
SBA Disaster Loans: Unofficial guide for freelancers and startups - danielfoster
https://blog.wunderstock.com/sba-disaster-loans/
======
manigandham
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-
ca...](https://www.venable.com/insights/publications/2020/03/the-cares-act-
what-you-need-to-know-about)

~~~
Saaster
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
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...](https://www.sba.gov/document/support--affiliation-guide-size-
standards)

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ta1234567890
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.

~~~
jacobheric
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.

~~~
ta1234567890
My particular case is just an example.

The most important thing to know is that getting a loan now, without a very
good plan to paying it back, is extremely risky.

For example, if you own a restaurant and have a lease, it would be a very bad
idea to get a loan to pay for that lease. We don't know how long this is going
to last. So by the time you are able to reopen the restaurant you might have
an insurmountable debt which takes out the business and potentially makes you
personally liable.

I haven't looked into the details of the SBA loans, but usually if you get a
loan and then file for bankruptcy without paying it, you could be liable for
fraud if you knew you wouldn't be able to pay back the loan (at the time you
signed it) - which is potentially the case for most businesses that might be
looking into loans now.

Loans are not a silver bullet, please business owners be careful.

~~~
munk-a
There are also possibly other routes for the inherent property costs. The
details haven't been clear but it it looking like lease payments might be
freezable pretty soon.

The one thing that businesses absolutely shouldn't be doing right now, though,
is retaining surplus staff. This is depressing and such, but the correct way
for us to deal with this issue as a society is to push those folks who need
assistance in these times onto unemployment and bolster that program, giving
the best chances for business to come through the far side of the pandemic
able to open their doors again.

If you state/locality has laws around temporary layoffs this is the perfect
time to exercise them, most such laws will defer any mandatory severance[1]
until the employee is refused work or fired - but still allows those employees
access to safety net funding.

Please do note, I've been following Canada a bunch closer than the US but it
is my impression that the US response is working pretty similarly.

1\. Usually not a thing in the US, but it is pretty standard elsewhere.

~~~
ta1234567890
> but it it looking like lease payments might be freezable pretty soon.

Is that in Canada or the US?

If the US, do you have a link to that info? I haven't seen any talks of
lease/mortgage/rent freezes outside of Europe and LatAm.

Thank you.

~~~
munk-a
In the US it looks like some businesses have been refusing to pay rent[1],
California has asked banks (who agreed except Bank of America) to freeze
mortgage payments for 90 days[2] and there is a national freeze on evictions
in the US for residential properties overseen by HUD or backed by
Freddie/Fannie Mac[3]. Unfortunately it looks like you're correct in the US,
no specific help is guaranteed.

I'd still suggest trying to reach out to your landlord to defer payments if
you own a commercial property - some sectors of the economy are fine, but
Amazon isn't going to want to move into an old Wendy's for extra office space.
Since everyone nation-wide is in the same boat there is some safety in leaning
on the crisis. Do try and preserve any liquid assets in your business as long
as possible, they may be required for funding an attempt to qualify for relief
or to spin up the business on the far side of the virus and that money is more
valuable in the pockets of small business than in real-estate owners that,
honestly, aren't facing this crunch nearly as hard since their main pressure
would be from property tax & utility requirements.

1\. [https://la.eater.com/2020/3/25/21194144/cheesecake-
factory-r...](https://la.eater.com/2020/3/25/21194144/cheesecake-factory-rent-
strike-chain-restaurant)

2\. [https://www.nytimes.com/2020/03/26/us/90-day-mortgage-
relief...](https://www.nytimes.com/2020/03/26/us/90-day-mortgage-relief-
california-coronavirus.html)

3\. [https://www.reuters.com/article/us-health-coronavirus-
evicti...](https://www.reuters.com/article/us-health-coronavirus-evictions/us-
regulator-orders-60-day-freeze-on-foreclosures-and-evictions-for-fannie-
freddie-mortgages-idUSKBN21533M)

------
CPLX
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.

~~~
pfhayes
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.

~~~
killion
Normal SBA loans require a personal guarantee. The Disaster Loans for
Coronavirus do not.

~~~
adamhooper
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
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.

------
x3n0ph3n3
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
This is why you never, ever sign a personal guarantee.

------
wmf
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.

~~~
ridgeguy
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.

------
bayareasurfer
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_discussi...](https://www.sba.gov/sites/default/files/affiliation_discussion_0.pdf)

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nodesocket
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?

------
pastor_bob
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
According to [Senator Rubio’s
comments]([https://www.congress.gov/congressional-
record/2020/03/22/sen...](https://www.congress.gov/congressional-
record/2020/03/22/senate-section/article/S1897-2)), 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.

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plj5003
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
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.

