8 ms·

SBA Disaster Loans: Unofficial guide for freelancers and startups

182 points by danielfoster 7y ago

CPLX 7y ago
This is interesting, but might lead to more confusion. I've struggled to be absolutely sure on this point myself but my understanding from talking to my accountants is that there are terms in the bill that's currently moving through congress that will greatly affect what SBA options are available for startups and diverge sharply from what's listed here. For example there's no mention here for the forgivable nature of loans used for payroll and similar expenses, which is a really crucial concept that I believe is in the final bill. In their defense they're talking about disaster loans here which is a specific thing, but this is still a pretty fast moving topic and I think the site would be better off with an intro that spoke to these points.
- rburhum 7y ago
  That bill got approved 9 minutes ago: https://edition.cnn.com/2020/03/27/politics/coronavirus-stimulus-house-vote/index.html https://edition.cnn.com/2020/03/27/politics/coronavirus-stim...
  - coleca 7y ago
    Here's the text of the bill if anyone's interested in reading it: https://www.congress.gov/bill/116th-congress/house-bill/748/text?q=%7B%22search%22%3A%5B%22H.R.+748%22%5D%7D&r=1&s=1#toc-id3B69C4863DF14243AE9CB042050B7AA8 https://www.congress.gov/bill/116th-congress/house-bill/748/...
  - deleted 7y ago
    [deleted]
- pfhayes 7y ago
  The post doesn't appear to be talking about the new Coronavirus relief bill, but rather the existing SBA Disaster Loans: https://disasterloan.sba.gov/ela/ https://disasterloan.sba.gov/ela/ The two are similar but are different in a few ways. Such as: - The SBA Disaster Loans require a personal guarantee, but it appears that the Coronavirus relief does not - The Coronavirus relief offers forgiveness for payroll expenses, but the SBA Disaster Loans do not This is moving fast and as others have mentioned, the Coronavirus relief bill is brand new. You should talk to an accountant or a lawyer to learn which is right for you.
  - jacobheric 7y ago
    Yes, I believe this is correct. This post is outlining the details of the economic disaster loans that are offered directly by the SBA and described in the link by the parent. The current legislation refers to these existing loans as 7(b). I believe the new stimulus bill, at least the senate version that I skimmed, deals largely with loans made by other financial institutions and referred to as 7(a). Those are covered here: https://www.sba.gov/partners/lenders/7a-loan-program/types-7a-loans https://www.sba.gov/partners/lenders/7a-loan-program/types-7.... Of course that information is now made out of date by the just passed legislation.
  - CPLX 7y ago
    Exactly. And given those terms, the "new" Coronavirus bill looks to be way more favorable for startups, hence my concern that this post could be more confusing than helpful.
  - killion 7y ago
    Normal SBA loans require a personal guarantee. The Disaster Loans for Coronavirus do not.
    - adamhooper 7y ago
      My understanding is that even the disaster loans will still require collateral and personal guarantees. Unsure if they're waiving or changing those rules or plan to. Disaster loans have been around long before COVID-19. Again, this is different than the Paycheck Protection section of the CARES Act which covers 2.5X of the average monthly payroll from 2019 that is subject to loan forgiveness and does not require personal guarantees or collateral.
      - killion 7y ago
        I've just gotten the paperwork for our disaster loan. The COVID loans do not have a personal guarantee. That was one of the items on the first relief bill that specified this program on March 6.
- danielfoster 7y ago
  This is definitely understandable, especially if you are unsure about the process. Regardless of any changes made later, the funds will likely still be distributed on a first-come, first-served basis. If you're in need of a larger amount (over $500k), it might be worth tracking down some accountants or lawyers from disaster regions who have worked with these loans before.
