According to the Department of Defense, nearly 7 percent of National Guard members are self-employed or run small businesses. With the ever increasing call-ups or extensions of reserve units, few reservist/business owners knew they would be away from their businesses for a year or two at a time - much less how their companies would survive while they were gone.
The U.S. Small Business Administration (SBA) offers help through its Military Reservist Economic Injury Disaster Loan Program (MREIDL). Launched in August 2001 to support business owners and essential employees called up during the Kosovo conflict, the program was expanded several months later to include reservists called to active duty in Afghanistan and Iraq.
An “essential employee” is defined as an individual (whether or not an owner of the small business) whose managerial or technical expertise is critical to the successful daily operation of the small business.
These low-cost working capital loans provide the funds to help eligible small businesses cover operating costs that cannot be met due to the loss of an essential employee called up to active duty in the reserves or Arizona National Guard. The business must also demonstrate substantial economic injury caused by the deployment of the key employee.
“Substantial economic injury” means the company must meet one or more of the following criteria:
• Inability to meet its financial obligations as they mature
• Inability to pay its ordinary and necessary operating expenses
• Inability to market, produce or provide a service ordinarily marketed, produced or provided
Small businesses may borrow up to $1.5 million to cover their obligations until after the employee is released from active duty. The amount a company can borrow is limited to the actual economic injury the business has suffered, as determined by the SBA. The interest rate on the loans is 4 percent, and the SBA will set the maturity of the loan after considering a company’s financial circumstances, up to a maximum of 30 years.
Like the SBA’s other disaster loans, small businesses are required to put up collateral if the loan is more than $5,000. The MREIDL filing period ends 90 days after the business owner or key employee is discharged from active duty and returns to the business.
Documentation needed to apply for the loan includes:
• A copy of military orders for active duty or a copy of discharge papers.
• A statement indicating the reservist is essential to the day-to-day operations of the company, along with a written concurrence by the employee.
• A written explanation and estimate of how the essential employee’s activation to military duty has or will cause economic injury to the company along with a description of the steps the business is taking to alleviate the economic injury.
• A certification from the small business owner noting the essential employee will be offered the same job or a similar job when he or she returns from active duty.
MREIDL applications can be downloaded by visiting the SBA website: www.sba.gov/disaster. More information on the SBA’s Disaster Assistance is on the Web at: www.sba.gov/disaster_recov/index.html. If you have unanswered questions, call the SBA toll-free at 1-800-488-5323 or TTY at (916) 735-1683.
E-mail comments for publication to email@example.com. Contact Bruce Hodgman, deputy district director of the Small Business Administration in Arizona, at firstname.lastname@example.org. The office is at 2828 N. Central Ave., Suite 800, Phoenix 85004. The phone number is (602) 745-7200. Hodgman’s column appears the second week of each month.
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