SBA Disaster Loans: The Unofficial Guide for Freelancers & Startups

We know more than a few entre­pre­neurs and free­lancers who’ve been caught with their pants down by coro­n­avirus. Luck­i­ly the fed­er­al gov­ern­ment has pro­vid­ed help in the form of dis­as­ter relief loans– mon­ey any small busi­ness can bor­row direct­ly from the U.S. Small Busi­ness Admin­is­tra­tion at a very low 3.75% inter­est rate– no bank approval required.

In keep­ing with the times, the feds have pro­vid­ed lit­tle guid­ance on how SBA loans work– espe­cial­ly for star­tups and the self-employed. We think this is unfair and are con­tin­u­al­ly updat­ing this doc­u­ment with every­thing you need to know to apply for an SBA dis­as­ter loan- all in FAQ format.

Update: Based on the pass­ing of the CARES Act by Con­gress today, there are sev­er­al pos­i­tive changes to SBA dis­as­ter loans:

  • Loans can now be approved based sole­ly on your per­son­al cred­it score
  • Loans less than $200,000 can be approved with­out a per­son­al guarantee
  • You’ll be able to request a $10,000 emer­gency cash advance that can be for­giv­en if spent on paid leave, pay­roll, increased costs due to sup­ply chain dis­rup­tion, mort­gage or lease pay­ments or repay­ing oblig­a­tions that can­not be met due to dis­rup­tion from from coronavirus. 

Cov­er Pho­to via Wun­der­stock Free Photos

What are the basic details?

You can apply for SBA coro­n­avirus loan online here. These dis­as­ter loans are much friend­lier than your typ­i­cal loan:

  • Bor­row up to $2 million
  • 3.75% inter­est rate 
  • Up to 30 years to repay loan
  • No pay­ments for the first 12 months
  • Pay back any time with no ear­ly pay­ment penalties

Giv­en the aver­age stu­dent loan inter­est rate is 5.8% and a typ­i­cal mort­gage is 3.8%, this is a great deal. It is def­i­nite­ly worth­while to apply even if you aren’t sure you need the mon­ey now. 

Tip: There’s no require­ment to take the mon­ey if approved. 

How much money can I get?

Based on what we’ve heard so far, busi­ness­es will get approx­i­mate­ly 50% of gross prof­it or 3–6 months of expens­es. The SBA has not released exact num­bers as of yet, though. 

Gross Profit = Revenue - Costs of Goods Sold (or Service Costs)

The great thing here is that gross prof­it is all mon­ey your busi­ness makes before fixed costs (equip­ment, rent, etc.) and before tax­es. For ser­vice providers, this only includes costs direct­ly relat­ed to cus­tomer projects. 

Tip: Since the SBA only looks at gross prof­it (not net prof­it), you can qual­i­fy for quite a bit of mon­ey even if your busi­ness isn’t super profitable. 

How long does it take to be approved?

The offi­cial time­line is 3–4 weeks, but giv­en the unprece­dent­ed scale of events late­ly, who knows. 

Where can I apply?

You can apply online via this link. The appli­ca­tion web­site is often over­loaded. Your best bet is to access the page either very ear­ly in the morn­ing or very late at night. 

You’ll also need a print­er to sign an autho­riza­tion form for the SBA to get your busi­ness tax returns from the IRS. The IRS is still finicky about accept­ing dig­i­tal signatures.

Tip: If you get an error, dur­ing the appli­ca­tion process, it is most like­ly because you did­n’t fill some­thing in– even if it’s a “0” for a field that does­n’t apply.

Is my business eligible?

Have no employ­ees? You can apply. Have 400 employ­ees? You can apply as well.
Pho­to via Wun­der­stock Free Pho­tos (CC-BY-NC-SA)

As long as your busi­ness has been affect­ed by the coro­n­avirus, you can apply for an SBA dis­as­ter loan. This includes free­lancers and sole pro­pri­etors with no employees. 

Key require­ments:

  • Busi­ness must be >1 year old 
  • Busi­ness must have <500 employ­ees (small can be pret­ty big!)
  • Mar­i­jua­na, gam­bling, adult enter­tain­ment, and oth­er sim­i­lar great things are excluded

The key here is that there must be a direct impact to the busi­ness. Although you can still apply even if you aren’t in hot water today, you’ll need to show you have exist­ing oblig­a­tions (office rent, employ­ee salaries, etc.) that may cre­ate issues later. 

Search mil­lions of free pho­tos for your start­up, blog, or what­ev­er with Wunderstock

My startup just launched or is preparing to launch– am I really out of luck?

Not nec­es­sar­i­ly. Although the SBA prefers to see at least a year of activ­i­ty, you can still get a loan if you can show that your launch was derailed by coro­n­avirus (source). You will need to show a busi­ness plan and finan­cial pro­jec­tions show­ing how coro­n­avirus adverse­ly impact­ed pro­ject­ed sales. 

Tip: You’ll need to show that your prod­uct or ser­vice would have gained trac­tion with­out coro­n­avirus. You’ll need a real­is­tic busi­ness plan cre­at­ed before the cri­sis show­ing this. We rec­om­mend work­ing with an accoun­tant and con­tact­ing the SBA before applying.

So I don’t need an LLC, corporation, or other business entity to apply?

