What small businesses need to know about L.A.’s new emergency microloans

The coronavirus has thrown the economy and especially small businesses into crisis, with restaurants, shops and beauty salons among the enterprises sending workers home as customers vanish. In response, Los Angeles Mayor Eric Garcetti has announced an emergency loan program to put $5,000 to $20,000 into the hands of desperate owners within a few weeks if not sooner.

“Small businesses are the backbone of our economy, and the whole purpose is to help these businesses at a very difficult time,” said Carolyn Hull, general manager of the Economic and Workforce Development Department, which is running the lending program.

The $11-million loan fund is expected to serve 550 to 2,500 businesses, depending on the mix of applicants, which must have at least one employee and in the retail sector can have as many as 500. The loans come with no to low interest and there is no application fee. However, applicants must meet basic underwriting criteria.

Here’s what applicants need to know:

General terms

Businesses must have their primary operation in Los Angeles. The loan amounts of $5,000 to $20,000 come with 0% interest or 3% to 5% depending on creditworthiness and other factors. Terms range from six months to five years. The overarching purpose of the program is to retain low-income jobs, and the loans are not intended as an unsecured credit facility, meaning the city is preferring applicants provide collateral.

Display need and cash flow

Principal owners of the business will have to show that their company was affected by the coronavirus outbreak, they have made money in the past and their historical profits are adequate to repay the loans. The funds can be used only for “reasonable and eligible working capital expenses,” which could mean supplies and salaries, but not a new display case or tenant improvement.

Credit requirements

The principal business owner must have a “reasonable and responsible personal credit history,” which means that although credit blemishes do not disqualify applicants, they must have an acceptable explanation for any derogatory marks. Owners who have stakes of 20% or more in their business must personally guarantee the loan, with a co-signer allowed to make up for applicants with a weak credit history.

Steps to take and documentation needed

Complete an online loan application and provide one year of business tax returns or an interim business financial statement if that is not possible. The city also wants to see a personal financial statement, one year of personal tax returns and three months of bank statements.

Links and more information

Businesses that meet the basic qualifications can apply online. Additional information is available on the Los Angeles City Small Business Emergency Microloan Program website and via email at [email protected]. The city is also encouraging business owners to review its coronavirus resilience tool kit.