COVID-19 SBA Loan Options: The EIDL is Still Available...for now.
(The content of this blog post is time-sensitive and based on information available as of 09/03/2020. Future changes will most likely occur, visit www.sba.gov for the most up-to-date information regarding COVID-19 EIDL.)
Can your business use an infusion of cash to deal with losses caused by the COVID-19 epidemic?
The hugely popular federal Payroll Protection Program (PPP) loan program that paid forgivable loans to millions of businesses ended on August 8 (although it could come back in revised form). However, you can still obtain a low-interest Emergency Income Disaster Loan (EIDL) of up to $150,000 from the Small Business Administration (SBA).
Do You Qualify for an EIDL?
You can qualify for an EIDL if your business has fewer than 500 employees and has suffered “substantial economic injury” due to the COVID-19 pandemic. You have suffered economic injury if you’re unable to pay your normal business operating expenses and other bills, or to sell or produce your goods or services because of the pandemic.
You can obtain an EIDL even if you already received a PPP loan. However, you may not use the EIDL to pay the same payroll costs or other expenses you pay with a PPP loan.
How Much Can You Borrow?
The SBA is currently capping EIDLs at $150,000. The amount you receive is intended to cover six months of your business operational expenses. For most small businesses, the loan amount is based on gross revenues minus cost of goods sold during the period from February 1, 2019, through January 31, 2020, divided by two.
What Are the Loan Terms?
These are 30-year loans at a locked-in 3.75 percent interest rate. You don’t have to make any payments until one year after you receive the loan (interest continues to accrue during the one-year delay). There is no pre-payment penalty.
Do You Need to Have Collateral or Make Guarantees?
The SBA does not require a personal guarantee for an EIDL of less than $200,000.
Collateral may be required only if the loan is over $25,000.
For loans over $25,000, the SBA may require a security interest in all tangible and intangible property your business owns or acquires, including inventory, equipment, and receivables. The SBA files a UCC-1 lien against your business.
How You Can Use the Money
The money is supposed to be used to help you carry on your business until life gets back to normal. You can use the money to pay normal operating expenses, such as employee salaries and benefits, rent, utilities, and fixed debt payments. You can continue to take your owner’s draw for work you actually perform for the business.
But EIDLs are not supposed to be used to replace lost sales, fund business expansion, start a new business, or refinance long-term debt. Nor can you use them to pay yourself dividends or bonuses.
How Do You Apply?
You apply for an EIDL directly with the SBA, and the loan is funded directly from the U.S. Treasury. Unlike the PPP loans, banks are not involved whatsoever in the EIDL process. You can apply online using the SBA’s newly created streamlined application.
