The Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL) program, which provides long-term loans directly from the SBA, has been significantly enhanced. Beginning April 6, 2021, qualified companies can borrow, on the favorable EIDL terms, up to $500,000 to fund up to 24 months of working capital needs instead of only $150,000 to fund up to six months of working capital needs. Businesses that have already applied for or received loans from the EIDL program may contact the SBA to request additional funds to reach the new $500,000 maximum amount. Furthermore, an SBA official recently testified before the Senate Committee on Small Business & Entrepreneurship that the agency plans to increase the maximum EIDL program loan amount to $2 million, the maximum amount permitted by law. Finally, the SBA has extended the deferment periods for all disaster loans, including EIDL; businesses that applied for loans in 2020 now have 24 months from the receipt of the loan proceeds before repayment begins, and businesses that apply for loans in 2021 now have 18 months before they must begin repayment.
When enacted in March 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) expanded the existing EIDL program by streamlining the application process and providing lower interest rates and longer repayment terms. The EIDL program’s funding comes directly from the U.S. Treasury. Small businesses face no application fees and are not obligated to accept the loan if their business qualifies. Prior to the coronavirus pandemic, the EIDL program offered loans up to $2 million. However, once the coronavirus pandemic hit, the SBA lowered the loan amount to $150,000 per applicant out of fear that it would run out of funding. The SBA still has approximately $270 billion available for the EIDL program after already lending about $200 billion from about 3.7 million loans through the EIDL program, of which 90 percent were to businesses with 10 or fewer employees. The average processing time for an EIDL application is 17 days, and the SBA is currently processing about 10,000 loan applications per day.
Businesses Eligible to Receive Loans from the EIDL Program
- Small businesses (including restaurants, retailers, hotels, manufacturers, owners of rental property, and wholesalers) with fewer than 500 employees
- Small agricultural cooperatives or agriculture businesses
- Employee Stock Ownership with fewer than 500 employees
- Sole proprietorships
- Independent contractors
- Most private nonprofit organizations and tribal businesses with fewer than 500 employees
Businesses conducting any of the following activities are not eligible to participate in the EIDL program: investment, lending, loan packaging, multilevel sales distribution, gambling, speculation, or illegal activities.
Terms of EIDL Program Loans
- The interest rate is 3.75 percent annual percentage rate (APR) for small businesses and 2.75 percent APR for nonprofit businesses.
- The maximum repayment term is 30 years.
- Payments are deferred for two years if the loan was applied for in 2020 and for 18 months for a 2021 application.
- Interest does accrue during the deferment.
- Collateral required for loan over $25,000.
- Personal guarantees from owners of 20 percent or more of the business.
- Loan may be prepaid at any time without penalty.
Uses of EIDL Program Loan Proceeds
- Payroll, accounts payable, utilities, debt payments, other operating expenses, and general working capital
- Ineligible uses include (i) dividends and bonuses; (ii) disbursements to owners (except when directly related to performance of services); (iii) repayment of stockholder/principal loans (except when injected on an interim basis because of the disaster and non-repayment would cause injury to the stockholder/principal); (iv) expansion of facilities or acquisition of fixed asset; (v) repair or replacement of physical damages; (vi) refinancing long-term debt; and (vii) paying down or paying off other loans provided by any federal agency including SBA.
The EIDL Program loan application and additional information on the EIDL Program can be found here.
McCarter & English, LLP, can assist you with determining whether you are eligible for an EIDL loan and with completing the loan application and related documentation.