May 7, 2020

Agricultural Producers Deemed Eligible for SBA Disaster Loan Program

Holland & Knight Alert
Jeffrey M. Harvey | Christopher J. Armstrong | Isabel C. Lane

Highlights

  • The U.S. Small Business Administration (SBA) has reopened its Emergency Economic Injury Disaster Loan (EIDL) program to farmers and agricultural producers in response to the COVID-19 crisis.
  • Under the new solicitation, agricultural enterprises with fewer than 500 employees, including sole proprietorships, are eligible.
  • The move represents the first time in more than 30 years that the SBA has been authorized to provide disaster assistance to agricultural businesses.

The U.S. Small Business Administration (SBA) reopened its Emergency Economic Injury Disaster Loan (EIDL) program to farmers and agricultural producers on May 4, 2020. Although farmers were excluded from EIDL eligibility in its first round, Congress approved $60 billion in additional funding for the program on April 23 with specific statutory direction to allow farmers to apply for aid in response to the COVID-19 crisis (Paycheck Protection Program and Health Care Enhancement Act, P.L. 116-13).

EIDL provides two forms of assistance:

  • Emergency advances of $1,000 per worker, up to $10,000 total, which can be received as soon as three days from application submission. These grants are not required to be repaid, even if the applicant is ultimately denied a loan by the SBA. The new legislation included $10 billion of additional funding for these grants.
  • Low-interest loans of up to $2 million, whose terms are for a maximum of 30 years at an interest rate not to exceed 3.75 percent for small businesses. These loans can be used to pay fixed debts, payroll, accounts payable and other bills that can't be paid because of the COVID-19 disaster's impact. The new legislation included $50 billion of additional funding for these loans.

Under the new solicitation, agricultural enterprises with fewer than 500 employees, including sole proprietorships, are eligible. Agricultural enterprises include businesses engaged in the production of food and fiber, ranching, and the raising of livestock, aquaculture as well as all other farming and agricultural related industries (as defined by Section 18(b) of the Small Business Act (15 U.S.C. 647(b)). The move represents the first time in more than 30 years that the SBA has been authorized to provide disaster assistance to agricultural businesses.

Agricultural businesses who had previously submitted will not need to reapply into the program, and applicants will be considered on a first-come, first-served basis until EIDL's new funding authority is exhausted.

Qualifications for EIDL

The SBA has waived a number of requirements previously applicable to its disaster programs. These changes are outlined below:

  • Applicants need not have been in business for the one-year period before the disaster, merely since Jan. 31, 2020.
  • Applicants need not have failed to obtain credit elsewhere prior to applying.
  • The SBA may approve an applicant based solely on its credit score and shall not require a tax return or a tax return transcript, or the SBA may use alternative methods to determine an applicant's ability to repay the loan.
  • No personal guarantee is required for loans of less than $200,000 during the covered period. The SBA requires collateral for loans over $25,000 but has noted that the lack of collateral will not disqualify an applicant.

Next Steps

Applicants can apply directly with the SBA by completing a loan application (SBA Form 5), a Schedule of Liabilities (SBA Form 2202) and a Personal Financial Statement (SBA Form 413).

In the event that the SBA is not able to approve the applicant solely on its credit score or some alternative method, the applicant should be prepared to provide its federal income tax return or tax transcript. Additionally, the applicant may need to provide a current year-to-date, profit-and-loss statement and/or an Additional Filing Requirements (SBA Form 1368) providing monthly sales figures.

In addition to the loan, the applicant may request an emergency grant in an amount not greater than $10,000 and the SBA will provide that grant within three days of the application. (Note again that this grant does not need to be repaid, even if the applicant is denied the loan.) If approved for an EIDL, the applicant may still choose whether or not to accept it.

If you have specific SBA eligibility or affiliation questions, you can reach out to COVIDSBA@hklaw.com.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the authors of this alert for timely advice.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.


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