“A nightmare” is how many business owners describe the process for applying for a COVID-19 emergency loan this year to the US Small Business Administration.
This is because last year the agency did not require any backup documentation. It was a cinch to get an economic disaster loan, a low-interest loan for small businesses negatively affected by the pandemic.
But this year, the SBA is requiring every “t” to be crossed out and dotted “i” to reduce fraud. Over 1.1 million EIDL requests are blocked for impersonation reasons.
But the SBA says she still has “a lot” of loan money left over and encourages business owners to keep applying. This will require understanding the common mistakes leading to loan rejections and how to avoid them.
The EIDL program is a loan directly from the SBA that must be repaid and is limited to businesses and private associations with 500 or fewer employees. The loan term is 30 years with fixed interest rates of 3.75% for businesses or 2.75% for private non-profit organizations. Payments can be deferred by 18 months for loans made in 2021, although interest accrues during this period.
Loans are capped at 24 months of economic harm, up to a maximum of $ 500,000. The maximum loan amount for each business is determined using the 2019 average monthly sales to calculate 24 months of injury.
Small businesses can use loans to make regular payments for operating expenses, such as paying off debts, payroll, rent or mortgage, utilities, and other “ordinary and necessary” expenses. said the SBA. The loan is not intended to develop a business or start a new one.
Business owners can apply for EIDL loans on the official SBA website. There is no charge to apply, so don’t be fooled by scammers. Applications will be accepted until December 31. To apply, you must have your last 12 months of sales, your business bank account, and your routing number.
Once your application is approved, the SBA will email you the documents to sign. Once you’ve returned them electronically, the funds should be in your bank account within five to 10 business days. If it takes longer, there may be a problem with your banking information and you should contact your local office, which is located at sba.gov/about-sba/sba-locations.
If your business has previously received an EIDL loan, you may be entitled to an increase determined by the amount you are entitled to today minus the loan amount you have already received. EIDL’s first loan program was based on six months of spending, but that number has since grown to 24 months of eligible spending.
If your request was denied, your only option is to follow the reconsideration instructions contained in the denial letter. You can also contact your local SBA office to see if a representative can help you review your revised application to make sure it is eligible and correct.
To help you determine why your loan application may have been denied, first consider the following most common reasons EIDL loan applications are rejected, according to the SBA. While the agency’s customer service team has been criticized for their lack of knowledge, you also have the option of contacting them by phone at 800-659-2955 (800-877-8339 for the deaf and hard of hearing) or by email to DisasterCustomerService @ sba.gov.
Applicants are probably used to websites that allow you to change your name or address on forms if you get it wrong. The SBA website is not sophisticated enough for this. So, if you want the cash fast, you’d better take a few extra minutes to review everything rather than rushing around and having to wait months for a rejection letter and then reapply. This includes everything from your business name to your email address.
More often than not, the problem with the SBA reconsideration process is with the claimant, not the SBA, said Trevor Curran, who runs an EIDL COVID consulting firm called Aurora Consulting in Connecticut with his partner, Linda. People rush applications and their mistakes lead to delays, discrepancies and rejections, he wrote in their EIDL COVID loan assistance booklet.
Enter your old address if you have moved
The SBA requires business owners to fill out an IRS 4506 form themselves. If you have moved, put your old address from your last tax return or the system will recognize it as an error and you will be rejected. Also, be sure to date your tax form, otherwise the Internal Revenue Service will reject the SBA’s request for verification.
Not meeting the credit score requirement
A minimum credit score of 570 is required to be approved for a loan. If your credit score was damaged during the pandemic, go to annualcreditreport.com to access your report every six months, said Matt Ridge, director of business development at Solaire Capital in New York City.
You can then ask the SBA if you can submit additional financial information to show that you’ll be able to repay the loan, said Ridge, who previously worked at the SBA and personally processed between 5,000 and 10,000 loan applications. in the event of a disaster.
The business was not in operation on or before January 31, 2020
This is the date that the SBA officially declared to be the start of the COVID-19 disaster.
Enter bad gross receipts, cost of goods sold, or expense information
“More often than not, what I consider the main reason for the denial is that the revenue and cost of goods sold data entered in the original claim is incorrect and does not match the 2019 tax return. Curran said.
This is arguably the most complex part of the application. First of all, you want to be sure that you are using the information from your 2019 income tax returns. The information you enter for gross receipts, costs of goods sold, and expenses on the EIDL COVID app will differ depending on the type of. tax return. Here’s a helpful chart from the SBA on what to use, depending on your situation.
Unproven economic damage
There must be documented economic harm by comparing 2019 sales and operating data with 2020.
Your type of business is not eligible
Loans are not intended for businesses in the following industries: payday loans, check cashing, gambling, adult entertainment, pawn shops, real estate developers or insurance companies. If you believe you were wrongly dismissed, you can provide documents of your business operations to request a review.
“This has been a problem for many clients in real estate related services,” Ridge said. “As the design and engineering companies bearing the name of ABC” Development Group “would be summarily declined as a real estate developer. “
Non-eligible non-U.S. Citizen status
Each owner of 20% or more of a business must be a U.S. citizen, non-citizen national, or qualified alien. Documents that establish a legal basis for being in the United States, such as a visa document, generally do not confer Qualified Alien status. For more information, a qualified alien is defined in Section 8 USC 1641.
Do not respond quickly
The SBA may request additional documents during the loan review process. If you do not respond within seven days, the request will be withdrawn until you request that it be reactivated. Periodically check your inbox to verify that critical SBA emails did not go to your Junk Email folder.
“Respond as soon as possible, even if it’s to tell them you just need more time to put the documents together,” Ridge said.
“Unverifiable information” is a common reason applicants are turned down, according to denial emails business owners receive. This is a broad term that can cover everything from failed identity verification at an international IP address to a client device associated with corporate fraud reaching its total federal loan limit of 2. millions of dollars.
The most common cause for this type of rejection is that the IRS 4506 used to verify your tax returns was refused, Ridge said. If the tax returns cannot be verified due to an address error or a missing date, the IRS rejects the request and the loan is denied.
You are not a small business by definition
This one is simple. Your business must have 500 or fewer employees.