The SBA’s EIDL program can still help your business or nonprofit recover from a pandemic-related loss of revenue
If you are a small business owner or the chief executive of a nonprofit organization, you are likely feeling financially unhealthy because of the COVID-19 pandemic. Congress has attempted to address the needs of small business owners with a series of loans made available through the Small Business Administration (SBA).
In March 2020, Congress enacted the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. This funded both the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP). Administered by the SBA, these programs have aided many small business owners during this economic crisis. However, they have also been plagued by false starts, confusion, and inconsistencies.
Before July 13, EIDL loan packages included the EIDL Advance Grant, a loan advance of up to $10,000 for eligible small businesses and nonprofits. The SBA will no longer be issuing grants (funds that do not require repayment) because the $20 billion allocated for the grants has run out. There is still funding available for conventional, low-interest EIDL loans.
Here is some updated information about the status of EIDL loans to date, how these loans are different from those available through the PPP, and how the EIDL program may be able to offer some relief to your small business.
The EIDL is not part of the PPP
The SBA has been making loans to businesses in the wake of declared disasters since 1953. However, the PPP came into being because of the pandemic. Following the declaration of COVID-19 as a national disaster, the SBA began making EIDL funds, also known as “Working Capital Disaster Loans,” available to small businesses that meet their application requirements.
The EIDL loans are issued directly from the U.S. Treasury and can be applied for via an application on the SBA’s website.
The EIDL loans, awarded in amounts up to $2 million, are intended to cover six months of operational expenses. The loans must be paid back at an interest rate of 3.75% for small businesses and 2.75% for nonprofits.
The PPP loans must be applied for through a participating lender using a reportedly complicated application and have precise standards for use. PPP loans are designed to cover eight weeks of payroll and feature loan forgiveness for qualified borrowers and a 1% interest rate for those who fail to meet the loan forgiveness requirements.
Borrowers have reported that the PPP’s application process, eligibility requirements, and forgiveness process are extremely complex and difficult to navigate. Aside from the abrupt stop to the loan advance part of the EIDL program, there have been fewer complaints about the EIDL program.
EIDL to the rescue
To be eligible for EIDL assistance, small businesses or private nonprofit organizations must have sustained economic injury as a result of the pandemic. According to the SBA, “economic injury” is defined as a change in a business’s financial condition, such as a temporary loss of revenue.
The EIDL is intended to provide a bridge of working capital to meet disaster-related expenses and ongoing costs that are not currently being covered by a PPP loan. These expenses include rent, mortgages, debts, accounts payable, and payroll.
The EIDL amounts are not to be applied toward long-term debt or expansion and are not intended to replace lost sales or profits.
Although there is no specific deadline for borrowers to spend an EIDL, the SBA makes it clear that loan proceeds can only be used for working capital until “normal” operations are restored. Favorable EIDL terms include a 30-year repayment, one-year deferment, and no prepayment fees; EIDL amounts smaller than $200,000 can be approved without a personal guarantee.
Also, the SBA will accept a request for a loan increase for additional disaster-related damages if there is a need for additional funds, and in most cases within two years of the original loan approval.
But beware the small print
If you are considering applying for any type of loan to help your company during this pandemic-caused economic downturn, be sure to do your homework. All loan programs come with strings attached. It is especially important to stay updated when dealing with government programs that seem to change monthly.
While it is possible to apply for and receive both PPP and EIDL loans if your business needs additional assistance and you meet all the issuers’ requirements, do so with caution. Both the EIDL and PPP applications are multiple pages of fine print that could contain terms you cannot meet.
For example, for an EIDL over $25,000, the SBA includes specific language about collateral that could affect your business if you have plans to sell an asset. And much print has been spilled about the difficulties borrowers have had with the PPP loan terms.
The good news is that this has been a fluid process. Lawmakers are committed to fixing earlier missteps and providing more financial help to small businesses as the pandemic’s economic impact continues. In addition to measures included in the stalled Heroes Act, some have suggested more immediate fixes such as lowering the interest of the EIDL to 1% and making additional loans easier to secure.
Franco Blueprint can help
When you need an objective opinion about how to best support your business during tough economic times, look to the accounting professionals at Franco Blueprint. We stay updated on programs like the EIDL and PPP and manage the fine print so you can focus on managing your business.
Whether you are just beginning to plan or are reevaluating your progress, Franco Blueprint is available to help you with your small business concerns. Reach out for a free consultation with one of our experts today.