SBA Reopens Economic Injury Disaster Loan Applications

On June 15, 2020, the Small Business Administration reopened the Economic Injury Disaster Loan (EIDL) applications to businesses with no more than 500 employees and non-profit organizations operating and suffering substantial economic injury as a result of the pandemic in all of the U.S. states, Washington D.C., and territories.  

Independent Contractors, sole-proprietors (with or without employees), gig workers and freelancers are also eligible to apply for the EIDL.  

To be eligible for this loan program, you must have been operating your business on January 31, 2020.

In April of this year, applications for the EIDL program were closed, which forced most small businesses and non-profits to rely solely on the Paycheck Protection Program Loan (PPPL) for economic assistance.  

What Can the EIDL be Used For?

The EIDL proceeds are intended to help businesses and non-profits meet their ongoing working capital needs.  The money may be used to cover expenses and debts not already covered by the PPPL.  Those expenses include expenses such as:

Commercial Loan Payments

Payroll Costs

Trade Accounts Payable

It is possible to receive an EIDL and a PPPL, however keep in mind that you can not double-dip by using the proceeds from the EIDL and PPPL loans to cover the same expenses.  

PPPL vs EIDL

Unlike the PPPL, the EIDL is not eligible for repayment forgiveness.  Instead, its repayment terms may be extended to up to 30 years, includes a one-year payment deferral and is offered at a guaranteed low annual interest rate of 2.75% for non-profit organizations and 3.75% for small businesses.

Also unlike the PPPL application process, applying for the EIDL is simple and takes no more than ten-to-fifteen minutes.  The application is made by the business or non-profit via an online application directly on the SBA’s website.  No need to beg your SBA-approved bank or other lender to review and process your loan application!  

EIDL Grant Calculation

The EIDL will advance applicants a grant amount up to $10,000 based on the number of full-time employees on their payroll as of January 31, 2020.  For every employee on the payroll on January 31, 2020, the business will receive $1,000 up to the $10,000 cap.  This advance amount is considered to be a grant and will not need to be repaid, unless the applicant also received PPPL funds.  In such a case, the EIDL grant amount will be regarded as a non-forgiven loan in the PPPL and subject to the PPPL repayment terms.  

For those applicants who are not considered to be a business entity, the EIDL grant will be capped at $1,000., unless there are employees on its payroll.   In such a case, the total number of employees multiplied by $1,000, up to the $10,000 cap will be received as a grant.  

EIDL Application, Collateral & Personal Guarantees

The owners of the business applying for the EIDL will be required to provide the SBA and the lender with their personal information, including birthdate, birthplace, home address, phone numbers, citizenship status and social security numbers.  The SBA will determine if the applicants are credit worthy before an Economic Injury Disaster Loan is offered to them.  And the applicant is not obliged to accept the EIDL if it is offered to them.

If your business receives an EIDL in the amount of $25,000 or less, you will not be required to put up collateral as security.  And personal guarantees, which are typically required to get an SBA loan funded, will be waived for loans up to $200,000 through December 31, 2020.  

Conclusion

At the time of drafting this post, the SBA has not released the maximum amount of EIDL proceeds to be made available to applicants.  Certain reports indicate it may be $150,000 and while other reports indicate the cap may be as high as $2,000,000.  

Given the current uncertain economic circumstances, it is reasonable to consider applying for the Economic Injury Disaster Loan before the SBA closes the application window again.  Doing so may provide a source of cash otherwise not available.