The Economic Injury Disaster Loan Program (EIDL): What Business Owners Need to Know

The Economic Injury Disaster Loan program (EIDL), run under the Small Business Association, isn’t new. But it’s getting quite a workout as we navigate the economic ramifications of the coronavirus pandemic. The CARES Act, the $2.2 trillion economic stimulus package signed into law on March 27th, beefed up the benefits available under the program, while expanding eligibility.

This program provides assistance in the form of low-interest loans to businesses, renters and homeowners located in areas affected by declared disaster areas. Small business owners in all 50 U.S. states, the District of Columbia and all U.S. territories are eligible to apply.

These loans are not intended to replace lost income or revenue to the business. These are meant simply to keep qualifying businesses, as well as self-employed individuals, independent contractors and sole proprietorships afloat during the period of time affected by the crisis.

The Basics

• EIDL provides assistance in the form of low-interest loans to businesses and certain individuals who have been financially affected by a disaster.
• Borrow up to $2 million
• Up to $200,000 is available without a personal guarantee.
• No collateral required for loans of up to $25,000.
• Loans have an interest rate of 3.75% for most borrowers. Non-profits will pay an interest rate of 2.75%.
• Payment terms as long as 30 years – based on ability to repay.
• No up-front fees or pre-payment penalties.
• Payments are automatically deferred for 12 months.
• Emergency loan advances available up to $10,000. These do not have to be repaid. See below for more information on the EIDL Emergency Advance program.

Who is eligible?

• Businesses and cooperatives with not more than 500 employees;
• Independent contractors;
• Self-employed individuals;
• Sole proprietorships;
• Businesses that meet the small business size standard criteria for their industry set by the SBA. To see if your business qualifies, use this online size standard tool.
• Employee Stock Ownership Plans (ESOPs);
• Tribal small business concerns (as described in 15 U.S.C. 657a(b)(2)(C), with not more than 500 employees;
• Faith-based organizations, click here for a useful FAQ regarding participation in EIDL and PPP.

To qualify for coronavirus-related aid, the borrower must have been in business as of January 31st, 2020, and have suffered economic injury related to the pandemic.

Businesses with access to credit from other sources are not eligible for the SBA’s EIDL program. However, they may be eligible for the Paycheck Protection Program loan.

Disqualifications

You are not eligible for EIDL assistance if one or more of the following circumstances apply:

• You are engaged in any illegal activity (as defined by federal guidelines);
• Anyone with an ownership interest of 50 percent or greater is more than

60 days delinquent on child support;

• You are an agricultural enterprise (e.g., farm), other than an aquaculture enterprise, agricultural cooperative, or nursery;
• Your business presents live performances, sale of products, any depictions or displays of a prurient sexual nature (directly or indirectly);
• You derive more than one-third of your gross annual revenue from legal gambling activities;
• You are in the business of lobbying;
• You are a state, local, or municipal government entity;
• You are a member of Congress.

Underwriting

The CARES Act authorized the SBA to waive or streamline a number of its normal EIDL underwriting and processing requirements in order to get funding out fast. At press time, here are the latest underwriting rules and requirements.

• Approval can be based on a credit score, or even on ‘alternative appropriate methods.’
• No personal guarantee required on amounts up to $200,000.
• The SBA is waiving the normal “credit elsewhere” test. This means that you do not have to prove you do not have access to credit from other lenders in order to qualify for aid. You can still apply even if you have other lenders willing to extend credit.
• No collateral is needed on loan amounts of $25,000 or less.
• For loans of $25,001 and higher, collateral is required — but it doesn’t necessarily have to be real estate. The SBA can accept a general security interest in business assets as collateral.
• For loans of $500,000 or less, the SBA will accept a self-certification (subject to penalty of perjury that the borrower is a qualifying small business concern.
• Prior year tax returns are not required.

The EIDL Emergency Loan Advance Program

The Economic Injury Disaster Loan program isn’t new — but the EIDL Emergency Loan Advance program is!

The Emergency Loan Advance program was created by the CARES Act, the massive coronavirus aid and stimulus package for businesses and workers that was signed into law on March 27th, 2020.

The EIDL Emergency Loan Advance Program provides for an emergency advance of up to $10,000 to qualifying small businesses, including sole proprietors, independent contractors and self-employed individuals.

• The advance doesn’t have to be repaid, but the rest of the EIDL loan does.
• The advance isn’t automatic. To receive it, you first have to apply for the Economic Injury Disaster Loan. Then you have to specifically request the advance.
• If you previously applied for an EIDL and did not request an advance, or you applied before the advance program was authorized, you should fill out a new application and request the advance.
• The EIDL Emergency Loan Advance program is designed to get money out fast. You should receive funding within just a few days of a successful application.
• The program is available through December 31st, 2020.
• If you receive a Paycheck Protection Plan benefit, any EIDL loan advance received will be subtracted from any loan amounts eligible for forgiveness under that plan.

Learn more about the Economic Injury Disaster Loan Emergency Advance.

Eligible EIDL Emergency Advance Program uses

You can use your EIDL advance for any purpose allowable under section 7(b)(2) of the Small Business Act (15 U.S.C. 636(b)(2)), including:

• Payroll expenses;
• Paying sick leave to workers affected by the COVID-19 virus;
• Maintaining payroll to avoid furloughing or laying off employees;
• Meeting increased costs due to supply chain disruption caused by disaster;
• Making rent or mortgage payments;  
• Repaying obligations that cannot be met due to revenue loss.  

How to Apply

Click here to access the EIDL application form.

Be prepared to submit a profit and loss statement for the period January 31st, 2019 to January 31st, 2020.

If you’ve frozen your credit report, you’ll need to unfreeze it while you apply.

If you’re applying for an EIDL loan for another disaster, unrelated to the coronavirus, click here.

Coordination With Other Programs

You cannot receive a Paycheck Protection Program loan in addition to an Economic Injury Disaster Loan through the SBA for the same purposes. However, if you have an EIDL loan unrelated to COVID-19, you may still apply for a Paycheck Protection Plan loan.

If you took out an Economic Injury Disaster Loan (EIDL) between Feb. 15 and June 30, 2020, and used the proceeds for payroll, you are required to use any funds received to refinance that loan into a Paycheck Protection Program loan.

Refinancing may be advantageous, even if not required, since the interest rate on PPP loans is 1%, while EIDL loans charge 3.75% (2.75% for non-profit borrowers). However, you should carefully check repayment terms, as EIDL allows for much longer repayment periods.

Also, be aware that PPP loan amounts used to pay wages and benefits to employees, rent, mortgage interest and/or utilities for your place of business are forgivable. EIDL loan proceeds, except for the $10,000 Emergency Loan Advance funds, must be repaid.

Any emergency EIDL Emergency Loan Advance received will be subtracted from any amount forgiven under the Paycheck Protection Program. That is, you cannot ‘double-dip’ both programs for the same expenses.

Applicants can have an existing SBA Disaster Loan and still qualify for

an EIDL for this disaster, but the two loans cannot be consolidated together.

Find Out More

For more information, call the SBA at 1-800-659-2955. However, you can expect the switchboard to be overwhelmed, as the SBA is scrambling to keep up with demand at press time. You can also email disastercustomerservice@sba.gov.

Need help?

JFDI Accountants is here to help you through this challenging time. If you require additional assistance or guidance, email us as soon as possible at WeCare@JFDIAccountants.

We look forward to serving you.