How to Get a Paycheck Protection or Coronavirus Business Loan

Paycheck Protection Program and Economic Disaster Loans

How to Get an SBA Disaster Loan
••• Henrik Sorensen/Getty Images 

The COVID-19 virus hit the U.S. in March 2020, and it's already had a huge impact on small businesses. If your business has been affected by the coronavirus, you may be able to qualify for disaster relief through new funding from the Small Business Administration (SBA).

The SBA has two new programs to help your small business recover.

The Paycheck Protection Program loan helps you keep paying employees.

The Loan Advance program gives up to $10,000 of economic relief to businesses.

How to Apply for a Coronavirus Disaster Loan

Your small business can apply for either a Paycheck Protection Program loan or an Economic Injury Disaster Loan starting April 3, 2020. Applications are available through most banks and credit unions. Check with your bank to see if it is participating. You can also contact your local SBA office for more information.

You can apply online for the COVID-19 Economic Injury Disaster Loan.

Paycheck Protection Program Loan

As part of the CARES Act, the SBA is directing $349 billion to small businesses with 500 or fewer employees and businesses in specific industries with more than 500 employees (Accommodation and Food Services businesses). Sole proprietors and independent contractors are included. The program is from February 15, 2020, to June 30, 2020.

The loan can be used for all types of payroll costs, including payments for:

  • Salaries, wages, commissions, or tips,
  • Vacation, parental, family, medical or sick leave,
  • Group health benefits and insurance premiums,
  • Retirement benefits, and
  • State or local taxes on employee compensation.

Covered payments to self-employed individuals include wages, commissions, income, and net earnings for self-employed individuals.

The program specifically excludes payments to employees with annual salaries over $100,000, and for employees who live outside the U.S.

If your business receives a tax credit for sick leave payments or family leave payments under the Families First Cornoavirus Response Act, you can't include them in the CARES Act loan.

Employers can receive a business loan for direct incentive to keep workers on their payroll by giving each business up to $100,000 for payroll and specific other expenses. Businesses that keep employees on the payroll for eight weeks can give loan forgiveness for payroll, rent, mortgage interest, or utilities, up to 100%.

More details on this program will be posted as they become available. 

Coronavirus Economic Injury Disaster Loans

The SBA has announced that funds will become available to small businesses through its disaster loan process. The SBA is repurposing its disaster loan process for the 2020 coronavirus situation. Disaster loans are given for physical damage or economic injury in areas of the U.S. affected by declared disasters and the small business must be located in a designated area.

Funds will be made available within days of a successful application, and the loan won't have to be repaid. 

U.S. states are beginning to roll out their state disaster loan programs to help small businesses. Most states have designated disaster areas on a county-by-county basis. Here's a link to Florida's small business disaster loan program. Look for your state on the list and then see what counties are included in the disaster declaration. Check with your state for more details.

Once the declaration has been made in your area, you can apply for a disaster relief loan. Interest rates range from 2.75% to 3.75% APR for nonprofits and small businesses, and you may have up to 30 years to repay the loan. You can use the loan for payroll, accounts payable, business debts, and other bills that can't be paid because of the impact on your business caused by the coronavirus.

How Does an SBA Disaster Loan Work? 

In general, SBA disaster recovery loans are available for businesses and individuals that have had losses from a U.S. disaster.

The SBA doesn't give direct loans to small businesses. The agency works with designated lenders to help qualify businesses and guarantee loans.

SBA disaster loans come in two forms: 

  1. Physical disaster loans: These are used to replace or repair physical damage. Physical property includes real property (land and buildings), machinery and equipment, fixtures, inventory, and leasehold improvements.  
  2. Loans for economic recovery (including the coronavirus epidemic): These are designed to help small businesses meet ordinary and necessary financial obligations that can't be met as a direct result of the disaster.

Economic recovery loans usually take the form of working capital loans for operating expenses to help small businesses survive during the recovery process.

What Do I Need to Do Before Applying? 

First, you need to determine if you are in a declared disaster area. The federal government, the SBA, and the Secretary of Agriculture can declare an area as a designated disaster area. Check the list of current designated disaster areas to see if your area is included.

Next, you may need to submit a claim to your insurance company and get started with the process of determining what they will pay you.

Most business income or business interruption policies don't cover epidemics.

The SBA will only pay for damage that is not covered by insurance, but you can begin the loan process before you know the amount repaid by insurance. You may be able to apply for the SBA loan and agree to use insurance proceeds to repay or reduce it.

How Do I Submit a Disaster Loan Application? 

There are three ways that you can submit an application:

  1. Use the online disaster loan process
  2. Submit a paper loan application
  3. Apply in person at an SBA booth at a local disaster relief center (often set up immediately after most disasters) or at a local SBA office

What Information Do I Need for My Application? 

