SBA Imposes Further Restrictions On Economic Disaster Lending Program | Nelson Mullins Riley & Scarborough LLP

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In its latest ruling, the Small Business Administration (SBA) applies new restrictions to the Economic Disaster Lending Program (EIDL), further limiting the funds available to small businesses affected by the current crisis.

The SBA announced on May 4 that it would limit new EIDL loans to agricultural businesses only. In addition, as reported by several media outlets, this move is associated with the SBA’s re-imposition of a limit of $ 150,000 on the amount of loans, which is significantly lower than the original limit of $ 2 million. authorized by law and which the SBA had previously touted to the public.

The SBA has been a major source of assistance for the restoration of commerce and households in areas affected by natural and man-made disasters since the agency was established in 1953. The EIDL program has always been used as a disaster relief fund to provide direct loans to small businesses affected by a disaster report. EIDL loans are a critical part of disaster recovery efforts, as the loans provide small businesses that are unable to obtain credit elsewhere with the necessary working capital until normal operations resume after a disaster. . With the passage of the CARES law on March 27, 2020, the EIDL program was expanded to cover businesses affected by the COVID-19 disaster. The law also relaxed application requirements and provided for faster emergency advances.

With its latest announcement, the SBA chose to restrict the pool of eligible EIDL beneficiaries to only businesses with an agricultural interest, which is unprecedented as EIDL loans were historically available to non-farm businesses. The SBA notes on its website that it focuses primarily on agricultural businesses “due to the limitations of funding availability and the unprecedented submission of applications already received.” The SBA’s latest moves, taken together, signal the administration’s priorities as it finds a way to cope with the limited pool of funds at its disposal.

Allocating a scarce resource, which in this case is Congress-allocated funds, is no easy task, and the SBA’s actions have not come without criticism. Critics have become frustrated with the lack of communication and clear guidelines, which appear to be constantly evolving, and the latest criticism coming from three Democratic lawmakers. In a letter dated May 9, Senators Charles Schumer (NY), Jeanne Shaheen (NH) and Ben Cardin (Md.) Wrote to SBA administrator Jovita Carranza to express “significant concerns regarding the implementation of the Economic Disaster Loan (EIDL).

Senators note that “[t]This is an existing program that helped immediately provide needed capital to businesses, but throughout the response to the COVID-19 pandemic, SBA has repeatedly made it more difficult for EIDL to serve small troubled companies looking to SBA for the capital they need to stay afloat. ”Senators cite specific examples of this“ mismanagement, ”including the SBA’s decision to shut down the application portal to all small businesses They note that while they agree that farm businesses need immediate help, senators explain that the COVID-19 stimulus bills were intended to support new loans to be made available to all. qualifying small businesses, “not just newly qualifying farms and agribusinesses. This level of credits was based on the SBA’s own data indicating that it would be sufficient.” . . . “

The Senators also disapprove of the decision to sharply lower the loan limit to $ 150,000. They note that the SBA “completely ignores current law and the clear intention of Congress that under the CARES Act, small businesses be allowed to borrow up to $ 2 million to respond to the COVID-19 pandemic.” . By drastically lowering the cap, Senators allege that the SBA’s “unauthorized policy change will leave the four million EIDL applicants on hold in limbo after expecting the SBA to process their loans in a timely manner for the amount authorized by law “. Finally, senators proclaim that “SBA has been inexcusably opaque in communicating its policies on EIDL. Beyond that most recent decision to cap loans at $ 150,000 without notifying the public, or even acknowledging the policy once it was discovered by the media, he consistently failed to put the four million of EIDL applicants aware of the status of their loans.

The EIDL program is not the only point of contention involving the SBA. As has been well documented, the SBA has also come under scrutiny for its management of the Paycheck Protection Program, which is the largest small business loan program established by the CARES Act. It remains to be seen if anything will emerge from Senators’ latest criticisms of the SBA.

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