On June 15th the SBA resumed accepting applications for the EIDL program. If you missed this during the early days of the pandemic, it is not too late to apply.
I recommend that you consider getting this loan, because it provides you with working capital in case the economy collapses. The re-opening of the economy has not gone smoothly, and the earliest that we might be back to “normal” is sometime in 2022. This is my full recommendation:
- Obtain the largest loan you are comfortable with (the maximum seems to be $150,000). You may need to pledge some assets
- Park all of this in a savings account and do not spend it unless it is absolutely necessary (see the restrictions below)
- Pay the monthly interest that is incurred. Technically you do not need to make this payment, but if you pay it each month when it is time to return the funds you will only owe the original principal.
This is a true loan, and it must be paid back in full with interest. The interest rate is 3.75% and the loan term is 30 years. To qualify, you must have “suffered significant economic injury”. Right now, many of you have been able to pivot to online sales and you have cut back on expenses, so things are not as bad as we imagined when the shelter-in-place orders began, and having a smaller profit than the previous year does not qualify. However, if the economy tanks then you might experience “significant economic injury”. That is why I am calling this “crash protection”.
Be aware that the fine print of the loan documents lists many restrictions. Here is a list of a few of them (there are more) and these are in place until the loan is repaid:
- No payments of dividends or bonuses
- No disbursements to owners (except for services), no repayment of stockholder loans
- No expansion of facilities or purchases of fixed assets (barrels are ingredients, so they are OK)
- No repair or replacement of physical damages
- No refinancing of long term debt
For a more complete discussion about the EIDL program check out Alan Gassman’s 7/28/20 article on Forbes.com
Again, the concept is that these are rainy day funds. Even though the virtual tastings and email marketing programs did remarkably well during the first three months of the pandemic, nobody knows yet if we have seen a permanent shift in wine buyer’s habits. Since there is a cost to this ($470 per month for a $150k loan), plan carefully. Only you can decide your level of pessimism with the future state of things and whether this loan will give you some peace of mind. Let’s hope for the best, but plan for the worst.
