Now that the Coronavirus Aid, Relief and Security (CARES) Act has passed and its programs are live, small businesses are racing to submit their applications for much-needed cash and assistance to stay afloat during the COVID-19 pandemic. The CARES Act includes a variety of relief programs including:
Paycheck Protection Program
Economic Injury Disaster Loans and Loan Advance
SBA Express Bridge Loans
SBA Debt Relief
In a series of articles, we will review all of the ways that the CARES Act impacts businesses and their employees. Last week, we reviewed the new Paycheck Protection Program (PPP) for businesses with fewer than 500 employees. Today, we’ll examine the expansion of the economic injury disaster loans (EIDL) program to provide businesses with advance grants of up to $10,000.
Goal of the EIDL Loan Advance
In response to the COVID-19 crisis, the EIDL Loan Advance will provide economic relief to small businesses currently experiencing a temporary loss of revenue. The Small Business Administration (SBA) indicates that small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for SBA economic injury disaster loans, plus a loan advance of up to $10,000. After application, the loan advance is intended to provide immediate relief, within three days of request, while you wait for funds to be disbursed from your regular EIDL loan. However, businesses do not have to be approved for the full loan in order to receive the emergency advance. The loan advance does not have to be repaid.
Who can apply for a loan?
Any business with less than 500 employees can apply for an EIDL loan and loan advance, including sole proprietorships, independent contractors and self-employed persons, private non-profit organizations or 501(c)(19) veterans organizations affected by COVID-19. The number of employees is higher for businesses in some industries so you can check the SBA Table of Size Standards to see if it is applicable in your case.
Though the EIDL Loan Advance is an expansion of the existing EIDL program, the application has been streamlined and its approval conditions have been relaxed. Here’s what you may be eligible for:
You can borrow up to $200,000 without a personal guarantee.
First-year tax returns are not required and approval can be based on credit score.
You do not have to prove you could not get credit elsewhere.
Loans of $25,000 or less require no collateral. For loans above $25,000, general security interest in business assets can be used.
You must allow the SBA to review your business tax records.
What can I pay for using funds from an EIDL Loan?
The EIDL and Loan Advance can be used to cover a broader range of expenses than the PPP, which is intended to primarily cover payroll costs. Businesses are able to use the EIDL for rent, mortgage, paid leave, operational needs, and salary (see next question below). There are also fewer rules about loan forgiveness than with the PPP.
Can I apply for relief from both the EIDL Loan Advance and PPP?
Yes and experts recommend doing so quickly since there are funding caps in place. “However, if you are able to secure a PPP loan, the $10,000 grant will be subtracted from the forgiveness amount.” Additionally, the PPP prohibits borrowers from taking out two loans for the same purpose. For example, the EIDL advance can’t be used to pay employees in the month of April if the PPP funds are already being used for that.
How to apply for the EIDL Loan and Advance
You must apply for the EIDL Loan and Advance no later than December 16, 2020 in most states, though a few have extended the deadline to December 21, 2020. Check your state and local government for the most up-to-date guidance.
You can apply for the COVID-19 EIDL Loan and Advance online through the SBA’s website. According to the site, the estimated time for completing the entire application is just over two hours, although you may not need to complete all parts. The information collected will be used to determine whether a business is eligible for an economic injury loan. Before submitting, make sure you check the box indicating you want to be considered for the $10,000 EIDL Loan Advance and double check your banking information to ensure the direct deposit process goes smoothly.
What are payment terms?
As mentioned previously, any funds you receive through the EIDL Loan Advance do not need to be repaid. However, if you are approved for a full EIDL loan, the SBA offers up to $2 million in assistance. According to the SBA, “these loans may be used to pay fixed debts, payroll, accounts payable, and other bills that can’t be paid because of the disaster’s impact.” The interest rate is 3.75% for small businesses and 2.75% for non-profits.
The SBA offers long-term repayment plans up to 30 years in order to keep payments affordable. Terms will be determined on a case-by-case basis, based upon the borrower’s ability to repay.
Other funds available to help small businesses
In addition to the EIDL Loan Advance, the CARES Act also established other temporary programs to provide assistance to businesses affected by the COVID-19 pandemic. You can seek funds and assistance through the PPP, SBA Express Bridge Loans, and SBA Debt Relief programs.
Check the details of each loan to ensure you are not using two loans for the same purpose, and if you need to, seek legal advice about how to proceed with funding. For example, the SBA Express Bridge Loan allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly and is meant to bridge the gap while applying for an EIDL loan. The terms for this loan stipulate that it will be repaid in full or in part by proceeds from the EIDL loan.
Stay tuned for more details about available small business financial assistance programs as well as the employer impacts from the FFCRA and CARES Act, including the new emergency paid sick leave, emergency family medical leave, and expanded unemployment benefits.