ta1234567890 7y ago
Getting a loan for a business in these very uncertain times is an extremely risky move, especially if you have to personally guarantee the loan. For anyone here thinking about getting a loan, please get plenty of advice, especially legal advice, and make sure you will be able to pay it back. Otherwise I would urge you to look for other alternatives. It might seem hard or impossible now to close down your business, but it might get a lot harder to deal with the consequences of getting a loan to prop it up if you don't have a very good plan to recover. I've been through corporate bankruptcy (chapter 7) with a company that had multiple creditors. Even though there were no personal guarantees, one of the creditors decided to pursue legal action against us. 2 years after filing for bankruptcy, we are still dealing with a lawsuit by this one creditor (who by the way forced the company into bankruptcy in the first place). Btw, lawyers for a chapter 7 bankruptcy will cost you/your company $10-$20k.
- jsight 7y ago
  This is really good feedback. I feel like a lot of this goes down to the virtually unlimited uncertainty around when things will even start to return. I know that I've seen businesses layoff much more quickly than they'd like just out of the fear of things dragging on for months. A personally guaranteed loan will carry similar risks.
- robhunter 7y ago
  My understanding is that the new CARE program does not carry a personal guarantee.
- jacobheric 7y ago
  While your experience is interesting and instructive in general, I think it's not completely relevant to the specific loans outlined here. These loans are issued directly by the SBA, from federal treasury funds, for the purpose of assisting businesses that might otherwise not survive the economic impacts of covid. For any small business in that situation, it seems a reasonable option. IANAL, but the collateral terms as I read them are very specific and limited to business machines and such, not your house or your car.
x3n0ph3n3 7y ago
An SBA loan is been hanging over my father's head ever since 2008, and he's had no way to dismiss it beyond bankruptcy, which he's been trying very hard to avoid. His retirement is gone, he lost the warehouse that he was conducting business from, and he no longer owns his business. Be very very careful getting one of these.
- fludlight 7y ago
  This is why you never, ever sign a personal guarantee.
nodesocket 7y ago
It is unclear how a business proves they are impacted if they only need to provide last year's taxes. What specific documents / proof are they requiring?
wmf 7y ago
It sounds like this whole thread should be nuked because it doesn't cover the new loan program. Let's wait a few days to get more accurate information.
- munk-a 7y ago
  Especially since there are some signals coming out that interest & payments on the loan may be frozen for the duration of the pandemic.
- ridgeguy 7y ago
  The blog post linked to has information on the new program passed today. I'm sure the info isn't complete, but it's helpful.
- joncrane 7y ago
  Since you posted, the top comment is a discussion chain about the actual new stimulus loans. I forget whose rule it is, it applies here. :)
manigandham 7y ago
These are the standard disaster assistance loans and very different from the new CARES part of the stimulus bill which was just signed into law. This will be a new loan program to give 2.5x the average monthly payroll costs over the last year, and can be forgiven if the company doesn't lay off anyone. Good overview: https://www.venable.com/insights/publications/2020/03/the-cares-act-what-you-need-to-know-about https://www.venable.com/insights/publications/2020/03/the-ca...
- danielfoster 7y ago
  This is a good option for startups as well. Keep in mind that the disaster loans also have new benefits approved today (no personal guarantee up to $200k, approval based on current credit score only, and more). It might make senses for startups to wait a few days and weigh each program. For very small teams, freelancers and sole proprietors, the disaster loans win out for its easier underwriting and approval process-- there is no need to go through a bank. But if I had a large team I would go with this option.
