SBA EIDL Loan
Due to the economic impact of COVID-19, the Small Business Administration has expanded its Economic Injury Disaster Loan (EIDL) program. EIDL is designed to give economic relief to businesses that are experiencing a temporary loss of revenue. These loans are available for small businesses, independent contractors, gig workers, nonprofits, and agricultural businesses. Unlike the Paycheck Protection Program (PPP) loan, the EIDL loans are not forgivable. The filing deadline for an EIDL loan is December 16, 2020 (however, this varies slightly by state).
You can borrow up to $2 million with interest rates of 3.75% for small businesses and farms, and 2.75% for nonprofits. The loan amount is calculated by the SBA based on your operating expenses. Please note that loans over $25,000 may need collateral, and loans over $200,000 may need a personal guarantee. EIDL loans have a long-term repayment of up to 30 years. Payment can be deferred for a year, but interest does accrue.
To be eligible:
• You must be a small business, cooperative, ESOP or tribal business with 500 or fewer employees;
• A small business that meets SBA size standards;
• An individual who operates under as a sole proprietorship, with or without employees, or as an independent contractor; or
• A private non-profit or small agricultural cooperative.
• Your business must be directly affected by COVID-19.
The application is relatively easy and should take around 15 minutes to complete. You can find the application linked below or on the SBA website. The only document you need to apply is an income statement spanning February 2019 to January 2020. The SBA will run a credit check; however, there is no minimum credit score required. If you have damaged credit, apply and include an explanation with your application. Your loan application will be processed by a case manager, so make sure to provide a phone number you will answer and an email address you check regularly. Note that while the SBA hopes to process applications within 21 days, many have experienced a wait time spanning several weeks. Expect delays and be patient. After applying, you will be assigned a loan officer. To decrease the timeline, responding to your loan officer quickly will allow you to reach an agreement faster. If your application is declined, you have six months to provide new information and a written request for reconsideration. If approved, you do not have to accept the loan. Therefore, it doesn’t hurt to apply.
The definition of permitted use of EIDL funds is broad. EIDL loans can be used for:
• Working capital to continue operations
• Necessary expenditures to alleviate the burden caused by COVID-19
• Sick leave to employees unable to work due to the direct effects of COVID-19
• Maintaining payroll (look into PPP loans if this is a major issue)
• Increased supply costs
• Rent or mortgage payments
• Repaying debt that cannot be otherwise repaid
EIDL funds cannot be used towards:
• Dividends and bonuses
• Disbursements to owners
• Repayment of stockholder/ principal loans
• Expansion of facilities or acquisition of fixed assets
• Repair or replacement of physical damages
• Refinancing long-term debt
There is no deadline to spend the funds, but the loan is intended to help businesses recover from the disaster.
The EIDL loan does have some record-keeping requirements. You must maintain “current and proper” records for the most recent five years until three years after your loan maturity or after the loan has been paid in full. These records include an income statement, balance sheet, insurance policies, tax returns and related filings, records of earnings or dividends distributed, and records of compensation to owners or shareholders.
In addition to the SBA’s EIDL program, you can also apply for a grant of up to $10,000 that does not need to be repaid. This grant is supposed to help small businesses during the critical time spent waiting for a final decision on their loan. You can earn $1,000 per employee, up to ten employees. Independent contractors are entitled to $1,000 only. To apply, you simply need to check the box on the EIDL loan application indicating that you would like to be considered for the advance and fill in your banking information. Please note that while the SBA predicts that you’ll receive the grant “within days,” many have experienced various timelines spanning weeks. When the SBA does process your request, the grant will be automatically deposited without notification, so keep an eye on your account.
Once you receive the grant, it does not need to be repaid, but your final loan will require repayment. If you don’t qualify for the EIDL or decline the loan, you can still keep the grant. As far as eligibility, if you are eligible for the SBA EIDL, you are eligible for the grant. However, since the SBA has depleted its budget, there will be no more advances (unless the government releases more funding). Please note that if you have received/ will receive a loan under the Paycheck Protection Program (PPP) and are eligible for loan forgiveness, this grant will reduce the amount eligible for forgiveness. Additionally, you cannot use the EIDL and PPP for the same purposes (e.g., the same payroll period). However, you are allowed to have more than one SBA loan.
For more information about EIDL loans visit the US SBA website. For more information regarding other SBA loans visit the US SBA website or read our blog post about the PPP loan. For any additional questions, please be sure to reach out to our office or visit our website at www.hopeaccountingfirm.com.