[REN #885] COVID-19: Disaster Loan Program Runs Dry

COVID-19: Disaster Loan Program Runs Dry, Real Estate News for Investors Podcast Episode #885

If you are a landlord in need of financial help from the disaster loan program and you haven’t applied yet, you’ll now have to wait until Congress agrees to provide more funding. The Small Business Administration announced on Wednesday, April 15th, that the Economic Injury Disaster Loan, or EIDL, and the Paycheck Protection Program, or PPP, have both run out of money and will not be accepting new applications. Already submitted applications are still being considered, but the process is slow-going.

Lawmakers in Congress hit an impasse on how to provide new funding for these rescue loans. I won’t get into the politics of the battle in Congress, but we may hear more in the coming days on new funding for these programs. And if that happens, landlords and other business owners who need financial help should be prepared to get those applications filed.

EIDL Is Better for Landlords

For landlords, the SBA’s EIDL is the better choice, although you can apply for both the EIDL and the PPP, if that’s appropriate. The EIDL is based on business losses and will typically provide low-interest secured loans up to $2 million. That amount was reduced to just $15,000 in response to the crush of pandemic-related requests.

The CARES Act also authorized an advance of $10,000 on that loan, which is forgivable under most conditions. That’s why many people are calling it a “grant.” The advance is in addition to the loan amount, but also due to the high volume of loan requests, that was scaled down to $1,000 per employee with a maximum of $10,000.

The Paycheck Protection Program, or PPP loan, is a different program authorized by the CARES Act that provides emergency funding through bank loans. It is designed to keep people employed so loan amounts are based on 250% of employee salaries. The cap on that is $10 million, and the loan is partially forgivable if employees are not laid off. Qualified businesses have to have fewer than 500 employees.

Most small landlords operate as sole proprietors or single-member LLCs with passive income so they won’t be able to get much of a loan under the PPP program. Although the PPP may be helpful for some property owners, and it has been possible to apply for both loans, the EIDL is the one that gives solo operators more money, although again, the loan maximum has been capped at $15,000.

The reduction in the maximum loan amount and the rule change for the advance was a big disappointment. The advance was supposed to provide a full $10,000 within three days of the loan application to help business owners while they are waiting for the loan. And it was forgivable if you didn’t get the loan. But it’s now tied to an employee headcount, so that will impact what many small landlords end up getting.

SBA Moving Slowly on Applications

The program is also bogged down. Although some people say that money has shown up in their bank accounts, it took more than three days, and most are still waiting.

The EIDL is a program by the Small Business Administration that’s been available for businesses hurt by other disasters like wildfires, tornadoes, and hurricanes, so you might think the SBA could get these loans processed more quickly. That isn’t happening because, unlike other natural disasters which occur in one part of the country, COVID-19 is causing economic damage in all 50 states. That’s creating a monster of a job to approve loans at the SBA.

The notice on the SBA website says, “The  SBA is unable to accept new applications at this time for the Paycheck Protection Program or the Economic Injury Disaster Loan (EIDL)-COVID-19 related assistance program (including EIDL Advances) based on available appropriations funding.” (1)

A survey by the National Federation of Independent Business shows about half of U.S. small businesses had applied for the EIDL by April 9th. (2) As for the PPP loan, about two-thirds of small businesses have applied for that, but again, that one may not be a good match for many small landlords.

If you do need a loan, and the programs are re-funded, you shouldn’t wait to apply. The NFIB survey says that 90% of small businesses have been impacted by the pandemic so many more businesses may be lined up for a loan.

As I mentioned, many people are waiting for updates on loan approvals. The NFIB says that by April 9th, just four percent had received an approval. Another one percent were rejected. Many more are still being processed, but haven’t gotten a status update. And no one participating in that survey had received any funding. At this point, there are reports surfacing of a few people who have received grant money, but no loans.

The Federation said in an April 16th press release that it has been sending letters to members of Congress. (3) It is strongly encouraging them to provide more funding and re-open the application process for the EIDL and the PPP.

We reached out to a few of our property teams for any information they’ve gotten. One of our teams received a notice saying the EIDL will probably take 21 days. It also said that it would provide a 30-year loan that’s equal to six months of gross income at 3.75% with personal guarantees, and confirmed that the advance is based on an employee headcount.

We heard from another team with 90% of rents paid, that owners haven’t said anything about applying for a loan. The amount of rent collected is similar to a normal month so these landlords may not have a reason to apply. That also speaks well of property management.

Help for Landlords

Everyone’s situation is different however. If you need help and want to know more about loan options, check out our article Landlords: How to Pay Your Mortgage and Property Expenses (COVID-19). The emergency loan programs may be overwhelmed right now, but the money should come through at some point. And re-funding is possible so there may be another opportunity to apply.

Links

(1) SBA Loan Guidance

(2) Loan Application Statistics: NFIB

(3) Additional Funding: NFIB

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