Are you a small business that has suffered financial difficulties because one or more of your employees is in the military reserves and has been called to active duty?
Have you heard about the US Small Business Association’s Military Reservist Economic Injury Disaster Loan program (MREIDL)?
If not, you need to read this post. You may be eligible for financing (at low cost) from the SBA.
The purpose of the Military Reservist Economic Injury Disaster Loan program (MREIDL) is to provide funds to eligible small businesses to meet its ordinary and necessary operating expenses that it could have met, but is unable to meet, because an essential employee was “called-up” to active duty in their role as a military reservist. These loans are intended only to provide the amount of working capital needed by a small business to pay its necessary obligations as they mature until operations return to normal after the essential employee is released from active military duty. The purpose of these loans is not to cover lost income or lost profits. MREIDL funds cannot be used to take the place of regular commercial debt, to refinance long-term debt or to expand the business.
Federal law requires SBA to determine whether credit in an amount needed to accomplish full recovery is available from non-government sources without creating an undue financial hardship to the applicant. The law calls this credit available elsewhere. Generally, SBA determines that over 90% of disaster loan applicants do not have sufficient financial resources to recover without the assistance of the Federal government. Because the Military Reservist economic injury loans are taxpayer subsidized, Congress intended that applicants with the financial capacity to fund their own recovery should do so and therefore are not eligible for MREIDL assistance.
Credit Requirements: SBA’s assistance is in the form of loans, as such SBA must have a reasonable assurance that such loans can and will be repaid.
Collateral Requirements: Loans of $5,000 or less do not require collateral. Loans in excess of $5,000 require the pledging of collateral to the extent that it is available. Normally the collateral would consist of a first or second mortgage on the business property. In addition, personal guaranties by the principals of the business are required. The SBA will not decline a loan for lack of collateral, but you must pledge available collateral.
Interest Rate: Interest rates are determined by formulas set by law and recalculated quarterly. The maximum interest rate for this program is 4%.
Loan Term: The law authorizes loan terms up to a maximum of 30 years. SBA determines the term of each loan in accordance with the borrower’s ability to repay. Based on the financial circumstances of each borrower, SBA determines an appropriate installment payment amount, which in turn determines the actual term.
Loan Amount Limit – $1,500,000: The actual amount of each loan, up to this maximum, is limited to the actual economic injury as calculated by SBA, not compensated by business interruption insurance or otherwise, and beyond the ability of the business and/or its owners to provide. If a business is a major source of employment, SBA has authority to waive the $1,500,000 statutory limit.
Insurance Requirements: To protect each borrower and SBA, SBA requires borrowers to obtain and maintain appropriate insurance. Borrowers of all secured loans (economic injury loans over $5,000) must purchase and maintain full hazard insurance for the life of the loan. Borrowers whose property is located in a special flood hazard area must also purchase and maintain flood insurance for the full insurable value of the property for the life of the loan