Economic Injury Disaster Loans (EIDL)

Small Business Relief from COVID-19

Updated April 7, 2020 at 1:52pm.

The Small Business Administration expanded its EIDL program to include COVID19 as an eligible disaster and eased the requirements, including:

  • no personal guarantee for loans $200,000 and less;
  • no requirement that an applicant was in business for 1 year before the disaster so long as the applicant was in business on January 31, 2020; and
  • no requirement that an applicant is unable to obtain credit elsewhere.

Are you eligible?

  • An LLC, corporation, partnership or ESOP with less than 500 employees;
  • A sole proprietor (with or without employees) and independent contractors; and
  • Private nonprofit organizations.
  • Businesses with more than 500 employees may still be eligible under the SBA size standards tool: https://www.sba.gov/size-standards/
  • Applicants who already applied for a PPP loan or an EIDL unrelated to COVID-19 can still apply for a COVID-19 EIDL.

What are the loan terms?

  • Approval is based solely on an applicant’s credit score. The applicant does not need to submit a tax return.
  • Interest rates are 3.75% for small businesses and 2.75% for non-profits.
  • The loan amount is determined based on an applicant’s “actual economic injury”, less any insurance proceeds, up to $2,000,000.
  • Actual economic injury means the business is unable to meet its obligations and to pay its ordinary and necessary operating expenses.
  • To determine actual economic injury, the SBA might compare the current period to previous financial periods and examine total debts and operating expenses.
  • The loan can be used to pay current debts, payroll, accounts payable, etc.  
  • The loan term is determined on a case-by-case basis, usually between 10 and 30 years.

What is the Emergency Advance?

  • Applicants may also request an emergency advance of up to $10,000 that will be paid immediately while waiting for the EIDL underwriting process IF (and only if)  
  • your business was operating on January 31, 2020 and
  • your business meets the other eligibility requirements.
  • The Emergency Advance is contingent on the amount of the EIDL or whether the loan is ultimately approved.
  • The SBA should remit the advance within 3 days of the application.
  • You need not repay the Emergency Advance, even if the EIDL application is denied.
  • Allowable uses of funds include paying sick leave to employees, maintaining payroll to retain employees, meeting increased supply chain costs, and making rent or mortgage payments.

What if you get both an EIDL and a PPP?

  • You can apply and receive both an EIDL and a PPP loan.
  • If the EIDL is refinanced to a PPP loan, the Emergency Advance reduces the forgivable portion of your PPP loan.
  • If the EIDL is not used for payroll costs, the borrower’s PPP loan eligibility is not affected, however you will need to repay that portion of your EIDL, but at the more favorable PPP rates.
  • If the EIDL was used for payroll costs, the borrower must use the PPP loan to refinance the EIDL. This means the amount of the PPP loan will be 250% of payroll plus the amount of the EIDL.

What information do you need to apply?

  • Business name, trade name, EIN, and organization type (LLC, corporation, etc);
  • Gross revenues for the 12 months prior to January 31, 2020;
  • Cost of Goods Sold for the 12 months prior to January 31, 2020;
  • Business address and contact information;
  • Date established, type of business, and number of employees;
  • Address, phone number, email address, social security number; and
  • Bank account and routing numbers.

How do you apply?

References

U.S. Small Business Administration. (2020). Disaster Loan Applications. Retrieved from:  https://www.sba.gov/page/disaster-loan-applications; U.S. Small Business Administration. (2020). Coronavirus (COVID-19). Retrieved from: https://www.sba.gov/disaster-assistance/coronavirus-covid-19

Attorney Whitney L. Sorrell sitting in chair

About the Author

Whitney Sorrell, Esq. is the founder of Sorrell Law Firm, PLC. When he's not serving his clients or teaching courses to Attorneys and CPAs on estate planning. business, and tax topics, he's practicing martial arts, relaxing by the pool, or walking his dog Bemo. He resides in Scottsdale, Arizona with his loving wife, Diana.