The COVID Economic Injury Disaster Loan (“EIDL”) Program was signed into law on March 27, 2020, as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and is scheduled to end on December 31, 2021, or earlier if program funds are depleted. The program provides for direct loans from the Small Business Administration (“SBA”) to eligible small businesses and nonprofits.
On Monday, August 16, it is anticipated that the SBA will increase the maximum loan amount under the EIDL Program from $500,000 to $2,000,000, providing much needed funds for businesses which are continuing to rebound from the COVID-19 pandemic. If your business or nonprofit has already received an EIDL loan, it may be eligible to request an increase up to the $2 million cap.
In addition to the higher loan amount, the SBA has loosened permitted uses of loan proceeds and will now allow borrowers to use funds to pay any business debt, including business credit card debt. Given that loans are provided at a 3.75% interest rate (2.75% for nonprofits) and must be repaid over 30 years, with a 24-month deferment, obtaining an EIDL loan to replace other business debt may be advantageous for many small businesses and nonprofits.
While the program is set to end by December 31, 2021, the SBA anticipates that funds may be depleted as early as next month as a result of the new program changes.
The following details key aspects of the program:
- Loan directly from the SBA that must be repaid over 30 years at 3.75% interest (2.75% for nonprofits)
- Loan cap is currently $500,000 but is anticipated to increase to $2 million on August 16
- 24 months of payment deferment from original loan closing date
- May use funds for operating expenses and working capital, as well as business debt incurred at any time (including business credit card debt), payroll, rent/mortgage, utilities, and other ordinary business expenses
- Loan amount calculation – (2019 Revenue – 2019 Cost of Goods Sold) x 2 – cap at $2 million
- Credit score minimum of 570 (possible exceptions)
- Size eligibility is less than 500 employees or small business per SBA size standards
- Affiliation rules mirror those for the Paycheck Protection Program
- Personal guarantee required for loans greater than $200,000
- Collateral is required for loans greater than $25,000, however business collateral only (no real estate or personal collateral required) and collateral is subordinate to existing debt
- Must be in operation (or took steps to open) by January 31, 2020
- Borrowers may have both a PPP loan and EIDL, but may not use funds for the same expenses
- Changes of ownership of more than 50% during 2020 or 2021 may prevent getting an EIDL
- To apply or request an increase, see https://www.sba.gov/funding-programs/loans/covid-19-relief-options/eidl/covid-19-eidl
- If denied, you may submit a reconsideration request to reconsideration@sba.gov
For more information, please see the SBA’s newly released frequently asked questions guide.
At Potomac Law Group, we have been helping clients navigate various COVID-19 stimulus programs, including the EIDL Program, the Paycheck Protection Program, the Employee Retention Credit, the Main Street Lending Program, the Restaurant Revitalization Fund, Provider Relief Funds, and more. If you need help or have questions, please reach out to dadams@potomaclaw.com.
