THE EIDL IS BACK!!!
Effective 6/15/20, the Small Business Administration reopened its Economic Injury Disaster Loan (EIDL) program to all small businesses. This is really good news for any business owner as SBA had been slowly phasing it out since its complementary re-launch alongside the 4/3/20 CARES Act. Initially, the loan limit was $2 million, then reduced to $150,000 then capped at $15,000. It then progressed to just for those businesses in Agriculture industry, then was cut off altogether, quietly, by early May.
The program’s return comes after a June 9 letter from a bipartisan group of House members detailed issues with the original EIDL program. The lawmakers said they were disappointed in the closure and called on the agency to both reopen the loan program and lift the lending cap. They expressed concerns that the program lacked transparency or even a way for applicants to track their loans.
According to their letter, as of May 30, the agency had made 707,613 EIDLs totaling nearly $55.8 billion, despite the fact that Congress had provided $50 billion in lending authority to support $366 billion in new lending. The SBA has since reported about 1.33 million loans approved — for a total of $90.9 billion in total dollars, according to data through June 12.
EIDLs are basically working capital loans to help small businesses, small agricultural cooperatives, small businesses engaged in agriculture, and most private, non-profit organizations of all sizes meet their ordinary and necessary financial obligations that cannot be met as a direct result of the disaster.
The loans can and should be used to pay debts, payroll and other bills — including items not covered in the separate but popular $649 billion Paycheck Protection Program. Additionally, all COVID-19 related expenses for reopening your business, e.g., dividers/”sneeze guards”, masks, gloves, hand sanitizer, air filtration systems, touch-less entries to the office or lounge or restroom, reconfiguration of office layout, can be covered by this loan. An EIDL cannot be used to refinance existing debt. Click here to read more about what’s needed.
These loans will still be capped at $150,000 per company and with an interest rate of 3.75% for businesses and 2.75% interest rate for nonprofits. The EIDL also comes with the chance to apply for a cash advance of up to $10,000. While the loans call for repayment, the cash advances need not be repaid, even for applicants who ultimately don’t receive a loan. However, while the loans are tax-free, the tax status of the advances remains unclear.
Credit Requirements:
- Credit History: Applicants must have a credit history acceptable to SBA.
- Repayment: Applicants must show the ability to repay the loan.
- Collateral: Collateral is required for all EIDL loans over $25,000. SBA takes real estate as collateral when it is available. SBA will not decline a loan for lack of collateral, but SBA will require the borrower to pledge collateral that is available.
- Interest Rates: The interest rate is determined by formulas set by law and is fixed for the life of the loan. The maximum interest rate for this program is 3.750 percent. The interest rate for non-profits is 2.75%.
- Loan Terms: The law authorizes loan terms up to a maximum of 30 years. SBA will determine an appropriate installment payment based on the financial condition of each borrower, which in turn will determine the loan term.
- Loan Amount Limit: Up to $150,000 to alleviate economic injury caused by the disaster. The actual amount of each loan is limited to the economic injury determined by SBA, less business interruption insurance and other recoveries up to the administrative lending limit. SBA also considers potential contributions that are available from the business and/or its owner(s) or affiliates.
- Loan Eligibility Restrictions: Noncompliance – Applicants who have not complied with the terms of previous SBA loans may not be eligible. This includes borrowers who did not maintain required flood insurance and/or hazard insurance on previous SBA loans. Note: Loan applicants should check with agencies / organizations administering any grant or other assistance program under this declaration to determine how an approval of SBA disaster loan might affect their eligibility.
- Refinancing: Economic injury disaster loans cannot be used to refinance long term debts.
Insurance Requirements: To protect each borrower and the Agency, SBA may require you to obtain and maintain appropriate insurance. By law, borrowers whose damaged or collateral property is located in a special flood hazard area must purchase and maintain flood insurance. SBA requires that flood insurance coverage be the lesser of 1) the total of the disaster loan, 2) the insurable value of the property, or 3) the maximum insurance available.
Applicants may apply online, receive additional disaster assistance information and download applications at https://disasterloan.sba.gov/ela. Applicants may also call SBA’s Customer Service Center at (800) 659-2955 or email disastercustomerservice@sba.gov for more information on SBA disaster assistance. Individuals who are deaf or hard-of-hearing may call (800) 877-8339. Completed applications should be mailed to U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.