The Economic Injury Disaster Loan (EIDL) program is a disaster relief program administered by the Small Business Association. The program, already in place when the coronavirus crisis hit, offers low-interest federal loans to help small businesses and other entities recovery from economic injury as a result of the disaster.
The Coronavirus Aid, Relief and Economic Security Act modified the EIDL program by loosening the requirements for applicants applying for financial relief under the program.
Here are the details:
Who is eligible?
Employers, non-profit organizations, Employee Stock Ownership Plans and tribal small business concerns with fewer than 500 employees, and sole proprietorships and independent contractors. The SBA’s affiliation rules also apply to EIDL applicants when determining the total number of employees.
Q: Is there an eligibility period?
A: Yes. The eligibility period ends on Dec. 31.
Q: How much can I borrow?
A: There is a cap of $2 million. The interest rate is 3.75 percent for small businesses, but the maturity date can differ depending on the loan. The maximum maturity date is 30 years. No payments are due for the first year.
In addition, applicants may also receive a $10,000 emergency advance in the form of a grant (no repayment required), within three days after the SBA receives the applicant’s application. This advance does not have to be paid back even if the applicant is ultimately denied an EIDL. However, recent SBA guidance has indicated that based on high demand, the $10,000 of emergency grant money may be limited to $1,000 per employee for up to 10 employees.
Q: What are the current requirements for getting a loan?
A: The CARES Act waived a number of the requirements to get an EIDL. EIDLs of up to $200,000 do not require a personal guarantee. Loans between $200,000 and $500,000 may require business assets, like machinery or equipment, to secure the loan. Larger loans may require real estate. However, SBA representatives have said they will not turn away borrowers who lack collateral.
Q: Are there restrictions on an EIDL?
A: Yes. Loan proceeds can be used for payroll, fixed debts and other obligations that cannot be met due to revenue losses resulting from the COVID-19 crisis. Funds cannot be used toward expanding an employer’s business, including relocations, payment of bonuses or dividends to employees, or refinancing long-term debt.
Q: May I apply for EIDL and Paycheck Protection Program loans?
A: Yes, but there are restrictions to be aware of. If you received an EIDL from January 31 through April 3, 2020, you can also apply for a PPP loan; however, applicants who receive a loan under the PPP are not eligible to use an EIDL for the same purpose (e.g., using both loans to pay for the same payroll costs). If an applicant applies for both loans but already used the EIDL funds for eligible payroll costs, the PPP loan must be used to refinance the EIDL.
Applicants wishing to use the loan forgiveness feature of a PPP loan must apply 75 percent of the funds toward eligible payroll costs. For determining the percentage of proceeds applied toward payroll costs under a PPP, the amount of any EIDL refinanced will be included in that total.
Finally, proceeds from the $10,000 emergency grant under the EIDL will be deducted from the loan forgiveness amount on the PPP loan.
Q: May I receive loan forgiveness for an EIDL?
A: No. Unlike qualifying loans under the PPP, an EIDL is not eligible for loan forgiveness. However, as stated above, an applicant may receive up to $10,000 of emergency grant money.
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Tommy Eden is a partner working out of the Constangy, Brooks, Smith & Prophete, LLP offices in Opelika, AL office and can be contacted at email@example.com or 334-246-2901 and he thanks Justin Clark of the firm’s San Francisco Office for his for her blog on this issue.