Banking and Business Monthly – September 2021

Continuing our coverage from last month on this topic, effective September 8, 2021, the U.S. Small Business Administration (“SBA”) announced its policy changes with respect to the COVID-19 Economic Injury Disaster Loan (“EIDL”) (https://www.sba.gov/funding-programs/loans/covid-19-relief-options/eidl/covid-19-eidl), which has been one source of relief for small businesses and nonprofits throughout the United States. This loan has provided them with funds for normal operating expenses, allowing them to continue their regular business activity even through the pandemic.

The EIDL provides a low interest, fixed-rate, long-term loan to help overcome the effects of the pandemic by assisting with working capital to continue operations. The loan has a term of 30 years with a prior maximum amount of $500,000. The interest rate is fixed at 3.75% for businesses and 2.75% for nonprofit organizations, respectively.

The SBA will increase the maximum loan amount from $500,000 to $2 million, and will begin approving loan amounts over $500,000 on October 8, 2021; however, borrowers can begin submitting their applications now. Along with this increase, the SBA has expanded the permitted uses of the funds beyond working capital and operating expenses. These include business pre-payment of business non-federal debt incurred at any time (past or future) and payment of federal debt.

The SBA will also increase the deferment period for all loans to 24 months from origination (existing loans with a less than 24-month deferment will be adjusted). Loans for more than $25,000 will require collateral in the form of a UCC lien on the company’s business assets. Any loans more than $200,000 will require a personal guaranty by all 20% or more owners and all partners/managing members. Any loans more than $500,000 will require both a UCC lien on a company’s business assets and a best-available mortgage lien on its real estate, together with the above personal guarantee.

Small businesses and nonprofits should review the COVID EIDL Updates and the SBA’s updated FAQs with their advisors to better understand the changes and EIDLs generally. For further inquiries or questions, please contact me at smigala@lavellelaw.com or at (847) 705-7555.