SBA Reopens Economic Injury Disaster Loan and Advance Program
On June 15, the Small Business Administration (SBA) again started accepting applications for the Economic Injury Disaster Loan (EIDL) and EIDL Emergency Advance program portal. The program, which was created as part of the Coronavirus Aid, Relief, and Economic and Security (CARES) Act provides financial relief to qualifying businesses and nonprofit organizations impacted by COVID-19. The initial round of funding was exhausted in April, eliminating this important option for those affected the most. It was later announced that program applications would no longer be accepted until more money became available. Although an additional $60B in funding was allocated, the SBA did not reopen the program as it did for the Paycheck Protection Program (PPP). The recent news means that businesses that did not apply or were not approved for a PPP loan have another option available through the EIDL and Emergency Advance program, which we have summarized below.
EIDL Eligibility
Any small business, nonprofit, or agricultural enterprise is eligible to participate in the program assuming they meet two broad criteria. The first is related to the size and type of business. To qualify, an applicant must be a small business (including sole proprietors and independent contractors), nonprofit, tribal business, agricultural companies, cooperatives, or an employee stock ownership plan with under 500 employees. It is important to note that agricultural companies that produce food, fiber, ranching, raising livestock, aquaculture, and other farming-related enterprises are eligible to participate. The addition of these businesses for eligibility is new and was recently announced.
The second is focused on income type and source. An applicant must not be involved in illegal activity, does not derive more than 33% of annual gross income from legal gambling activities, does not provide lobbying services, and may not be a state, local or municipal entity or a member of Congress. Finally, businesses with a Principal with 50% or more ownership interest may not apply if they are more than 60 days delinquent with child support obligations. The SBA’s checklist is a useful tool to check whether a business qualifies.
EIDL Terms
The maximum loan amount is $150,000, with interest rates ranging from 3.75% for small businesses and 2.75% for nonprofits. Unlike the popular PPP, the loan term can be up to 30 years as needed. An interesting option offered is loan amounts of $25,000 or less, exempt the borrower from providing collateral. Also, for loans that are $200,000 or less, no personal guarantees need to be made. Approval is based on the ability to repay the loan and an acceptable credit score. It is important to note there are no prepayment fees, and the first payment is due 12 months after disbursement.
EIDL Approved Fund Usage
There are specific guidelines on the type of qualifying expenses that loan funds can be used to satisfy. Generally speaking, funds should be used to carry the business until normal operations can be resumed and limited to expenses necessary to alleviate business injury (COVID-19). This broad definition means borrowers have more freedom in determining how to spend funds than with the PPP. However, the SBA prohibits EIDL from being spent on dividends and bonuses, disbursements to owners unless related to service performance, the repayment of certain stockholder loans, expansion/acquisition of fixed assets, and expansion of facilities or for refinancing long-term debt.
EIDL Emergency Advance
Since some businesses need a cash infusion before approval, the SBA offers an advance of $1,000 per employee up to $10,000 for companies that have applied. The advance is reviewed and awarded no later than three days after application submission and does not need to be repaid even if the loan is denied. The advance can be used for payroll expenses, leave and other employee benefits, cost of mortgage or rent, and other operational expenses.
Contact Us
The news from the SBA is welcome by many New Jersey and Pennsylvania businesses looking for additional funding opportunities. The loan application is complex and may require the assistance of a qualified advisor to assist. For questions determining your EIDL or Emergency Advance eligibility, or if you need assistance with another COVID-19-related business issue, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.