- Saaster 7y ago
  So you can get the loan to cover up 2.5x monthly payroll, use that to pay your employees for 8 weeks, then the loan is forgiven? Is there any reason a software company < 500 people wouldn't want to or couldn't take advantage of that?
  - manigandham 7y ago
    If you can use it then you should. However startups that have investors that own a major share in multiple companies might have a problem because employees at all of those companies can be counted together and cross over the 500 limit. The "affiliation guide" specifies what counts as a small business and prevents a single organization from creating many smaller companies to get SBA benefits. I'm not sure if it changed for these new benefits. Here is the guide: https://www.sba.gov/document/support--affiliation-guide-size-standards https://www.sba.gov/document/support--affiliation-guide-size...
- hmahncke 7y ago
pastor_bob 7y ago
So if I occasionally do freelance work can I 'pay' myself 4 months and get the government to reimburse me with a forgivable loan?
- CSSer 7y ago
  According to [Senator Rubio’s comments](https://www.congress.gov/congressional-record/2020/03/22/senate-section/article/S1897-2 https://www.congress.gov/congressional-record/2020/03/22/sen...), maybe. Here’s a quote: > For the first time ever, we have also included most (c)(3)s--(c)(3)s and not-for-profit (c)(3)s--independent contractors--people who work on 1099s--and gig economy workers who consider themselves a business, even though they have one employee and maybe no real estate that they operate from, but, nonetheless, they consider themselves that.
bayareasurfer 7y ago
This is missing a key provision that will exclude most start ups. Control of less than 50% voting stock by multiple minority owners. If two or more persons each owns or controls (or has the power to control) less than 50% of a concern’s voting stock and (i) the minority holdings are all approximately equal in size and (ii) all of the minority holdings taken together are large compared to any other stock holdings, affiliation is presumed to exist with each of those persons. A presumed affiliate may rebut the presumption by showing that it does not have control or the power to control. Example: Investor X, Investor Y, and Company A each own 23% of Company B. No other stockholder owns more than 5% of Company B. All three persons will be presumed to control Company B. Each presumed affiliate may attempt to rebut the presumption by showing that its control or power to control does not exist. If the presumption is not overcome, then Company A and Investors X and Y will all be considered affiliates of Company B. In addition, all companies controlled by Company A and Investors X and Y are affiliates of Company B. https://www.sba.gov/sites/default/files/affiliation_discussion_0.pdf https://www.sba.gov/sites/default/files/affiliation_discussi...
plj5003 7y ago
If I were to make a loan servicing platform and didn't want to build a ton of custom code, what should I explore? My firm uses SQL server and I am mostly proficient in Python. Essentially I have built everything from scratch for the loan products we service. Looking for something I can integrate quickly but has industry support and complies with the SBA loan constraints. TL:DR Any SBA loan servicing platforms for SQL and/or Python I can use to hit the ground running to service a SBA loan? Also: my manger had me look at xleratordb for financial calculations and it seems to have a good amount of what I need to get started. Looking for input though. Thanks! -PJ
- blueblisters 7y ago
  Are all 1800 SBA certified lenders going to independently develop their own loan servicing platform? Seems like a waste of time/energy. You might want to reach out to existing loan origination/servicing software vendors. They could already have a solution in the works that would save you considerable amount of time and money.

