Friday, June 19, 2020
The Small Business Administration (SBA) announced that on June 15, 2020 it would once again begin accepting applications for the EIDL loan and grant program from all types of businesses that meet the criteria of program. The applications for these loans are submitted directly to the SBA through its portal. EIDL is a two-phase program of financial assistance through the SBA. Prior to this change, EIDL applications had been limited to agriculture-related businesses.
Once the application is submitted through the SBA portal at this link the SBA processes an advance of up to $10,000. This advance is a grant and does not have to be repaid unless the business also gets a Payroll Protection Program (PPP) loan. In that case, it is added to the PPP loan and repaid through that program.
To qualify for the EIDL, the business must certify that it has suffered substantial economic injury as a result of the declared disaster. The loan amount may be up to $2,000,000. Proceeds of this loan may be used for:
1. Payroll costs during the business disruption or substantial slowdowns
2. Providing sick leave to employees unable to work due to Covid-19
3. Mortgage Payments
4. Rent
5. Meeting increased material costs due to interrupted supply chains
6. Repaying other obligations that cannot be met due to revenue losses
EIDL loans have a one-year payment deferral during which time interest accrues. There is then an up to thirty-year repayment period with interest at 3.75%. These loans require collateral to be put up if they are over $25,000 and personal guarantees if they are over $200,000.
What does Substantial Economic Injury mean?
There are a few areas that a business needs to be concerned about if they are considering an EIDL grant/loan. The first is that the business must have suffered a substantial economic injury. This term has a specific legal meaning. According to the SBA website; “The Applicant must establish that the claimed economic injury is substantial and is a direct result of the declared disaster. Substantial economic injury generally means a decrease in income from operations or working capital with the result that the business is
unable to meet its obligations and pay ordinary and necessary operating expenses in the normal course of business.” Loss of anticipated profits or a drop in sales is not considered substantial economic injury for the purposes of an EIDL. (13 CFR 123.300 (a) (2)).
Feel free to contact us with questions about this information. We are always happy to help.
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