But it’s going to be hard to apply for and slow in coming
This article will focus on what’s being done to help small businesses to survive the economic disaster caused by the coronavirus.
As a result of City Council action Thursday, March 26, 2020, this story has been updated to reflect two important changes in the criteria to apply for an Economic Injury Bridge Loan. The program is now open to businesses of 1 to 100 employees. Further, commercial and multifamily real estate has been added as a business eligible to apply.
Small businesses create the nature and character of Austin, maintain our city’s unique culture, and collectively employ a tremendous number of workers who keep these enterprises hustling and bustling to everyone’s benefit.
Or at least they did in normal times.
These are not normal times.
Austin’s small businesses are being slammed by the impact of coronavirus that’s keeping customers away. Normally bustling restaurants are reduced to offering takeout. Liquor stores are barring entry and offering curbside service. Live entertainment is being webcast by musicians trying to keep a following, keep our spirits up, and maybe make a few bucks.
Grocery stories are militantly policing lines of customers waiting to get in, limiting the number of people allowed to shop at the same time, and placing employees on every aisle to enforce distancing of customers from one another to at least six feet. And we appreciate their efforts to help keep us safe and fed in these trying times.
Small business help is coming … eventually
As customers, we’re adapting and learning new survival techniques.
But as business owners, if we’re not selling groceries, gasoline, or medicine we’re already in deep trouble and no end in sight. We’re worried about paying rent, helping our employees as best we can, and trying to keep from going belly up in the worst economic disaster since the Great Depression.
Breaking news: National news reports indicate the U.S. Senate passed a stimulus package of $2.2 trillion early this morning to help multiple sectors of the economy, from supporting people who are out of work to propping up major corporations.
The Washington Post reported early this morning that the legislation includes $377 billion in zero-interest loans for firms of fewer that 500 employees, “loans that could be forgiven if the firms follow certain conditions, such as not firing their workers.”
The money would be made through lenders certified by the U.S. Small Business Administration, the Post reported, such as banks and credit unions. The maximum loan is capped at $10 million.
“The money could be used for covering employee salaries, rent, paid leave, utility payments, health insurance premiums or other necessities or worker protection.”
“Loans given to firms with tipped employees, such as bars and restaurants, could be forgiven in they are used to provide additional wages to their employees. Nonprofits can also apply for these funds,” the Post reported.
The House is scheduled to vote on the legislation Friday and the president has said he’s going to sign it into law immediately.
That’s really good news.
The not so good news is that after Congress passes and the president signs this crucial legislation and details are made known, it’s going to take considerable time to draw plans and devise methods to implement these vital relief measures.
Then when the tools are finally put in place and the money flows, there’s going to be an application process for small business owners to deal with.
You think you waited in line at the grocery for a long time? Wait till you’re trying to elbow your way through the long line of business owners itching to get the lender’s approval. At this stage no one knows what kind of applications may be necessary.
SBA and City helping too
Sooner relief for small businesses may come from the U.S. Small Business Administration (SBA) and the City of Austin.
The SBA has already opened its online doors to accept applications for loans of up to $2 million for businesses that employ from two to 100 employees. These are not grants. SBA is a cash-flow lender and you must be able to demonstrate ability to repay the loan.
At today’s meeting the Austin City Council, scheduled to begin at 2pm, the council will consider approving relief measures that would set aside some $5.7 million to help small businesses located within any council district by offering gap loans of up to $35,000. This money is to be used for cash flow needs while waiting for the proceeds of an SBA loan to come through.
Business owners must apply for an SBA loan and get confirmation of that before being allowed to apply for the city’s gap financing. The SBA’s online application process provides for immediate confirmation once all required information has been uploaded.
How good are your business records?
The Austin Bulldog’s examination of the loan process for both the SBA and the City program indicates that a business owner is going to spend significant time and effort to complete loan applications.
Here’s hoping you’ve got great bookkeeping records and maybe a dynamic CPA who can assist in filling out the numerous forms required. A list of the SBA forms is at the bottom of this article.
City bridge loans—Item 88 on the council agenda calls for setting aside $1.2 million for bridge loans serving as financing for businesses to help keep them afloat while waiting for approval of SBA loans. All the conditions listed below are subject to change when the council takes action.
Formally titled the Austin Economic Injury Bridge Loan Program, it’s designed to help both for-profits and nonprofits with short-term working capital until replaced by SBA disaster relief assistance.
Funding is not a grant and is required to be repaid from the SBA disaster proceeds, meaning it would in effect be a rotating pool, lending out money and being replenished by those successful in getting an SBA loan.
The criteria for the City’s bridge loans are listed in Exhibit A.
Here’s a brief overview, but you will need to read the entire 10 pages to fully comprehend how you go about applying for a city loan.
To be eligible a private for-profit (or nonprofit) must have been engaged in commercial and multifamly real estate, industrial, retail or distribution activities for at least two years and demonstrate sufficient profitability. (The SBA seems inclined to loosen that requirement.)
Applicants must demonstrate economic injury suffered as a result of the disaster and have between one and 100 employees.
A $300 city application fee is payable when an application is submitted, although the fee may be waived by the Economic Development Department director.
A city Loan Review Committee will scrutinize loan applications and make recommendations to approve or disapprove.
Criteria include the number of jobs retained, amount of money needed, amount of SBA financing being sought, ability to repay the loan, and the applicant’s collateral or security.
Ultimately the loan must be approved by the City Council and filed for review by the U.S. Department of Housing and Urban Development.
Bridge loan applications will be accepted up until May 8, 2020, unless the City Council grants an extension.
