By now most small business owners know that the CARES Act, through the Small Business Administration (SBA), offers financial relief through two targeted loan packages—the new Paycheck Protection Program (PPP) and the existing Economic Injury Disaster Loans (EIDL) program.
The SBA announced June 15, 2020 that it is once again opening up the EIDL loan and loan advance program to all eligible borrowers.
This article deals with the EIDL program and a unique feature of that program known as the Economic Injury Disaster Loan Emergency Advance. This part of the EIDL program provides up to $10,000 in emergency relief that does not have to be repaid, making it effectively a grant. To receive the advance, you must apply for an EIDL.
Whether your EIDL is approved or not, the advance does not have to be repaid and you should receive it within days following a successful EIDL application, according to the SBA.
- As of June 15, 2020, the SBA is once again accepting EIDL Advance and loan applications from all eligible borrowers.
- Covid-19 related EIDL loans include an up-to-$10,000 forgivable advance.
- You must qualify as a small business by number of employees.
- Maximum loan is $2 million, with the exact amount based on economic injury suffered.
- The normal EIDL application has been streamlined and should take about 2 hours.
- The SBA says your loan advance should come in a few days.
To qualify for an EIDL, your business must meet the definition and size standards of a small business and be located in a declared disaster area.
According to the Small Business Administration a small business:
- Is organized for profit.
- Has a place of business in the U.S.
- Operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.
- Is independently owned and operated.
- Is not dominant in its field on a national basis.
If your business employs 500 or fewer people, you are likely considered a small business and therefore eligible for this program, including the loan advance. However, number of employees is higher for businesses in some industries. The SBA Table of Small Business Size Standards shows whether your industry allows more employees. References to alternate use of receipts (income) instead of number of employees do not apply for the COVID-19 EIDL.
Since the coronavirus (COVID-19) pandemic applies to all 50 U.S. states; Washington, D.C.; and U.S. territories, virtually any small business in the United States and its territories qualifies by location.
In addition to what most people would consider a business, these standards and loan availability options also apply to sole proprietorships, independent contractors, and self-employed persons.
Loan Approval Conditions
The following loan approval conditions reflect some relaxing of traditional EIDL loan stipulations:
- You can borrow up to $200,000 without a personal guarantee.
- First-year tax returns are not required and approval can be based on credit score.
- You do not have to prove you could not get credit elsewhere.
- Loans of $25,000 or less require no collateral. For loans above $25,000, general security interest in business assets can be used.
- You must allow the SBA to review your business tax records.
The amount of your forgiveable advance/grant will be determined by number of employees at $1,000 each with a maximum advance of $10,000.
COVID-19 EIDLs are designed to provide economic relief if your business is currently experiencing a loss of revenue due to the pandemic. The $10,000 loan advance exists to provide more immediate relief while you wait for the proceeds of your regular EIDL loan.
You can apply for an EIDL of up to $2 million to provide working capital for expenses such as fixed debt and payroll costs. The interest rate is 3.75% and the loan term can be as long as 30 years. The COVID-19 EIDL includes an automatic one-year deferral on repayment, though interest begins to accrue when the loan is disbursed.
The amount of your up to $10,000 grant, which you request when you fill out your EIDL application, is determined by the number of employees you have at $1,000 per employee with a maximum grant of $10,000. For example: If you have three employees, you will receive $3,000. That amount will be deducted from the loan forgiveness amount of any PPP loan you receive and should arrive within days of your EIDL loan application, according to the SBA. As noted above, whether you ultimately qualify for an EIDL, the grant money is yours and does not have to be repaid.
Your entire loan advance (up to $10,000) can be forgiven if you use the money for paid leave, maintaining payroll, mortgage, or lease payments.
EIDLs are funded by the Small Business Administration so you make your application with the SBA. For the COVID-19 version of EIDL, the application process has been streamlined and the SBA says it should take you two hours and ten minutes or less to complete.
The application starts with a disclosure section that describes the loan and states that the information collected will be used to determine whether you are eligible. It includes a warning that if you do not provide all requested information, your loan will not be processed, as well as a reminder that the SBA is relying on your self-certification of eligibility to receive the advance (if you apply) and that there is a perjury penalty if you are not truthful. After verifying your eligibility on the Disclosure page, you will continue to a Business Information section.
This section is the longest and requires your income statement as of January 31, 2020. It is important to note that not all answers are required. Sections marked with a red star must be filled out. If not so marked, only fill them out if they apply to your business.
Business Owners Information
Here you will need to indicate whether your business is fully owned by another business. If owned by individuals, you need to provide information on each owner with a 20% stake or more. Information requested will include:
- Social Security Number
- Citizenship status
- Street address
This section includes questions about criminal charges against any owners, then proceeds to submission of the application. Before submitting, make sure you check the box indicating you want to be considered for the up to $10,000 advance.
Also double check your bank information to ensure a smooth process when it comes to direct deposit of your funds.
The application can be found on the SBA Disaster Assistance web page. You must apply no later than Dec. 16, 2020, in most states. A few have extended the deadline to Dec. 21.
An EIDL loan can be refinanced into a PPP loan.
You Can Apply for a PPP Loan, Too
SBA guidance allows you to apply for a PPP loan in addition to an EIDL, so long as you don't use the funds from each loan for the same expenses. For example, if you decide to apply for a PPP loan and use those funds strictly for payroll, you cannot subsequently use funds from an EIDL for payroll, as well.
When to Expect Your Funds
After you submit your application you will be assigned a loan officer. The quicker you respond to any questions they have, the faster your application will be processed. You should receive your loan advance within days of successfully filing your application. The EIDL loan will take longer and—since this involves an unprecedented amount of money over the entire country—it will likely take longer than usual.