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SBA Economic Injury Disaster Loans (EIDL) and COVID-19

Businesses suffering economically because of the COVID-19 can now apply for SBA Economic Injury Disaster Loans (EIDL).  EIDL and COVID-19

The Small Business Administration (SBA) has reopened the Economic Injury Disaster Loan (EIDL) Program to all businesses affected by the coronavirus pandemic.  In addition to the Paycheck Protection Program (PPP), SBA is enabling Economic Impact Disaster Loans (EIDL) to be used for COVID-19 relief.

SBA EIDL and COVID-19Before the coronavirus pandemic, the EIDL program provided financial support to small businesses and private, nonprofit organizations that face specified declared disasters. 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded the program to make it easier for borrowers affected by the COVID-19 fallout to get a loan. The Interim Stimulus Bill replenished the program’s depleted accounts with $60 billion in additional funding. Additionally, the CARES Act also authorized $10,000 advances that are forgivable if the proceeds are spent on payroll.

If you had submitted your EIDL application before the SBA stopped accepting them, it is on a first-come, first basis. (As of June 12th, almost $91 billion has been approved for loans).  

If you haven’t applied yet, we can accept your application.  

Additionally, you may be eligible for other aid programs.

What Is an Economic Injury Disaster Loan (EIDL)

An EIDL is a loan of up to $2 million (The New York Times has reported that the SBA is unofficially capping the amount to $15,000 because of the high number of applications that have been received). With a maturity of up to 30 years, EIDLs are designed to help carry businesses through tough times caused by a disaster, such as the COVID-19 pandemic.  

Economic Injury Disaster Loans (EIDL) are designed to help carry businesses through challenging times caused by a disaster, such as the pandemic. Like the PPP, these funds are intended to cover payroll and other operating expenses that the business could have otherwise met without suffering through a disaster. Funds cannot be used for refinancing, making loan payments on other federal debts, to repair physical damages, to pay IRS tax penalties or to pay out dividends.

Specific loan amounts depend on the amount of economic injury that a business has suffered. 

The SBA determines this amount on a case-by-case basis after a business submits its application. 

However, the SBA announced that due to the large number of applications that have been received, it is limiting disbursements to $15,000 for two months – and it is reportedly capping total loan amounts to $150,000.

Interest rates on EIDLs can be as high as 3.75% for companies and 2.75% for nonprofits. 

Principal and interest payments of EIDLs can be deferred for up to one year.  

Emergency EIDL Grants and Advances

The new bill includes another $10 billion for the SBA to provide businesses with quickly accessible advances of $10,000. Companies that use these funds to help pay for paid leave, payroll, COVID-19 related costs, and more will see the advance become a grant. Once this takes place, the business will no longer need to pay back the advance they received. In addition to the cap for initial disbursements, the SBA recently announced that the advance is limited to $1,000 per employee, meaning that you would need to have at least ten employees to receive the full $10,000 advance.

Grants can be used by small businesses for a number of purposes, including providing paid sick leave, payroll, paying production costs, paying rent or mortgages on places of business and anything else to help with the continuity of the business.

In order to be eligible, companies must have been in business by January 31, 2020. These grants are available to all businesses and organizations that are eligible for EIDLs.

Who Is and Is Not Eligible for an EIDL?

In the past, EIDLs were available only to small businesses and nonprofit organizations. They are also accessible on a case-by-case basis to businesses affected by more specific business disasters in a given state or city.

Because of the CARES Act, EIDLs are now available to small businesses with 500 employees or less, nonprofits, tribal businesses, cooperatives, employee stock ownership plans (ESOPs), sole proprietors and independent contractors. The new bill also adds farmers and ranchers whose enterprises employ 500 or fewer people.

There are, however, some things that may disqualify a business for EIDL eligibility. 

Applicants will be turned away if they:

  • Derive revenue from sexual depictions or products
  • Are engaged in illegal activities
  • Derive more than a third of their annual income from gambling activities
  • Are in the business of lobbying
  • Are a government entity

SBA EIDL and COVID-19

The CARES Act was signed into law by President Trump on March 27, 2020. This bill provides economic stimulus in several ways, including for EIDLs. The bill allocated $562 million to the EIDL program, which quickly ran out. The program has since received another allocation of $60 billion.

The EIDL program has been expanded to be available to more kinds of businesses. It also provides cash advances up to $10,000 that are forgivable.

What Is the Difference Between the Paycheck Protection Program (PPP) and EIDLs

The Paycheck Protection Program (PPP) has been funded to the tune of $659 billion by the last two stimulus bills. The program provides eligible businesses, sole proprietors, independent contractors, and self-employed individuals with potentially forgivable loans of 2.5 times their average monthly payroll costs, excluding compensation above $100,000 per employee, up to $10 million.

The PPP will forgive businesses up to eight weeks’ worth of payroll costs. It will also forgive eight weeks of non-payroll costs (rent, mortgage interest, and utilities), up to 25% of the loan amount. Loan terms include a 1% interest rate, a two-year maturity period, and a six-month payment deferral.

The PPP ties into the EIDL program because businesses and organizations that received EIDLs between January 31, 2020 and April 3, 2020 have the option of refinancing their EIDL into a PPP loan if they used the EIDL to cover payroll costs. If the business received an emergency EIDL grant, that amount would be subtracted from the forgiven PPP loan amount. 

Wrapping it all up

Economic Injury Disaster Loans or EIDLs are intended to help businesses and organizations get through any economic crisis or disaster. The low-interest loan enables firms to continue to function as they work through a financial storm.  

In the case of the coronavirus pandemic, the EIDL program has been expanded. EIDL advances, which can become grants, along with the ability for borrowers to refinance their EIDLs into PPP loans, seek to help more businesses keep their doors open and employees on their payroll

Contact us to apply for an EIDL or just to ask questions.  We are here to help.

 

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