March 25, 2020 |
Updated December 15, 2020
On March 6, President Trump signed H.R. 6074, the Coronavirus Preparedness and Response Supplemental Appropriations Act, into law. A key provision of the bill amends the Small Business Act to include the COVID-19 pandemic as a declarable disaster, expanding access to the U.S. Small Business Administration’s (SBA) disaster loan program. By expanding the threshold, any rental housing provider that qualifies as a small business and operates in a state with a Presidential declaration of disaster is eligible for SBA-sponsored Economic Injury Disaster Loans (EIDLs).
What are Economic Injury Disaster Loans?
EIDLs will be the primary type of loan assistance offered to small businesses seeking SBA relief from the economic impacts of COVID-19. These working capital loans are made available to small businesses and non-profit organizations to help meet routine business obligations during a disaster period. Obligations include, but are not limited to, paying fixed debts, payroll and accounts payable. EIDLs have a maximum allowable assistance of $2 million with a 3.75 percent interest rate and maximum repayment period of 30 years.
Who may qualify for an EIDL?
Current regulation specifies that EIDLs be made available statewide in states that have received a declaration of disaster by the president. As of March 23, all 50 states and U.S. territories have received a Presidential declaration of disaster and small businesses are now eligible to apply through the SBA’s online application portal here. Size standards determine which businesses can qualify as a small business for purposes of the EIDL application. For the rental housing industry, EIDL qualification criteria is based on annual revenue, rather than staff size. Lessors of residential buildings and dwellings may collect a maximum of $30 million in gross receipts annually, while residential property management firms may collect a maximum of $8 million in gross receipts annually.
Small businesses do face additional requirements when applying for an EIDL. Applicants must have a credit history acceptable to the SBA, must demonstrate their ability to repay the loan and must pledge collateral, including real estate, for all EIDL loans over $25,000. Additionally, small businesses with non-SBA sourced credit available elsewhere will not be eligible for EIDLs. This requirement may be waived pending passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Determinations are expected within two to three weeks of receiving applications, although heavy online traffic has caused SBA’s application portal to crash. To get relief to businesses faster, the CARES Act provides for EIDL borrowers to request an advance of up to $10,000 that would be made available within three days of EIDL application. SBA regional offices and district offices can be contacted with further questions on loan terms and the approval process.
Future Sources of Financing
On March 27, Congress is expected to approve the CARES Act, which gives a $562 billion boost to the SBA’s Disaster Loan Program and amends the conditions under which a business may apply for additional SBA loan products, such as the Standard 7(a) Loan and Express Loan. Under the proposal, businesses with 500 or fewer employees or who meet the SBA’s size standards, as well as Section 501(c)(3)s, Section 501(c)(19)s and Tribal businesses with fewer than 500 employees, would be eligible to apply for up to $10 million in 7(a) financing. A provision of eligibility for businesses with more than one physical location was included in the bill, but only applies to businesses in the short-term lodging and food services industries.
To qualify, borrowers must certify that they will use the funds to meet routine obligations like, but not limited to, payroll support, paid sick or medical leave, salaries and mortgage payments. The new law would also offer 100 percent deferment of loan payments for up to one year and waive the program’s borrower fees. Loan forgiveness equal to the sum of costs incurred on routine obligations may also be granted if a business can certify that it did not reduce its number of employees or their salary and wages. However, the proposal would not allow 7(a) loan holders to also access EIDLs or comingle funds from other loans to meet the same obligations.
For borrowers seeking to access Express Loans, the SBA’s streamlined financing vehicle for small value loans, the maximum loan would increase from $350,000 to $1 million through the end of the year, after which the maximum assistance would revert to $350,000.
Locally, some remedies have emerged to assist struggling businesses. Per the Austin-American Statesman, Austin city officials are considering the creation of a local Economic Injury Disaster Loan program that would provide vital gap financing in conjunction with an applicant’s request for SBA assistance. Up to $35,000 in assistance could be provided to businesses that demonstrate economic injury. Denver has established the Small Business Emergency Relief fund, which provides $7,500 in cash grants to the cities’ most heavily impacted industries to meet the rent, utility and payroll needs of employers. Local direct assistance programs are vital to ensuring continuity of business while employers await broader, more sustained financing from federal partners.
The National Apartment Association (NAA) will continue to monitor all legislative solutions being offered to lessen the social and economic burden placed on the rental housing industry. For more information on industry best practices and strategies for navigating this new landscape, please see NAA’s Guidance for Dealing with the Coronavirus and COVID-19-Related Policy Concerns Advocacy Page.