Economic Injury Disaster Loan Program (EIDL)

The Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 was signed into law by the President on March 6, 2020. It provided emergency funding for federal agencies to respond to the coronavirus outbreak, enabling the Small Business Administration’s (“SBA”) disaster loans program for entities financially impacted as a result of the coronavirus.

The SBA’s Economic Injury Disaster Loans (“EIDLs”) aren’t new. They’ve always been available in the event of disaster. However, this is the first time a virus or pandemic event has been defined as a disaster. Because of that declaration, businesses in every state and territory are now eligible to apply for EIDLs.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, enacted March 27, 2020, expanded the SBA’s existing EIDL Program for the covered period (January 31, 2020 to December 31, 2021), providing for longer-term loans with favorable borrowing terms.

Description

The SBA’s EIDLs are based on working capital needs. The EIDL program provides small businesses with working capital loans of up to $2 million to help overcome the “economic injury” caused by the COVID-19 pandemic. In other words, to qualify for an EIDL, the applicant must have suffered “substantial economic injury” from COVID-19.

The loans may be used for acceptable working capital purposes, paying fixed debts, payroll, accounts payable, or other bills that can’t be paid because of the COVID-19 outbreak. EIDL is not to replace lost sales, enhance profits, refinance long-term debt, or fund expansion opportunities.

Eligible Entities and Persons

Enterprises allowed to participate in the EIDL include:

An individual who operates as a Sole-proprietor
An individual who operates as an Independent contractor
A business with not more than 500 employees
A cooperative with not more than 500 employees
An Employee Stock Ownership Plan (ESOP), as defined in 15 U.S.C. 632, with not more than 500 employees
A tribal small business concern, as described in 15 U.S.C. 657a(b)(2)(C), with not more than 500 employees
A business, including an agricultural cooperative, aquaculture enterprise, nursery, or producer cooperative, that is small under SBA Size Standards found here.
A business with more than 500 employees that is small under SBA Size Standards found here.
A private non-profit organization that is a non-governmental agency or entity that currently has an effective ruling letter from the IRS granting tax exemption under sections 501(c), (d), or (e) of the Internal Revenue Code of 1954, or satisfactory evidence from the State that the non-revenue producing organization or entity is a non-profit one organized or doing business under State law, or a faith-based organization

NB:

The number of employees is determined together with affiliates.
Cannabis companies, won’t qualify, as their business is still illegal on the federal level, despite being legal in 11 other states and D.C.

Loan Terms

Loans are approved by the SBA based solely on an applicant’s credit history or other means of determining the applicant’s ability to repay the loan, without requiring the submission of tax returns, which should expedite approval of EIDLs during the covered period
Loans up to $200,000 do not need a personal guarantee
However, unless changed by the SBA, it appears that the requirement for collateral on EIDL loans over $25,000 would still apply, and, in processing a borrower’s application, the SBA must make a determination that the applicant has the ability to repay the loan.
There are no upfront fees or early payment penalties charged by SBA.
The repayment term will be determined on case-by-case basis based on each borrower’s ability to repay – up to a maximum term of 30 years
Interest Rates are 3.75% for small business and 2.75% for non-profits
Borrowers can receive $10,000 in an emergency grant cash advance…within 3 days of business submitting EIDL application.
- This advance is essentially a grant and is not required to be repaid, even if the application is denied.
- This advance is forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments, or repaying obligations that cannot be met due to revenue loss.
- The amount of the advance must be deducted from any loan forgiveness amounts under a Paycheck Protection Program (“PPP”) loan.
No requirement to prove you tried and failed to get credit elsewhere
To qualify, applicant has to have been in business by January 31, 2020

Application Process

Apply online for EIDL directly through SBA’s website. Click here or here.

(Caution – Make sure to apply for “Economic Injury” for the Coronavirus, rather than physical damage due to another disaster).

SBA disaster assistance customer service center contact info:

1-800-659-2955 (TTY: 1-800-877-8339)
E-mail: disastercustomerservice@sba.gov

Required Documents

As listed on the application, the SBA may require the following documents to be submitted along with the EIDL application:

Businesses can take out both PPP Loans & SBA Disaster Loans, if they qualify, as long as they cover different expenses (not a duplicative purpose).

For detailed information on SBA programs for the coronavirus, please click here and for information on all federal programs, click here or here for Español.

The Federal government’s response to the COVID-19 crisis continues to evolve. New guidance is being issued frequently. The COVID-19-related EIDL program is evolving. We will do our best to keep you informed of important developments.

If you have questions about the SBA’s COVID-19 EIDL program, please contact your HM&M tax advisor.

For more information check out HM&M’s COVID-19 Resources page.

HM&M COVID-19 Resources