On July 11, 2020, The Small Business Administration (SBA) announced it would be no longer be granting advances under the Economic Injury Disaster Loan (EIDL) program. By law, SBA is not able to issue EIDL Advances once program funding has been obligated and is no longer available. However, EIDL loan applications will still be processed even though the Advance is no longer available.
The EIDL Advance amount was determined by the number of employees indicated on the EIDL application at $1,000 per employee and up to a maximum of $10,000. The EIDL Advance does not have to be repaid. Recipients did not have to be approved for an EIDL loan in order to receive the Advance, but the amount of the loan advance is to be deducted from the total loan eligibility.
The good news is that the SBA is still processing applications for the EIDL loans. These are available for small businesses, independent contractors, gig workers, nonprofits and agricultural businesses. But funds may run out soon, so we advise to apply as soon as possible. The application can be found on the SBA website.
The key terms of the EIDL loans are as follows:
- The amount of the loan depends on your business and what the SBA determines as appropriate. (Loans have ranged from $1,000 to $2 million)
- Interest rate is 3.75% (2.75% for nonprofit organizations)
- The SBA will run a credit check
- The loan is repayable over 30 years
- Any payment is deferred for a year but interest accrues during that year
- The loan is pre-payable at any time without penalty
- Loans over $25,000 may require collateral
- Loans over $200,000 may require a personal guarantee
- Unlike PPP loans, the EIDL loans are not forgivable
The EIDL Loans can be used for:
- Working capital to continue operations
- Necessary expenditures to alleviate the specific economic injury suffered from COVID-19
- Sick leave to employees unable to work due to the direct effects of COVID-19
- Maintaining payroll
- Increased supply costs
- Rent or mortgage payments
- Repaying debt that cannot be otherwise repaid due to revenue loss
EIDL loan proceeds cannot be used to refinance debt incurred prior to COVID-19, repair physical damage or pay dividends.
The Dopkins Transaction Advisory Specialists and our Financial Advisory Service Team is here to assist you in accessing liquidity and how to respond to changed business circumstances in light of COVID-19 while navigating the terms and conditions of the emergency loan programs identified above. Our team focuses on helping business owners and companies identify and secure short-term and long-term capital. Whether it’s domestic or foreign A/R, inventory, purchase order, construction, mezzanine financing, term loans and equity, our team has multiple sources of financing that will provide solutions to our clients.
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About the Author
Joseph A. Heim CFE, CPA
Joseph Heim has over 25 years' experience investigating matters involving white-collar crime, fraud and corruption. He provides forensic accounting, litigation support and expert witness services to businesses, attorneys and commercial finance lenders. He is the Partner in charge of Dopkins Asset Based Lending Consulting Services.