SBA Disaster Loans: Unofficial guide for freelancers and startups | Hacker News Reader

SBA Disaster Loans: Unofficial guide for freelancers and startups

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182 pointsdanielfoster44 comments

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...

This is a good option for startups as well. Keep in mind that the disaster loans also have new benefits approved today (no personal guarantee up to $200k, approval based on current credit score only, and more).

It might make senses for startups to wait a few days and weigh each program.

For very small teams, freelancers and sole proprietors, the disaster loans win out for its easier underwriting and approval process-- there is no need to go through a bank.

But if I had a large team I would go with this option.

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?

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...

Should just submit the venable.com link as a new submission, it's a much more directly relevant overview of the immediate news on this type of loan.

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.

This is really good feedback. I feel like a lot of this goes down to the virtually unlimited uncertainty around when things will even start to return.

I know that I've seen businesses layoff much more quickly than they'd like just out of the fear of things dragging on for months. A personally guaranteed loan will carry similar risks.

My understanding is that the new CARE program does not carry a personal guarantee.

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.

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.

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.

> 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.

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...

2. https://www.nytimes.com/2020/03/26/us/90-day-mortgage-relief...

3. https://www.reuters.com/article/us-health-coronavirus-evicti...

I looked at a SBA loan several years ago and it required a personal guarantee. Almost all small business loans require this.

The new rules eliminate personal guarantees for loans <$200K.

The loans from the stimulus package are not issued by the SBA, they are issued by banks and other lenders.

There is a lot of confusion now, the loans were only launched yesterday (Friday April 3rd), and most lenders don't even know what the terms are.

A business owner I know filed for a loan directly on the SBA website on Tuesday (April 1st), following the SBA instructions. They still haven't gotten even an email back. They started calling banks on Friday and they were either unavailable (branches closed, phone numbers don't work), or they didn't even know how to process the loans yet.

Here's a New York Times article from yesterday that shows how messy this is: https://www.nytimes.com/reuters/2020/04/03/business/03reuter...

Banks are also adding their own conditions, so no one really knows if they will require guarantees or not. According to the SBA website, the loans to cover payroll are forgivable, but it doesn't say if they'll require a guarantee or not to give it out. That seems like it will be up to the banks to decide.

At this rate, businesses will be lucky if they are able to get a loan within 30 days. Considering that most businesses barely have about 2 weeks worth of cash reserves and that this whole thing started about 3 weeks ago, it looks like very few businesses will be able to take advantage of the SBA loans and that even fewer will survive.

I got my chapter 7 bk attorney in 2010 for $4k. Feel like I got a good deal now.

I'm sure prices vary. The $10-$15k is for bankruptcy lawyers in SF/BayArea in 2018.

It looks like the personal guarantee can be waived for loans under $200,000. This is good advice to keep in mind in any case-- I definitely would not take a loan unless I saw a clear way to become cash flow positive.

How much money was involved in your case? Must've had some assets for them sue you, no?

The particular creditor had put in $250k through a convertible note. There were almost no assets, small saas startup. But the creditor was trying to use his leverage to take over the company. He got pissed when we filed for Chapter 7 instead, then bought all claims and assets from the Trustee and sued us founders personally. Long story.

I don't think it's relevant in this case because it will be forgiven, as mentioned by another commenter.

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.

That bill got approved 9 minutes ago:

https://edition.cnn.com/2020/03/27/politics/coronavirus-stim...

Here's the text of the bill if anyone's interested in reading it: https://www.congress.gov/bill/116th-congress/house-bill/748/...

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/

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.

Yes, I believe this is correct. This post is outlining the details of the economic disaster loans that are offered directly by the SBA and described in the link by the parent. The current legislation refers to these existing loans as 7(b). I believe the new stimulus bill, at least the senate version that I skimmed, deals largely with loans made by other financial institutions and referred to as 7(a). Those are covered here: https://www.sba.gov/partners/lenders/7a-loan-program/types-7.... Of course that information is now made out of date by the just passed legislation.

Exactly. And given those terms, the "new" Coronavirus bill looks to be way more favorable for startups, hence my concern that this post could be more confusing than helpful.

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

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.

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.

This is definitely understandable, especially if you are unsure about the process. Regardless of any changes made later, the funds will likely still be distributed on a first-come, first-served basis.

If you're in need of a larger amount (over $500k), it might be worth tracking down some accountants or lawyers from disaster regions who have worked with these loans before.

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.

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

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.

Especially since there are some signals coming out that interest & payments on the loan may be frozen for the duration of the pandemic.

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.

Since you posted, the top comment is a discussion chain about the actual new stimulus loans.

I forget whose rule it is, it applies here. :)

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...

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?

So if I occasionally do freelance work can I 'pay' myself 4 months and get the government to reimburse me with a forgivable loan?

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

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

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.

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