That’s cor­rect– you do not need a busi­ness enti­ty. Many small busi­ness­es do not have a for­mal enti­ty estab­lished and this loan pro­gram is specif­i­cal­ly designed to help small busi­ness­es. All you need is your Social Secu­ri­ty num­ber and your lat­est tax return (2018 or 2019).

Keep in mind that you will still need to pro­vide rev­enue fig­ures and show expens­es– this should nor­mal­ly be shown on Sched­ule C — Prof­it or Loss from Busi­ness (Form 1040).

Any self-employed eco­nom­ic activ­i­ty counts.

What can I use the money for?

Even if you don’t need the mon­ey now, it’s wise to apply to just in case.
Pho­to Cred­it: Wun­der­stock Free Pho­tos (CC-BY-NC-SA)

The SBA dis­as­ter loan is designed to cov­er your reg­u­lar oper­at­ing expens­es– most com­mon­ly pay­roll for employ­ees (includ­ing your­self), fixed costs like rent, and mon­ey you owe to oth­er busi­ness­es or freelancers.

You can’t use the mon­ey on new projects or to expand. You also can’t use the loan to cov­er per­son­al expens­es like rent or stu­dent loans. Any salary you pay your­self or home office reim­burse­ments should count, however.

Tip: Exam­ples of eli­gi­ble expens­es include cowork­ing, that huge AWS bill you have com­ing up, mon­ey you owe your web design­er, and even your own salary.

Do I need an office or storefront to qualify?

The SBA requires appli­cants to have a “tan­gi­ble and sig­nif­i­cant” pres­ence in order to qual­i­fy. P.O. Box­es do not count. We assume that vir­tu­al mail­box­es and offices also do not qualify. 

Home offices and cowork­ing spaces do count as a phys­i­cal pres­ence. There is no need to have a tra­di­tion­al office or pub­lic storefront.

If your office address is a mail­box, don’t fret. You still qual­i­fy if you have anoth­er pres­ence (work­ing from home, cowork­ing space, etc.). In this case use the mail­box as the mail­ing address and your home address as the busi­ness address. 

Tip: As long as you work some­where in the U.S., you qual­i­fy for the loan, even if you have used a mail­box as your busi­ness address in the past.

Search mil­lions of free pho­tos for your start­up, blog, or what­ev­er with Wunderstock

Do I need to be a U.S. citizen?

Not nec­es­sar­i­ly. Accord­ing to the SBA, U.S. cit­i­zens, non-cit­i­zen nation­als, and “qual­i­fied aliens” may apply. The SBA isn’t even sure what “qual­i­fied alien” means and rec­om­mends you con­sult Appen­dix 7 of this doc­u­ment to find out. 

You can even apply as a non-cit­i­zen if you own a U.S. com­pa­ny and live over­seas, which should be help­ful to many star­tups. This is true even if none of the founders are Amer­i­can cit­i­zens. Any own­ers present in the U.S. must have a legal sta­tus, however. 

Am I required to take a loan if I apply?

Nope. Once approved, you can take as much or as lit­tle of the loan as you want. So you should def­i­nite­ly apply even if you aren’t sure you’ll need the money. 

Can I apply on behalf of multiple businesses?

Yes. You just need to list every busi­ness you have an inter­est in on all applications. 

If you are self-employed and have mul­ti­ple hus­tles, com­bine them only if you do so in your Sched­ule C when fil­ing taxes. 

Are non-profits eligible?

Yes, but char­i­ta­ble non-prof­its are exclud­ed. The inter­est rate for non-prof­its is 2.75%.

What other relief is available?

You can also with­draw up to $100k from your 401k penal­ty-free.
Pho­to: Wun­der­stock Free Pho­tos (CC-BY-NC-SA)

In addi­tion to the SBA small busi­ness loan pro­gram, there are a vari­ety of oth­er pro­grams and incen­tives avail­able to help get through these tough times:

  • Tax Cred­its for sick leave: Con­gress has autho­rized tax cred­its to pay for employ­ee sick leave and quar­an­tine– up to $5k per employ­ee. This mon­ey is even avail­able to sole pro­pri­etors who employ them­selves. More info here.
  • Penal­ty-Free 401k with­drawals: Con­gress has waived the 10% ear­ly with­draw­al penal­ty for 401k plans- up to $100,000. You can also put this mon­ey back into your 401k any time in the next 3 years with­out affect­ing your con­tri­bu­tion limit. 
  • Pay your tax­es late: Tax day has been moved from April 15 to July 15. There’s no need to pay until then– no mat­ter how much you owe.

We’ll update this doc­u­ment as more infor­ma­tion becomes avail­able. Since we don’t know how many busi­ness­es will apply for a covid dis­as­ter loan, we high­ly encour­age you to sub­mit an appli­ca­tion now rather than wait. Even if you don’t need the mon­ey now, this is an excel­lent oppor­tu­ni­ty to gain some peace of mind for your start­up or small business. 

4 thoughts on “SBA Disaster Loans: The Unofficial Guide for Freelancers & Startups”

  1. The SBA link for coro­na virus dis­as­ter loans (one lev­el below the top lev­el link) is throw­ing an error mes­sage and has no pro­vi­sion for login if you’ve pre­vi­ous­ly reg­is­tered, or wish to reg­is­ter. Prob­a­bly sat­u­rat­ed with demand. I have a par­tial­ly com­plet­ed online appli­ca­tion I can’t get to. Patience is required.

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