The disaster loan paperwork is different for sole proprietors than what other types of businesses may need. Forms needed for your small business loan application include: 

  • A business loan application (SBA Form 5)
  • An IRS Form 4506-T for each applicant (the business) and each of its owners (the requirements for who must submit this form differ depending on the type of business and the number of owners)

Additional documents needed for your company and the applicants include: 

  • A complete copy of the most recent federal income tax returns for the business, including all schedules 
  • A personal financial statement (SBA Form 413) for each owner of the business
  • A schedule of liabilities (you might use SBA Form 2202) with current status and balance
  • A current year-to-date profit and loss statement for the business
  • Current sales figures on SBA Form 1368

You may also be required to provide tax returns for all owners of the business.

You may be required to have collateral (some money or other assets) to be accepted for this loan. The SBA won't decline a loan for lack of collateral, but it requires you to pledge what is available.

What Is the Process for Disaster Loan Approval? 

When you apply for an SBA disaster loan, the SBA first reviews your credit to make sure you are a good candidate for a loan.

Nest, it will verify the physical damage and/or economic damage to your business and make an estimate.

The loan process then takes over, including working with a designated lender, gathering information, asking for documents, and requesting insurance coverage information.

At the end of the process, the loan documents are prepared and signed.

How Can I Increase My Chances of Getting a Disaster Recovery Loan?

There are a few things you may be able to do to speed up the loan process and improve your chances of getting an SBA disaster loan.

  1. Check your credit rating: Make sure it meets the requirements for eligibility. If you have poor credit you may need to repair your credit before applying. If you have a business credit rating, that's great. If not, you will need to use your personal credit rating. 
  2. Prepare information: Gather info about the losses to your business. For economic losses, you'll need to be able to show lost revenue. For physical losses, you'll need to estimate the value of your property losses.
  3. Print out all forms: Before you submit anything to the SBA, print out all the forms that need to be submitted and go through them carefully answering all the questions. Don't make the loan officer have to come back and ask you more questions or request more information. 
  4. Have all documents ready: Make sure you have all of your documents ready to go, including the required tax returns and company documents. Also, ensure they are complete and accurate.

What If My Loan Application Is Denied? 

Your application for an SBA disaster loan might be denied if: 

  • Your credit history is not acceptable
  • You don't show an ability to repay the loan 

If you apply for an SBA disaster loan and it is denied, you can apply for a reconsideration. You must submit your application to the SBA's Disaster Assistance Processing and Disbursement Center (PDC) within six months after the denial. If your application is denied again, there is an additional process available. 

Where Else Can I Find Disaster Assistance? 

For physical and economic losses from natural disasters (not available for those due to the coronavirus), you can contact FEMA, which examines the damage to your property and provides other forms of assistance for homeowners, renters, and businesses affected by disasters.

FEMA offers grants that don't have to be repaid. Go to DisasterAssistance.gov to begin the process of applying for assistance.

How a Disaster Loan Fits Into Your Recovery Plan and Insurance Coverage

SBA disaster loans don't replace a solid disaster recovery plan that you prepare for your business before a disaster happens. These loans also don't replace your risk management/insurance coverage either. Your business insurance coverage may include flood insurance and business interruption insurance (but not for epidemics). 

A recovery plan that's complete and adequate insurance are the first lines of defense against disasters for your business. If the damage is greater than what these cover, an SBA disaster assistance loan might help you more quickly recover and get on with your business. 

For more information, visit the SBA's disaster assistance website, call the SBA at 1-800-659-2955 or 1-800-877-8339, or you can email your questions to disastercustomerservice@sba.gov.  

Article Sources

  1. 116th Congress. "H.R. 6074 - Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020." Title II Small Business Administration. Accessed March 16, 2020.

  2. US. Congress. "H.R. 748 Coronavirus Aid, Relief and Economic Security Act." Title I - Keeping American Workers Paid and Employed Act. Section 1102. Pages 6-14.Download. Accessed Mar. 31, 2020.

  3. Small Business Administration. "Paycheck Protection Program." Accessed Mar. 31, 2020.

  4. Small Business Administration. "Disaster Assistance." Accessed March 16, 2020.

  5. Small Business Administration. "Economic Injury Disaster Loan Emergency Advance." Accessed Apr. 3, 2020.

  6. Small Business Administration. "SBA to Provide Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19)." Accessed March 16, 2020.

  7. Small Business Administration. "Coronavirus (COVID-19)." Accessed March 16, 2020.

  8. Small Business Administration. "SBA Disaster Loan Program Frequently Asked Questions." Accessed March 16, 2020.

  9. Federal Emergency Management Administration. "There Are Plenty of Reasons to Apply for an SBA Disaster Loan." Accessed March 16, 2020.

  10. Small Business Administration. "Disaster Loan Application Paper Forms." Accessed March 16, 2020.