Many business owners who applied directly with the SBA for an Economic Injury Disaster Loan Emergency Advance are now receiving notification that they have been approved for an Economic Injury Disaster Loan. Before accepting the Loan, Borrowers should carefully read and understand the restrictions and requirements within the Loan Documents. Not adhering to the provisions as written means the Loan would be in default, granting rights by the SBA to “…declare all or any part of the indebtedness immediately due and payable.”
We have reviewed the Loan Documents for the Economic Injury Advance Loan and want to highlight specific requirements of which Borrowers should be aware. It is the Borrower’s sole responsibility to review and understand all the requirements of the borrowing arrangement. We encourage Borrowers to seek legal representation to assist in this process.
Loan Authorization and Agreement (Form 1391)
➢ The Loan is priced at 3.75% fixed for 30 years. No payments of interest or principal are due for 12 months, with the balance amortized over 30 years from the date of the Promissory Note.
➢ Loan amounts over $25,000 are secured by all business assets of the company through a UCC filing. ➢ Under the heading: REQUIREMENTS RELATIVE TO COLLATERAL, Borrowers are agreeing to the following statement: “Borrower will neither seek nor accept future advances under any superior liens on the collateral securing this loan without the prior written consent of the SBA.”
o This statement appears to restrict a Borrower’s ability to utilize an existing Bank line of credit if the line of credit is secured by the same collateral.
➢ The use of Loan proceeds is restricted to working capital, and the Borrower must maintain itemized receipts for three years.
➢ Borrower is required to submit proof of active hazard insurance to the address listed within 12 months.
➢ Borrower is required to provide fiscal year-end statements to the SBA within three months after the close of their fiscal year end.
➢ Upon written request of the SBA, Borrower will accompany such statements with an “Accountant Review Report” prepared by an independent public accountant at the Borrower’s expense.
➢ Under the heading: LIMITS ON DISTRIBUTION OF ASSETS, Borrower is agreeing to the following statement: “Borrower will not, without the prior written consent of SBA, make any distribution of Borrower’s assets…”
o This statement appears to disallow any Borrowers from making cash distributions for any reason, such as for taxes (unless approved by the SBA).
➢ Borrower must send within 180 days a Resolution from the Board of Directors authorizing the funds.
Security Agreement (Form 1059)
➢ Borrower certifies “Collateral is free of all adverse claims, liens, or security interests (unless expressly permitted by Secured Party).”
o Borrowers are required to obtain Bank approval for the SBA lien if the Bank holds a collateral interest in the company.
For more information on this and additional SBA updates, please refer to our Platinum Bank website
or contact one of our business bankers at 651.332.5200.