In the distress of the pandemic, one source of economic aid may not be getting enough attention from small businesses: the Economic Injury Disaster Loan (EIDL). Like a Paycheck Protection Program (PPP) loan, the EIDL is provided by the U.S. Small Business Administration (SBA) and, while the loan was available before COVID-19, it has more recently been included as one of the CARES Act economic relief options. In an interview, REDW Principal Brian Foltyn provides some quick, essential highlights about EIDLs.
Q: What do small business owners need to know about the EIDL option?
A: The SBAâ€™s EIDL funds come directly from the U.S. Treasury and applicants do not need to go through a bank to apply. Instead, they can apply directly at DisasterLoan.sba.gov. There is no cost to apply and no obligation to take on the loan if approved. The maximum loan amount is currently $150,000; however, under normal circumstances, businesses can borrow up to $2 million. The EIDL program is available to businesses with 500 or fewer employees.
Q: How does that EIDL Advance work?
A: The EIDL Advance provided $1,000 per employee (up to a maximum of $10,000) in assistance when an applicant applied for the EIDL. Recipients did not have to be approved for a loan to receive this advance. However, as of July 11, the SBA announced that the EIDL Advance funds ($20 billion) have all been allocated and therefore the option is now discontinued. For clarification, EIDL applications will still be processed although the advance is no longer available.
Q: Some emergency loans have a notably short payback term. Whatâ€™s the loan term for an EIDL?
A: The term is lengthy. EIDL offers one of the longest terms among emergency loans that are available for pandemic relief: 30 years at a rate of 3.75% APR for most borrowers, and 2.75% for not-for-profits.
Q: Different types of organizations have been discouraged from applying for a PPP loan due to their ineligibility. Who is eligible to apply for EIDLs?
A: The EIDL option is available to small businesses, small agricultural cooperatives, small aquaculture businesses and most private non-profit organizations â€“ basically any business directly affected by the disaster, which is why these loans are referred to as working capital loans.
Q: Most businesses have been hugely, adversely impacted by the COVID-19 pandemic, but what would a business specifically have to prove in order to receive an EIDL?
A: Borrowers have to prove economic injury. To receive EIDL assistance, businesses have to demonstrate that they have been unable to meet their operating expenses as a result of the disaster (in this case, the pandemic).
Q: What if a small business has already received a PPP loan? How should a prospective EIDL loan be used and what implications should potential borrowers be aware of?
A: Although businesses can use EIDL to cover expenses that werenâ€™t covered by the PPP, they cannot use EIDL and PPP funds to cover the same expenses, which is known as â€œdouble-dipping.â€ Additionally, any EIDL advance of up to $10,000 will reduce PPP loan forgiveness.
Learn more about Economic Injury Disaster Loans and check out the additional resources below:
To discuss how to prove your organizationâ€™s economic injury and eligibility for an EIDL, and/or for assistance with your application and action plan upon loan approval, please contact REDW Principal Brian Foltyn.
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