Update April 14, 2020:
The U.S. Small Business Administration (SBA) has quietly announced changes to the Economic Injury Disaster Loan (EIDL) Emergency Advance program. Apparently, due to the high number of requests, SBA has implemented a $1,000-per-employee cap on the loan advance, up to a maximum of $10,000, the agency said in an email. For example, a practice with three employees will receive a $3,000 advance, not $10,000 as originally implied. The SBA web page for EIDL emergency advances continues to say “up to $10,000,” but does not explicitly state it will be capped at $1,000 per employee.
Also note that initially EIDL advances were supposed to arrive within about three days of application receipt, but now it is reportedly taking much longer.
If you’re starting to get concerned about your practice’s finances because of the COVID-19 outbreak, there are multiple options available to help you meet your obligations.
Gov. Greg Abbott recently announced that the U.S. Small Business Administration (SBA) has included Texas in its Economic Injury Disaster Declaration, giving qualifying small businesses in Texas access to the Economic Injury Disaster Loan (EIDL) program.
You can also look to private banks, most of which offer:
- Lines of credit;
- Advancing term loans;
- Payment deferrals;
- Extensions of interest-only payment periods;
- Loan refinancing; and
- New conventional loans.
So, what’s the difference between these? In the simplest descriptions:
- Lines of credit provide access to funds that can be used for any business expense. There’s no lump-sum disbursement made at account opening. Many lines of credit are revolving (like a credit card), and interest begins to accumulate once funds are drawn.
- Advancing term loans convert the balance of a line of credit into a fixed short-term loan to be repaid with regular monthly payments.
- Loan payment deferrals can typically be requested for 90 days on existing loans. Lenders will expect your practice to resume regular payments once the deferment period ends.
- Extensions of interest-only payment periods are often available to new practices (or recently opened practices). An extension affords new practices additional time to pay only the interest on loans rather than principal plus interest.
- Loan refinancing occurs when an existing loan is revised in terms of interest, payment schedule, and terms, often lowering the recurring payment obligations.
- New conventional loans require less paperwork and time to process than SBA loans. Borrowers typically must have stable cash flow, collateral, and an established operating history.
For the majority of these products, the standard qualifying requirements for applicants, documentation, and the underwriting process remain in place including:
- Formal credit approval;
- Updated financial statements (e.g. profit and loss and balance sheets);
- Personal and business tax returns for the past two to three years;
- Acceptable credit history;
- Current accounts/loans in good standing; and
- Collateral or personal guarantees.
However, before reaching out to your bank to discuss options, talk with your certified public account (CPA) about the practice’s current and projected financial status. Specifically, address line-item operating expenses, payroll obligations, and any tax implications of securing financial assistance.
If you have more questions about your practice’s finances, the Texas Medical Association COVID-19 Task Force has created a Frequently Asked Questions (FAQ) to help guide you through these uncertain times.
You can also refer to TMA’s COVID-19 Resource Center regularly to find the latest news, resources, and guidance for practices during this pandemic.