Economic Injury Disaster Loan (EIDL)

Economic Injury Disaster Loan – APPLICATIONS RE-OPENED on June 15th

Updated June 17, 2020

 

On June 15, 2020, the U.S. Small Business Administration (SBA) reopened the Economic Injury Disaster Loan (EIDL) and EIDL Advance program portal for qualified small businesses and U.S. agricultural businesses. The SBA resumed processing EIDL applications that were submitted before the portal stopped accepting new applications on April 15, 2020. EIDL applications will be processed on a first-come, first-served basis. 

 

Timeline of Economic Injury Disaster Loan (EIDL) and Economic Injury Disaster Loan Emergency Advances

March 27, 2020 – Original EIDL enacted as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”)

  • The CARES Act created the EIDL to help U.S. small businesses and non-profits receive long-term, low interest loans and emergency grants. EIDL assistance can be used to cover expenses usually paid for with business revenues.

 

March 28, 2020 – EIDL applications open for small businesses and sole proprietorships

 

March 30, 2020 – SBA rolled out new EIDL application process

  • The SBA updated and streamlined its application process that small businesses are to follow in order to apply for the EIDL.
  • If a business applied before March 30, 2020, the business must apply again via the new process in order to be eligible for an Economic Injury Disaster Loan Emergency Advance of up to $10,000. The new process can be found here: https://covid19relief.sba.gov.

 

April 15, 2020 – Initial $10 billion of EIDL funding was exhausted. SBA suspended the processing of EIDL applications.

  • Major Change to Economic Injury Disaster Loan Emergency Advances:
    • On April 15, 2020, the SBA announced that the amount of this advance amount would NOT be $10,000 per applicant (as originally crafted), but rather would be based on an applicant’s employee head count as of January 31, 2020:

“To ensure that the greatest number of applicants can receive assistance during this challenging time, the amount of your Advance will be determined by the number of your pre-disaster (i.e., as of January 31, 2020) employees. The Advance will provide $1,000 per employee up to a maximum of $10,000.”

 

April 24, 2020 – Paycheck Protection Program and Health Care Enhancement Act (the “PPP & HCE Act”) was passed and added $60 billion in additional funding to the  EIDL program

  • Agricultural Businesses now eligible. The added eligibility for U.S. agricultural businesses was a result of additional funding appropriated by Congress.
    • Agricultural businesses includes those businesses engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural related industries (as defined by section 18(b) of the Small Business Act (15 U.S.C. 647(b)).
    • For agricultural businesses that submitted an EIDL application through the streamlined application portal prior to the legislative change, SBA will process these applications without the need for re-applying.
  • Focus on Small Businesses. Of the $60 billion added to the EIDL program, $50 billion was directed to loans for small businesses and the remaining $10 billion will be added to the Economic Injury Disaster Loan Emergency Advances that will not be required to be repaid by businesses.

 

June 15, 2020 – SBA reopened the EIDL and EIDL Advance program portal to eligible applicants

Who is eligible to apply for EIDL?

The EIDL loans are for small businesses, as defined by the SBA, that are suffering from significant economic negative effects due to the coronavirus outbreak and that cannot get credit or capital elsewhere. Generally, small businesses have fewer than 500 employees.

SMALL BUSINESS DEFINITION: Review the SBA’s size standards here: https://www.sba.gov/managing-business/running-business/size-standards.

Which states qualify to apply for a federal SBA EIDL?

All Indiana counties are eligible for these loans. SBA has signed emergency declarations for all 50 U.S. states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, so the EIDL program will be available to assist small businesses across the country that have been adversely impacted by COVID-19. 

 What can the EIDL be used for?

These working capital loans may be used to pay:

  • fixed debts
  • payroll support (such as employee salaries, paid sick or medical leave*, insurance premiums)
  • mortgage, rent, and utility payments
  • accounts payable
  • other bills that could have been paid had the disaster not occurred

*If employers provide leave through the Emergency Family Medical Leave Expansion Act or the Emergency Paid Sick Leave Act and receive the available tax credit reimbursement, the EIDL funds may not be used to cover this cost also.

