With all of the commentary and focus on the potentially-forgivable Paycheck Protection Program loans included in the Coronavirus Aid, Relief and Economic Security (CARES) Act, most companies suffering a negative financial impact from the COVID-19 pandemic are looking to participate in that program. However, a number of changes to the Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL) Program were also included in the CARES Act. These important changes offer potential borrowers a second resource for funds.
The changes to EIDL Program loans included in the CARES Act include:
- EIDL loans are available to small businesses in a declared disaster area (all 50 states, Puerto Rico, Guam and the North Mariana Islands have all been declared disaster areas for purposes of the EIDL Program effective January 31, 2020) to cover economic injury resulting from the disaster (e.g., loss of revenue).
- EIDL loans are processed directly through the SBA, although the SBA may determine to enlist the assistance of lenders for the processing and making of loans (application process available through the SBA website).
- EIDL loans are limited to a maximum amount of $2 million, carry an interest rate of 3.75% and have a maximum term of 30 years.
- EIDL loans over $200,000 must be guaranteed by any owner having a 20% or greater interest in the applicant.
- Removal of standard EIDL Program requirements that the borrower be unable to secure credit elsewhere or that the borrower has been in business for at least one year (as long as it was in operation on January 31, 2020).
- An applicant may request an expedited disbursement that is to be paid within three days of the request. The advance may not exceed $10,000 and must be used for authorized costs, but is otherwise not repayable if the EIDL Loan is not approved.
Note, that the total available borrowing under an EIDL loan is far below the $10 million loan limit under the Paycheck Protection Program. Moreover, loans under the Paycheck Protection Program are relieved of any personal guarantees or collateralization. (see related post)
However, borrowers taking advantage of the EIDL loans are also able to apply for loans under the Paycheck Protection Program so long as the basis for the additional borrowings (business expenses being paid) are not the same as those intended for the EIDL loan.