EIDL Round 2 — SBA Extends Covid-19 Loans

The Consolidated Appropriations Act of 2021 replenished the pool of EIDL money by $20Billion and the application deadline for the Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL) program has been extended to December 31, 2021.  This extension, unofficially referred to as the EIDL Round 2, is welcome news for many business owners suffering as the result of the ongoing pandemic.

The extension is part of the second Covid-19 Relief Bill signed into law on December 27th, 2020.  While this part of the relief bill extends most of the provisions in the first EIDL program, little attention has been paid to it by the press.  For this reason, we feel it is worthy to highlight its key provisions and the rules for the new targeted EIDL Advance, which is a grant.

 {NOTE — THIS POST HAS BEEN UPDATED BASED ON SBA UPDATES PUBLISHED ON FEBRURARY 1, 2021}

EIDL Key Provisions

• Eligible Borrowers include small business owners and agricultural businesses with 300 or less employees, non-profits in the US states, Washington D.C. and territories who have suffered a temporary loss of revenue due to the pandemic.  
• Use of Proceeds include working capital, operating expenses such as payroll, healthcare insurance premiums, rent, utilities and existing fixed debt payments.  
• 30 Payment Term at 3.75% Fixed Rate for businesses and 2.75% Fixed Rate for nonprofits, with no pre-payment penalty.
• Up to $2Million may be borrowed.
• No Collateral Requirement if EIDL is less than $25,000; If more than $25,000 the SBA files a General Security Agreement (UCC-1) form to collateralize the business’ assets.  If EIDL is $200,000 or more, business owner collateral is required.
• Deferred payments for one year while interest accrues.  
• For those businesses that received Emergency EIDL Advance (or Grants), the grant may be excluded from gross income on its tax return and is no longer required to be repaid if the business also received a PPP Loan which is fully forgiven.  Prior to the Consolidated Appropriations Act of 2021, if a PPP Loan was forgiven and the business also received an EIDL grant, the EIDL grant would be converted to a loan under the PPPL terms.  

New Targeted EIDL Advance Grants

When the original EIDL program launched in mid-2020, it included for applicants an Advance Grant amount of up to $10,000.  To qualify for the first grant, a business would apply for the EIDL via the SBA’s website and within a matter of a few days would receive a deposit in its business bank account equal to $1,000 multiplied by the number of full-time employees (up to $10,000).  By mid July, 2020, the SBA stopped making these grants because it ran out of money earmarked for the grant program.

The Consolidated Appropriations Act 2021 provides for an additional $20 Billion in grants to be distributed through the new targeted EIDL Advance program.  

This time, an applicant must qualify for the EIDL advance as follows:

• There must be an economic loss of more than 30% measured by comparing any eight-week period between March 2, 2020 and December 31, 2020 to the comparable eight-week period during 2019; and  
• The business must be located in a low-income community; and
• The business may not employ more than 300 employees; and
• The business must apply to the SBA by December 31, 2021.

Similar to the first round, it is not necessary for the business to accept the EIDL if it’s ultimately offered by the SBA.  The business may keep the EIDL grant money received. 

The Targeted EIDL Advance is being made available to two groups of applicants.  The first group are those businesses and non-profits that received less than $10,000 the first time and the second group are those businesses and non-profits that did not receive any EIDL Advance due to the funds being exhausted.  

If the business currently meets the eligibility criteria above, it may request an EIDL Advance from the SBA.  The SBA will send an email invitation directly to the applicants who did not receive the full $10,000 EIDL Advance or received no advance due to lack of funding in the summer of 2020.  Upon receipt of the email from the SBA, the applicant may apply for the Targeted EIDL Advance.

In either case, the applicant will be eligible to apply for the new, Targeted EIDL Advance only if they had applied for the EIDL program on or before December 27, 2020.

How to Apply for the EIDL Program (not the EIDL Advance)

If you did not choose to apply for the original EIDL Program, the latest law paves the way for the SBA to reopen EIDL applications.  As of the writing of this post, that has not happened and its unclear if the SBA will do so.    

The EIDL round one approved nearly $200 Billion in loans and fully distributed $20 Billion in Advances as of February 2, 2021.  The funding allocated to the new EIDL Targeted program was $20 Billion.  If the EIDL Program is going to be opened up to new applicants, clearly more funding will be necessary.  

That said, if you’d like to prepare for that possibility, here’s our advice about the EIDL program application process:

In our practice, we’ve been involved with a number of clients who applied for the EIDL round one.  A few of them did so in haste and spent the better part of the last six or so months trying to resolve their sloppy application.  The SBA will reject an EIDL application if anything on the application doesn’t line up properly.

When you apply for the EIDL program, be certain the name of the business is exactly the same as what’s on your federal tax return and your business bank account.  And verify the EIN used in the application matches the EIN on your business tax return.

Applicants often make the mistake of guestimating their 2019 gross revenue and cost of goods sold.  Do not make this mistake.  Look very carefully at your 2019 federal tax returns and find the figures in the Gross Revenue and Cost of Goods Sold boxes.  Again, if you don’t get this right, your application will likely be rejected by the SBA.  

The Gross Revenue and Cost of Goods Sold figures will drive the amount of EIDL because it determines the amount of working capital you need to operate your business. The EIDL loan is based on your business’ required working capital so it’s very important to get it right.

You should also be prepared to deliver the IRS Form 4506-T for your business.  This form allows the IRS to pull your federal tax forms for your business for them to review.  Technically, it’s the tax transcripts they will review.  They will be looking at whether you’ve filed your and paid your federal taxes.  

And if you get past these couple of hurdles, the SBA will also pull the personal credit scores from the credit bureaus for any shareholder (or other owner) holding 20% or more ownership stake in the business.  If your credit score is low, it’s unlikely you will be approved for the EIDL loan.

You will also have to prove your identity with a valid photo ID and provide the SBA with a cancelled check for the business.  They will verify the bank you’ve identified to receive your EIDL grant and/or loan proceeds is a legitimate business bank account.  There was a lot of fraud in the EIDL first round so the SBA is being extra cautious — which is a good thing.