What uses of funds are prohibited with the EIDL?

The EIDL loans will NOT cover fixed assets or physical damage. Borrowers cannot expand their business, buy assets, make repairs to real estate or refinance long-term debt with EIDL loans. Further, the EIDL was not intended to replace lost sales or profits.

What is the Economic Injury Disaster Loan Emergency Advance?

In addition to the EIDL, each applicant is eligible to apply for an Emergency Grant advance of up to $10,000 when applying for an EIDL. The amount of this advance amount would be based on an applicant’s employee head count as of January 31, 2020, and shall total $1,000 per employee, up to $10,000.

If an EIDL loan application is denied, the amount received as the Economic Injury Disaster Loan Emergency Advance will not have to be repaid by the small business. This advance is meant to be released into a small business’s checking account very quickly after approval or denial of the EIDL loan.

What amounts and terms are available under the EIDL?

The maximum loan amount under EIDL is $2 million and the maximum term is 30 years. The amount of the loan will be determined by SBA based on the credit worthiness of the business borrower. Payments on the loan’s principal (not interest) will be deferred for 12 months from the disbursement date.

Is this loan or a grant?

The EIDL is a loan and not eligible for loan forgiveness (like the Paycheck Protection Program) – only the funds received (up to $10,000) under the Economic Injury Disaster Loan Emergency Advance may be considered a grant.

 Is a guarantee required for an EIDL?

If the loan amount is more than $200,000, a personal guarantee is required from any person with a 20% or greater interest in the business.  

 What are the interest rates for an EIDL?

Interest Rates are set at:

  • 3.75% for profit company
  • 2.75% nonprofit corporation

 What collateral is required for an EIDL?

Loans under $25,000 will not require collateral. Loan amounts that exceed $25,000 will require collateral (for example: a third or higher lien position on real estate). A borrower’s pledge may be required on whatever collateral is available, but an EIDL will not be denied due to lack of collateral.  Borrowers must be mindful of loan covenants on existing loans.  For example, loan documents often prohibit additional liens on assets and restrictions on additional borrowing.  Borrowers with existing loans should check their loan documents and reach out to their banks to obtain any necessary get consent for EIDL.

 What is the timeline* for the funding?

Application Deadline

December 31, 2020

Emergency Grant (up to $10,000)

3 days from submission of application and certification

Loan Approval

21-30 days from submitting complete application

Loan Funding

3-4 days after approval

If my business has poor credit, will it be approved for an EIDL?

Credit underwriting is required for an EIDL. If a business has poor credit or has defaulted on a prior SBA loan or has credit available from another source, the business will not be eligible for an EIDL.

What if I have another SBA loan or file an application for another SBA financing vehicle?

A business or nonprofit may apply for another COVID-19 relief loan for which it is eligible so long as the expenses covered under the other loan do not overlap with the expenses covered under the EIDL (no double dipping), and it cannot consolidate the loans.

What if my business cannot make payments on my existing SBA loan? How can I get a deferral for these payments?

If your business cannot make payments on its existing SBA loan, it may apply for a disaster loan. In addition, we recommend you contact your bank and ask for a deferral. SBA loans that are sold on the secondary market may be eligible for a 3-month deferral of payment (banks have a one-time unilateral right without investor consent to approve this). If the SBA loan was retained by the lender, it is eligible for up to a 6-month or 20% of the loan amount deferral. Further, the loan’s maturity date may be extended to the program date.

What if my business needs funds immediately and cannot wait for the EIDL timing?

Commercial lending partners may offer other SBA financing options, such as express loans of up to $350,000 and/or SBA 7(a) loans up to $5 million. The 7(a) loans are typically processed within 30 days, while microloans and express loans can be processed even more quickly. See: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

SBA UPDATES: With the updates and changes to law coming rapidly and often, you may sign up to receive updates from the SBA directly at: https://www.sba.gov/updates.

The information above is intended to act as a general resource and therefore does not address all considerations and jurisdiction-specific analyses that may need to be undertaken prior to taking action. Thus, employers should seek specific counsel.