nomicIf your small business needs financial assistance during these uncertain times, you may find yourself applying for a Small Business Administration (SBA) loan.

On March 25, the White House and Congress reached an agreement on a $2 trillion stimulus package, including a $367 billion program for small businesses. The package, which still has to be finalized, includes an employee-retention tax credit.

Inc. columnist Ami Kassar, who advises business owners on access to capital, has been hosting a series of free webinars that continue every day this week to answer questions about loans. Here, Kassar breaks down the differences between two SBA loans you may want to consider.

Here's what you need to know:

SBA Economic Injury Disaster Loan (EIDL)

This type of loan is now available as part of the government's response to the coronavirus. Keep in mind, even though you're applying through the SBA, the lender is the government--not a bank--so it will likely take longer to approve than a traditional loan.

However, President Trump has pledged the most aggressive action in history to help small businesses, and the SBA says it's making an effort to quickly cut through red tape and some applications are already starting to be approved.

If you do apply for this emergency loan, it will require a personal guarantee, such as a lien on your business and your home. "They're not free money," Kassar said. "It is a loan application, and it takes time to get them and you're going through the government."

At this point, all states and territories are disaster zones. To qualify for this emergency loan, you have to show "substantial economic injury," which means you're unable to meet obligations or pay your regular expenses, and you're unable to obtain credit for more than $350,000 elsewhere. Up to $2 million in assistance is available, but the exact amount will be based on how much your business has been affected. You can apply online.

Traditional SBA Loan

Kassar expects the government to increase the budget for standard SBA loans, though specific details are still emerging.

If you have an existing SBA loan, the SBA is encouraging lenders to work with you on payments, so you'll want to contact your lender, Kassar said.

What to Do Before You Apply for a Loan

  • File your taxes now, particularly if 2019 was a strong year, and prepare a personal financial statement.
  • Put together three years of business and personal tax returns. If 2019 tax returns are not available yet, lenders will want to see your year-end 2019 financials and the personal financial statement, if you own more than 20 percent of the company. Be sure to put together your monthly operating expenses from March through September of 2019. This data will be an important part of your loan application, Kassar said.
  • Provide forecasts and budgets for 2020--ideally a best-case, an expected-case, and a worst-case scenario for your company. Kassar said this will show lenders you have taken the time to think about it.
  • Prepare a debt schedule.

Finally, if you're considering a loan, keep in mind the emergency loan offers lower rates and longer payback periods, but historically it's a slower and more complex process. Alternatively, the standard SBA loan may get you to the finish line faster, but rates will likely not be as low.

Corrections: An earlier version of this article misnamed the EIDL. The full name is Economic Injury Disaster Loan.

Published on: Mar 25, 2020