Numerous businesses will not be eligible for a bridge loan, including those with an ability to get credit elsewhere. (Here again the SBA seems inclined to overlook that requirement.)
Ineligible businesses include those involved in real estate investment, multi-level marketing, adult entertainment, cannabis, and firearms. Also ineligible are companies with past due taxes or tax liens and businesses currently in bankruptcy.
Applicants must provide proof that a completed loan application has been filed with the SBA and must show ability to repay the loan based on last-quarter financials. Interest rate is 3.75 percent for businesses without credit elsewhere (2.75 percent for nonprofits).
The City’s loan’s term will be either the time it takes to close an SBA loan or 1 year, whichever occurs first. One job must be retained for each $25,000 loaned under this program.
Numerous additional requirements are listed in the 10-page Appendix A to the Resolution. Needless to say applying for and getting a bridge loan is going to be a complex process and it won’t be quick in getting through the loan committee, City Council, and HUD for approvals.
Family business loan—This unfortunately named program is in no way restricted to family owned businesses. But in this context that’s not important.
The most important thing to know about Item 89 on today’s council agenda is that its sole purpose is to appropriate right at $4.5 million for Economic Injury Disaster Loans, in accordance with HUD and SBA guidelines and regulations.
So the total bucket of city money available for the City’s Bridge Loan program will be $5.7 million.
If the City were to approve every loan at the maximum of $35,000 that money would help 162 businesses, which is likely far below the number that would need this help. But remember, those who apply and get SBA loans will be immediately repaying the City for the bridge loan and that would replenish the fund to make more loans.
The SBA approved a Disaster Declaration for all Texas counties March 20, 2020. Before that Governor Greg Abbott made a written request to the SBA’s Office of Disaster Assistance.
Economic Injury Disaster Loans may be made up to $2 million for each affected small business. The SBA is a cash-flow lender and the borrower must demonstrate both the need for a loan and ability to repay it.
These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the coronavirus disaster’s impact. The interest rate is 3.75 percent for small businesses (2.75 percent for nonprofits).
Repayments may be scheduled for up to 30 years to keep payments affordable. Terms are determined on a case-by-case basis, tailored to the borrower’s ability to repay.
Owners get set, go
Business owners may now begin the SBA’s online application process.
Although the SBA disaster loans are designed for business owners who are otherwise not able to get credit, owners may apply and the SBA will make determinations on a case-by-case basis, said SBA Public Affairs Specialist Nina Ramon, in an email answering The Austin Bulldog’s questions.
“I would encourage everyone to apply,” Ramon said. “They are lenient and they will try to do everything they can to approve the loan. A company may still be able to get a loan elsewhere, but would likely still be eligible. The SBA should make the determination.”
Loan applications should be done through the online portal, Ramon said, and those needing assistance may reach out to resource partners or the SBA disaster customer service team. Resource Partners include SCORE offices, Women’s Business Centers, Small Business Development Centers, and Veterans Business Outreach Centers.
What to submit to SBA
Before making the online application, Ramon said, small businesses are encouraged to have the following information ready, in addition to the loan application itself (SBA Form 5 for businesses, SBA Form 5C for sole proprietors):
(1) Completed IRS Form 4506-Ts for the owner, each principal who owns 20 percent or more, each general partner or managing member, and each owner who owns more than 50 percent of an affiliate business.
(2) At least two (2) years complete business tax returns with all schedules unless the loan is for less than $500,000. In that case only 4506-T is needed.
(3) Although loans are aimed at businesses in existence for at least two years, Ramon advises that even if you haven’t been in business that long, submit what you have.
(4) Completed Form 413D, a Personal Financial Statement for each applicant.
(5) Completed SBA Form 2202, Schedule of Liabilities for all fixed debts
(6) Other information that may be requested includes:
(a) A current year-to-date profit-and-loss statement, especially if the most recent Federal tax return has not been filed, and
(b) Monthly sales figures.
Once the application is submitted the applicant will receive a confirmation email. If their assigned case manager needs additional information the applicant will be contacted.
The SBA’s goal is to make a decision on loans within two to three weeks, which would be great for applicants.
But when asked whether the unprecedented impact of the nationwide coronavirus disaster if that’s a realistic expectation, Ramon said, “This is a difficult question to answer. The hope is that they would receive a decision within two to three weeks, but this is unprecedented and there are an enormous amount of applicants. The system is being tested as a result of the volume.
“We would ask applicants to be patient and understanding that we are trying to approve and disburse funds as quickly as possible.”
Applicants may start the process by going to the SBA’s website [https://disasterloan.sba.gov/ela/] and clicking on “Apply Online.”
Instructions there are to download the forms, fill in the information, and then upload the forms to the page at https://disasterloan.sba.gov/apply-for-disaster-loan/index.html. There is an option to mail the forms.
Links to related documents:
Austin Economic Injury Bridge Loan Program, including Recommendation for Action, Draft Resolution, and Appendix A to the Resolution [Item 88 on council agenda March 26, 2020] (15 pages) Updated March 26, 2020 at 7:40pm.
Austin Request for Council Action, draft ordinance amending Family Business Loan Program Fund Operating Budget, and Fiscal Note [Item 89 on the council agenda March 26, 2020] (3 pages) Item 89 All
SBA Disaster Loan Assistance portal for online applications
SBA Form 5, SBA Disaster Business Loan Application
SBA Form 5C, Disaster Sole Proprietor Loan Application
SBA Form 4506-T, Disaster Request for Transcript of Tax Return
SBA Form 413D, Personal Financial Statement Disaster Programs
SBA Form 2202, Schedule of Liabilities
Ken Martin has been covering local government and politics in the Austin area since 1981. See more on Ken on the About page.
Email [email protected].
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