Economic Injury Disaster Loans
In addition to the Paycheck Protection Program loans, the SBA oversees Economic Injury Disaster Loans (EIDLs), which are another important way for businesses to access funds during this difficult time. Although EIDLs have been around for many years, the CARES Act expands on this program in several important ways.
$10 billion has been set aside for these EIDLs, but these funds will be given out on a first come, first served basis. Thus, just like with the Paycheck Protection Program Loans (PPPL) that have limited funding, an EIDL should be applied for as soon as possible.
PPPLs and EIDLs are both for employers with 500 or fewer employees, but EIDLs are a true loan and cannot be forgiven, unless rolled into a PPPL under certain circumstances.
Unlike the PPP, these loans are only available through the SBA directly. Although paper applications are being accepted, the faster option would be to use the online application here:
https://covid19relief.sba.gov/#/business-info
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A key benefit of an EIDL is a $10,000 emergency grant that is offered irrespective of loan eligibility. The SBA is required to provide this emergency grant within three days of the grant request being processed. Because this is a grant, it is not required to be repaid regardless of being approved for a loan. Note that there's a box that must be checked in order to request the emergency $10,000 grant mentioned above, and you must provide your bank account information as well.
You can borrow up to $2 million through the EIDL program, at terms of up to 30 years and interest rates of 3.75% (2.75% for non-profits). No payments are due for the first 12 months, though interest will accrue during this time. Unfortunately, credit score is the primary factor in determining approval for a loan.
While no personal guarantees are required on loans up to $200,000, any loan over this amount does require the business owners to guarantee repayment. The SBA will also place a UCC lien against the assets of the business regardless.
Ultimately the SBA determines the amount a business is eligible to receive, and the loan can be used to pay for a variety of expenses, such as:
- Providing paid sick leave to employees unable to work due to the direct effect of COVID-19;
- Maintaining payroll to retain employees during business disruptions or substantial slowdowns;
- Meeting increased costs to obtain materials unavailable from the applicant's original source due to interrupted supply chains;
- Making rent or mortgage payments; and
- Repaying obligations that cannot be met due to revenue losses.
If you have any additional questions, please feel free to reach out to us. We are happy to help!
