which delayed getting loans approved and forwarded to banks.

Banks, too, have been frustrated with the whole system, wanting more direction on how to process the loans. There’s also been a hushed concern about fraud, since the loan applications don’t ask for the standard documentation. Banks aren’t used to letting money fly out the door without diving deep into who they’re lending to.

“Banks of all sizes have been frustrated by technical issues and conflicting program guidance that slowed the initial movement of funds,” says American Bankers Association President and CEO Rob Nichols.

Who Can Apply for SBA Disaster Loans?

Business owners with under 500 employees and independent contractors are eligible—as long as your business does not involve illegal activities, loan packaging, speculation, multi-sales distribution, gambling, investment, or lending and as long as the business owner is not on parole.

What about the real estate industry, specifically?

If your business earns income that is strictly passive, then no, you aren’t eligible. In general, there are a lot of real estate businesses that are excluded—like apartment building owners or developers who subdivide property. However, if you can show active income and payroll expenses and are not in an excluded category, then you may be able to apply.

Small business owners from all walks of life are lining up for an infusion of cash.

Jeani Volker is a sole proprietor who sells wellness supplements and offers in-home massage to her elderly clientele in Los Angeles. She says applying online wasn’t that easy.

“I was excited that someone like me could be included in this, but it seems every week you hear something different. I had to apply twice for the $10,000 grant because I filled everything out but didn’t get a number. Then I waited for hours on the phone to find out what to do,” Volker said.

The two main SBA loans for small businesses are the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL).

Paycheck Protection Program (PPP)

This is a new $349 billion SBA loan-guarantee program that was designed specifically for the COVID-19 crisis. The PPP offers loans up to $10 million to help employers keep workers on the payroll for at least eight weeks from the time they receive the loan proceeds. The SBA will forgive the loans if all employees are receiving paychecks during that two-month period and the money is only used for payroll, rent, mortgage interest, or utilities.

However, loan forgiveness will be reduced if you let go of workers during those eight weeks or if salaries and wages decrease. Loan payments are deferred for six months, and the initial interest rate is 1 percent. These criteria may change with a second round of loans, so it’s best to check the details on the SBA website.

The Economic Injury Disaster Loan (EIDL)

This SBA-guaranteed loan is not a new program. EIDLs have always been available when natural disasters interrupt business—things like hurricanes, floods, wildfires, and the like. Now we can add viruses to the list.

The EIDL only provides up to $2 million to tide businesses over, but what got everyone excited is the provision that says small business owners can immediately receive $10,000 in an emergency grant—that doesn’t have to be paid back—while waiting for their loan to be approved.

That has been further clarified. The owner can receive $1,000 per employee, up to 10 employees. In other words, an independent contractor who thought they could get $10,000 would only get $1,000 in an emergency advance, since they are the only employee. However, it’s now all moot since the SBA recently announced it has doled out all the emergency grants for this round.

Though the EIDL application has been streamlined a bit for this national emergency, a small business or independent contractor will still have to provide figures on gross revenues, cost of goods sold, operation expenses, number of employees, and more. The loan has an interest rate of 3.75 percent and can be repaid for up to 30 years.

You can use it for the same types of expenses as the PPP—payroll, rent, mortgage interest, and utilities. However, if you get both a PPP loan and an EIDL, you have to use each loan for different expenses. For more details and to learn how to apply, go here.

There are also other SBA loan programs that are always available—such as Bridge Loans, which provide up to $25,000 in emergency cash and debt relief—where the SBA may make loan payments on your behalf. Find out more on the SBA website.

It’s Not Too Late!

Needless to say, millions of small business owners and independent contractors are pinning their hopes on receiving help from the federal government during this pandemic. You should also check online often for state and local assistance, given everything is very fluid and changing rapidly.

Jeani Volker, the sole proprietor who has the wellness business in Los Angeles, says an infusion of cash to keep her going would prevent draining her fast-dwindling savings account.

“When the economy gets going again, people are going to be thinking about their health—especially after spending several months on the couch. If I can hang on until then, I’m confident I can get back on track.”

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.