The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes two solutions for small business financial relief during the COVID-19 Pandemic: the Paycheck Protection Program, which ended August 8, and the Economic Injury Disaster Loans (EIDL) program. Since March, we’ve been able to provide businesses with an online application platform for the Paycheck Protection Program through Cross River Bank and many of the businesses we’ve worked with have asked our team about EIDL, so we’ve taken some of your most commonly asked questions and found answers as best we can based on the information that’s out there:
What is the Economic Injury Disaster Loan (EIDL)?
The EIDL is a loan of up to $2M (although it’s been reported that the SBA has now officially capped that amount at $150k) with a maturity of up to 30 years meant to help businesses through tough times during economic disaster.
The program offers companies with 500 employees or less a low-interest loan with terms of up to 30 years which can be used for nearly any business purpose.
What are the key differences between EIDL and PPP?
Both the PPP and EIDL are meant to provide economic support to small businesses to help overcome a temporary loss of revenue resulting from the pandemic. But unlike the PPP, the EIDL doesn’t rely on payroll numbers to calculate the loan amount.
Because PPP uses payroll to determine loan amounts and requires 60% of the loan to be used towards specific payroll costs to be forgiven, small business owners who have no employees or don’t compensate themselves within a traditional payroll model may be a better candidate for EIDL.
EIDL proceeds can be used to cover a wide array of working capital and normal operating expenses such as continuation of health care benefits, rent, utilities, and fixed debt payments. While PPP funds can be used towards payroll, employee salaries, mortgage interest, rent & utilities, interest on debt incurred before February 15, 2020, there are very specific guidelines to ensure loan forgiveness.
Another difference between the two programs is that with PPP, you can use any SBA approved lender (including Cross River Bank through Revenued) to apply online. With EIDL, only the SBA itself is accepting applications. See below to learn how to apply or visit SBA.gov.
Who’s Eligible for EIDL?
Small business owners and agricultural businesses* that qualify (500 or fewer employees) in all U.S. states and territories are eligible as of now to apply for a low-interest loan.
The SBA doesn’t specifically let us know the credit threshold they consider, other than saying it’s looser than traditional SBA loan requirements. You should expect to be disqualified if you fall into any of the categories below:
- You’re 60 days or more delinquent on child support obligations
- You have judgements against you for federal debts and you haven’t worked out a satisfactory plan to repay
- You have federal tax liens of more than $10,000
- You fall into one of the categories the SBA lists as reasons for disqualification listed in the question below
*According to the SBA, agricultural businesses include those businesses engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural related industries (as defined by section 18(b) of the Small Business Act (15 U.S.C. 647(b)).
What can I use the EIDL program funds for?
Acceptable uses for the loan includes buying protective equipment and keeping up on debt payments. Unacceptable uses of EIDL are making loan payments on other federal debts, refinancing, to repair physical damages, to pay IRS tax penalties, or to pay out dividends.
For more information on what specifically you can use the loan for, check out SBA.gov.
How much can I qualify for?
The loan amount a specific business receives is determined by the SBA on a case-by-case basis and is dependent on the amount of economic distress the business has suffered. In April, the SBA announced that because of the surge in applications, it’s limiting disbursements to $15,000 for two months – and is capping total loan amounts at $150k.
Note: You may have heard that the CARES Act authorizes advances of up to $10,000 that do not have to be paid back, making them grants. As of July 11, however, these advances are no longer available.
Is there interest on EIDLs?
The interest rate on EIDLs is 3.75% for companies and 2.75% for non-profit organizations. Principal and interest payments of EIDLs are automatically deferred for one year, while the loan term can be for up to 30 years.
For what reasons would I not be approved for EIDL?
According to the SBA, reasons for not being approved for EIDL include:
- Unsatisfactory credit history
- Business activity is not eligible. EIDL assistance is available only to a small business engaged in an eligible business activity. Business activity means the nature of the business conducted by the applicant
- Not eligible due to delinquent child support payments
- Economic injury is not substantiated
- Agricultural enterprises are not eligible
- Not eligible due to character reasons
- Unverifiable Information
- Applicant requests a withdrawal or fails to proceed
How Do I Apply?
Unlike the Paycheck Protection Program, businesses must apply directly to the SBA for the EIDL. Due to the high volume of applications coming in, it’s currently suggested by the SBA that businesses apply online. If issues come up during the application process or you have questions relating to your specific needs you can call the SBA’s Customer Service Center at 1-800-659-2955 or email [email protected].
Business owners who have applied for PPP through Revenued have told us the SBA has been helpful with questions once you’re able to connect with them, but it takes a long time to get through and the process takes longer than you might otherwise expect. Just as with PPP, we recommend frequent follow ups to ensure your application gets processed.
*Disclaimer: This information is changing by the minute and is based on our current understanding of the PPP and EIDL programs here at Revenued. The information will likely change and we’ll do our best to keep on top of the updates as new information becomes available (be sure to sign up for our Revenued Newsletter to get those updates), but please do not depend solely on us for your financial decisions. We highly encourage you to consult with Financial Advisor, attorney, or CPA, and to do your own research before making any decisions.*
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