182 points by danielfoster 7y ago

CPLX 7y ago

This is interesting, but might lead to more confusion. I've struggled to be absolutely sure on this point myself but my understanding from talking to my accountants is that there are terms in the bill that's currently moving through congress that will greatly affect what SBA options are available for startups and diverge sharply from what's listed here. For example there's no mention here for the forgivable nature of loans used for payroll and similar expenses, which is a really crucial concept that I believe is in the final bill. In their defense they're talking about disaster loans here which is a specific thing, but this is still a pretty fast moving topic and I think the site would be better off with an intro that spoke to these points.

rburhum 7y ago
That bill got approved 9 minutes ago: https://edition.cnn.com/2020/03/27/politics/coronavirus-stimulus-house-vote/index.html https://edition.cnn.com/2020/03/27/politics/coronavirus-stim...
- coleca 7y ago
  Here's the text of the bill if anyone's interested in reading it: https://www.congress.gov/bill/116th-congress/house-bill/748/text?q=%7B%22search%22%3A%5B%22H.R.+748%22%5D%7D&r=1&s=1#toc-id3B69C4863DF14243AE9CB042050B7AA8 https://www.congress.gov/bill/116th-congress/house-bill/748/...
- deleted 7y ago
  [deleted]
pfhayes 7y ago
The post doesn't appear to be talking about the new Coronavirus relief bill, but rather the existing SBA Disaster Loans: https://disasterloan.sba.gov/ela/ https://disasterloan.sba.gov/ela/ The two are similar but are different in a few ways. Such as: - The SBA Disaster Loans require a personal guarantee, but it appears that the Coronavirus relief does not - The Coronavirus relief offers forgiveness for payroll expenses, but the SBA Disaster Loans do not This is moving fast and as others have mentioned, the Coronavirus relief bill is brand new. You should talk to an accountant or a lawyer to learn which is right for you.
- jacobheric 7y ago
  Yes, I believe this is correct. This post is outlining the details of the economic disaster loans that are offered directly by the SBA and described in the link by the parent. The current legislation refers to these existing loans as 7(b). I believe the new stimulus bill, at least the senate version that I skimmed, deals largely with loans made by other financial institutions and referred to as 7(a). Those are covered here: https://www.sba.gov/partners/lenders/7a-loan-program/types-7a-loans https://www.sba.gov/partners/lenders/7a-loan-program/types-7.... Of course that information is now made out of date by the just passed legislation.
- CPLX 7y ago
  Exactly. And given those terms, the "new" Coronavirus bill looks to be way more favorable for startups, hence my concern that this post could be more confusing than helpful.
- killion 7y ago
  Normal SBA loans require a personal guarantee. The Disaster Loans for Coronavirus do not.
  - adamhooper 7y ago
    My understanding is that even the disaster loans will still require collateral and personal guarantees. Unsure if they're waiving or changing those rules or plan to. Disaster loans have been around long before COVID-19. Again, this is different than the Paycheck Protection section of the CARES Act which covers 2.5X of the average monthly payroll from 2019 that is subject to loan forgiveness and does not require personal guarantees or collateral.
    - killion 7y ago
      I've just gotten the paperwork for our disaster loan. The COVID loans do not have a personal guarantee. That was one of the items on the first relief bill that specified this program on March 6.
danielfoster 7y ago
This is definitely understandable, especially if you are unsure about the process. Regardless of any changes made later, the funds will likely still be distributed on a first-come, first-served basis. If you're in need of a larger amount (over $500k), it might be worth tracking down some accountants or lawyers from disaster regions who have worked with these loans before.

ta1234567890 7y ago

Getting a loan for a business in these very uncertain times is an extremely risky move, especially if you have to personally guarantee the loan. For anyone here thinking about getting a loan, please get plenty of advice, especially legal advice, and make sure you will be able to pay it back. Otherwise I would urge you to look for other alternatives. It might seem hard or impossible now to close down your business, but it might get a lot harder to deal with the consequences of getting a loan to prop it up if you don't have a very good plan to recover. I've been through corporate bankruptcy (chapter 7) with a company that had multiple creditors. Even though there were no personal guarantees, one of the creditors decided to pursue legal action against us. 2 years after filing for bankruptcy, we are still dealing with a lawsuit by this one creditor (who by the way forced the company into bankruptcy in the first place). Btw, lawyers for a chapter 7 bankruptcy will cost you/your company $10-$20k.

jsight 7y ago
This is really good feedback. I feel like a lot of this goes down to the virtually unlimited uncertainty around when things will even start to return. I know that I've seen businesses layoff much more quickly than they'd like just out of the fear of things dragging on for months. A personally guaranteed loan will carry similar risks.
robhunter 7y ago
My understanding is that the new CARE program does not carry a personal guarantee.
jacobheric 7y ago
While your experience is interesting and instructive in general, I think it's not completely relevant to the specific loans outlined here. These loans are issued directly by the SBA, from federal treasury funds, for the purpose of assisting businesses that might otherwise not survive the economic impacts of covid. For any small business in that situation, it seems a reasonable option. IANAL, but the collateral terms as I read them are very specific and limited to business machines and such, not your house or your car.

x3n0ph3n3 7y ago

An SBA loan is been hanging over my father's head ever since 2008, and he's had no way to dismiss it beyond bankruptcy, which he's been trying very hard to avoid. His retirement is gone, he lost the warehouse that he was conducting business from, and he no longer owns his business. Be very very careful getting one of these.

fludlight 7y ago
This is why you never, ever sign a personal guarantee.

nodesocket 7y ago

It is unclear how a business proves they are impacted if they only need to provide last year's taxes. What specific documents / proof are they requiring?

wmf 7y ago

It sounds like this whole thread should be nuked because it doesn't cover the new loan program. Let's wait a few days to get more accurate information.

