Among the economic relief provisions for businesses in the Coronavirus Aid, Relief and Economic Security Act (CARES Act) is an expansion of the existing Economic Injury Disaster Loan program (EIDL) with expanded eligibility and more favorable loan terms, i.e., lower interest rates and longer terms. Even if the loan is ultimately denied, the applicant may obtain an emergency EIDL grant of $10,000 within a matter of days. The business does not have to accept the loan and can still keep the grant. The grant does not have to be repaid.
The EIDLs and the emergency EIDL grants are issued directly by the Small Business Association (SBA). Applications are submitted online to the SBA through the SBA website. The SBA offers assistance to businesses in completing the application process. Click here for instructions on filing the application.
While applications for Paycheck Protection Program loans became available April 3, 2020, and the regulations are still being finalized, there is no reason to delay filing for an EIDL. Applications for an EIDL can, and should be, made immediately.
Who Is Eligible To Apply For EIDLs And Emergency EIDL Grants?
EIDLs are available to small businesses, private nonprofit organizations (eligible non-profit organizations are broadly defined), cooperatives, Employee Stock Ownership Plans with fewer than 500 employees, sole proprietorships, independent contractors, small agricultural cooperatives and tribal businesses with fewer than 500 employees that were in operation by January 31, 2020. Because of the pervasive spread of COVID-19, businesses resident in any of the 50 states, the District of Columbia and U.S. territories are eligible for the EIDLs. To obtain an EIDL, applicants must establish they have suffered a substantial economic injury from COVID-19, and they must have the ability to repay the loan. Interested applicants should apply as soon as possible as funding is limited.
What Is The Maximum Size And Terms Of The Loan?
Loans up to $2,000,000 are available, depending on the size and type of business. The interest rate is 3.75% for for-profit businesses and 2.75% for non-profit businesses, with a maximum term of 30 years. No payment is due for one year. While interest accrues during the deferment period, there is no prepayment penalty.
What Are The Collateral Requirements?
Collateral is required for loans above $25,000.
Is A Personal Guarantee Required?
Loans up to $200,000 do not require a personal guarantee, but may be required for loans over that amount. An owner of more than 20% of the borrower may have to provide a personal guarantee.
How Does An Applicant Demonstrate That It Is Creditworthy?
Approval is based on the business’ credit score or an appropriate alternative method of determining the applicant’s ability to repay. Tax returns are not required.
How Does An Applicant Demonstrate An Economic Injury?
To establish a qualifying economic injury, the business must demonstrate an inability to meet its obligations as they mature or pay its ordinary and necessary operating expenses as a result of COVID-19. This can be shown by comparing financial information from the prior year with the current year, with the difference associated with COVID-19.
How Can The Loan Proceeds Be Used?
The loan funds can be used to pay fixed debts, payroll, accounts payable and other operating expenses that could have been paid if the disaster had not occurred.
How Can A Business Obtain The Expedited EIDL Grant?
Applicants for an EIDL can request a $10,000 advance on the loan, which will be subtracted from the final loan amount. This advance/grant is to be issued by the SBA within three days after receipt of the loan application. Even if a loan is ultimately denied, the business retains the grant. In advance of disbursing the grant, the SBA requires the borrower to certify, under penalty of perjury, that it is eligible to apply for an EIDL. The EIDL grant can be used for paid sick leave, payroll, increased costs, rent or mortgage payments, or repaying obligations that cannot be met due to revenue losses.
How Long Are The EIDL Grants Available?
The grants are available from January 31, 2020, to December 31, 2020. Eligibility is backdated to qualify those who have previously applied for an EIDL to receive a grant.
Can Businesses Apply If They Have An Existing SBA Disaster Loan?
A business with an existing SBA disaster loan can qualify for an EIDL, but the loans will not be consolidated.
What If Circumstances Require An Increase In The EIDL Loan Amount?
If the business determines the initial amount of the loan is insufficient due to changed circumstances, it can apply to increase the amount of the loan.
Can A Business Apply For Both A PPP Loan And An EIDL?
A business can apply for both a PPP loan and an EIDL, and it can obtain both loans provided the proceeds from the two loans are not used for the same expenses. The EIDL is likely to be granted more quickly than a PPP loan. If the PPP loan is approved, it may be used to refinance the EIDL. Any advance EIDL payment will be subtracted from the PPP loan forgiveness amount.
What Documentation Will Be Required For The EIDL?
While a 2019 tax return is not required, a business must submit IRS Form 4506 T and a statement of liabilities along with the EIDL application forms.
When Can A Business Apply For An EIDL?
A business can and should begin the application process immediately. There is no obligation to accept the loan if you qualify.
How Will The Applicant Know If The Application Is Complete?
An SBA loan officer will work with an applicant to make sure all of the necessary information is supplied.
Are There Resources To Assist With The EIDL Application Process?
Local Small Business Development Centers are available to assist with the application process. Find your local center here.