munk-a 7y ago
Especially since there are some signals coming out that interest & payments on the loan may be frozen for the duration of the pandemic.
ridgeguy 7y ago
The blog post linked to has information on the new program passed today. I'm sure the info isn't complete, but it's helpful.
joncrane 7y ago
Since you posted, the top comment is a discussion chain about the actual new stimulus loans. I forget whose rule it is, it applies here. :)

manigandham 7y ago

These are the standard disaster assistance loans and very different from the new CARES part of the stimulus bill which was just signed into law. This will be a new loan program to give 2.5x the average monthly payroll costs over the last year, and can be forgiven if the company doesn't lay off anyone. Good overview: https://www.venable.com/insights/publications/2020/03/the-cares-act-what-you-need-to-know-about https://www.venable.com/insights/publications/2020/03/the-ca...

danielfoster 7y ago
This is a good option for startups as well. Keep in mind that the disaster loans also have new benefits approved today (no personal guarantee up to $200k, approval based on current credit score only, and more). It might make senses for startups to wait a few days and weigh each program. For very small teams, freelancers and sole proprietors, the disaster loans win out for its easier underwriting and approval process-- there is no need to go through a bank. But if I had a large team I would go with this option.
Saaster 7y ago
So you can get the loan to cover up 2.5x monthly payroll, use that to pay your employees for 8 weeks, then the loan is forgiven? Is there any reason a software company < 500 people wouldn't want to or couldn't take advantage of that?
- manigandham 7y ago
  If you can use it then you should. However startups that have investors that own a major share in multiple companies might have a problem because employees at all of those companies can be counted together and cross over the 500 limit. The "affiliation guide" specifies what counts as a small business and prevents a single organization from creating many smaller companies to get SBA benefits. I'm not sure if it changed for these new benefits. Here is the guide: https://www.sba.gov/document/support--affiliation-guide-size-standards https://www.sba.gov/document/support--affiliation-guide-size...
hmahncke 7y ago

pastor_bob 7y ago

So if I occasionally do freelance work can I 'pay' myself 4 months and get the government to reimburse me with a forgivable loan?

CSSer 7y ago
According to [Senator Rubio’s comments](https://www.congress.gov/congressional-record/2020/03/22/senate-section/article/S1897-2 https://www.congress.gov/congressional-record/2020/03/22/sen...), maybe. Here’s a quote: > For the first time ever, we have also included most (c)(3)s--(c)(3)s and not-for-profit (c)(3)s--independent contractors--people who work on 1099s--and gig economy workers who consider themselves a business, even though they have one employee and maybe no real estate that they operate from, but, nonetheless, they consider themselves that.

bayareasurfer 7y ago

This is missing a key provision that will exclude most start ups. Control of less than 50% voting stock by multiple minority owners. If two or more persons each owns or controls (or has the power to control) less than 50% of a concern’s voting stock and (i) the minority holdings are all approximately equal in size and (ii) all of the minority holdings taken together are large compared to any other stock holdings, affiliation is presumed to exist with each of those persons. A presumed affiliate may rebut the presumption by showing that it does not have control or the power to control. Example: Investor X, Investor Y, and Company A each own 23% of Company B. No other stockholder owns more than 5% of Company B. All three persons will be presumed to control Company B. Each presumed affiliate may attempt to rebut the presumption by showing that its control or power to control does not exist. If the presumption is not overcome, then Company A and Investors X and Y will all be considered affiliates of Company B. In addition, all companies controlled by Company A and Investors X and Y are affiliates of Company B. https://www.sba.gov/sites/default/files/affiliation_discussion_0.pdf https://www.sba.gov/sites/default/files/affiliation_discussi...

plj5003 7y ago

If I were to make a loan servicing platform and didn't want to build a ton of custom code, what should I explore? My firm uses SQL server and I am mostly proficient in Python. Essentially I have built everything from scratch for the loan products we service. Looking for something I can integrate quickly but has industry support and complies with the SBA loan constraints. TL:DR Any SBA loan servicing platforms for SQL and/or Python I can use to hit the ground running to service a SBA loan? Also: my manger had me look at xleratordb for financial calculations and it seems to have a good amount of what I need to get started. Looking for input though. Thanks! -PJ

blueblisters 7y ago
Are all 1800 SBA certified lenders going to independently develop their own loan servicing platform? Seems like a waste of time/energy. You might want to reach out to existing loan origination/servicing software vendors. They could already have a solution in the works that would save you considerable amount of time and money.