EIDL Grants and Loans for SMBs Are Back

Key Points

• The Small Business Administration (SBA) reopened its Economic Injury Disaster Loan (EIDL) and EIDL Advance application gateway on June 15, 2020.
• The EIDL program features a forgiveable advance of up to $10,000 ($1,000 per employee).
• SMBs of 500 or fewer employees and independent contractors are eligible to apply.
• The maximum loan size is $150,000; the grant size is $10,000.

On June 15, 2020, the Small Business Administration (SBA) began once again accepting applications for Economic Injury Disaster Loans (EIDLs) and EIDL Advances (which are basically grants) from all eligible enterprises experiencing economic impact due to the coronavirus pandemic. The original COVID-19-emergency EIDL program began March 27 as part of the CARES Act, was suspended in mid-April due to lack of funds, but started again in early May for agricultural businesses following an infusion of additional funding from Congress.

The latest reopening, which again makes funds available to eligible SMBs, and self-employed individuals including independent contractors, freelancers, and gig workers, includes both EIDL loans and up to $10,000 grants at $1,000 per employee. To meet what it calls an "unprecedented need," the SBA says it has made "numerous improvements to the application and loan closing process, including deploying new technology and automated tools."

EIDL Eligibility Requirements

To be eligible for both the EIDL loan and grant you must:

• Be an SMB or agricultural business with less than 500 employees
• Be an independent contractor, freelancer, gig worker, or sole proprietor (with or without employees)
• Have been in business as of Jan. 31, 2020

Deadlines for EIDL Money

Barring additional funding, EIDL grants and loans will be available until Dec. 31, 2020, or until the SBA runs out of funds, whichever comes first. The program ran out of money once and most experts expect it to happen again.

If you previously applied for an EIDL loan and advance but did not receive it, the SBA says your application is still in the pipeline and will be considered on a first-come, first-served basis.

EIDL Rules Remain Unchanged

The SBA's Economic Injury Disaster Loan (EIDL) Program actually predates the current crisis, but the CARES Act and other legislation modified it to provide rapid assistance -- including the forgivable advance -- to businesses who've suffered a loss of revenue and other adverse effects for coronavirus-related reasons. The current loan and advance (grant) rules and guidelines are the same as when the program initially rolled out.

• You can use an EIDL loan or advance to pay debts, payroll, accounts payable, and other bills that can't be paid due to the impact of COVID-19.
• You can apply for a PPP loan as well as an EIDL loan and advance but any EIDL advance will be subtracted from the forgiven amount of your PPP loan.
• Interest rate on EIDL loans is 3.75% for small businesses and 2.75% for nonprofits.
• Loan repayment terms up to 30 years are available with payments deferred for one year.
• No collateral required for loans of less than $25,000.
• No personal guarantee required on loans of less than $200,000.
• If you receive a grant but are not approved for the loan, you can keep the grant.

Ineligible Uses of Loan Funds

While the acceptable use of EIDL funds is subject to some interpretation, the SBA spells out ineligible use much more specifically.

• You cannot use EIDL funds and PPP loan funds to pay for the same things.
• You cannot use EIDL funds to pay bonuses or dividends.
• No disbursements to owners, partners, officers, directors, or stockholders are allowed, except when related to performance of services for your benefit.
• You can't repay stockholder/principal loans, except when the funds were introduced as the result of the relevant disaster (COVID-19, in this case) and non-repayment would cause undue hardship to the lender.
• EIDL funds may not be used to expand facilities or acquire fixed assets.
• EIDL monies may not be used for physical repair or replacement, or relocation.
• You can't use the money to refinance long-term debt, pay down loans provided by another federal agency, or pay any part of a direct Federal debt.
• You are not permitted to use EIDL funds to pay any penalty for lack of compliance with a law or regulation.
• You may not use EIDL funds for contractor malfeasance.

Where and How to Apply

According to the SBA, the online EIDL application has been simplified and the estimated time to complete it is two hours and 10 minutes or less. The application consists of five parts, Disclosures, Business Information, Business Owners Information, Additional Information, and a Summary.

You will be filling out an application for an EIDL loan and have the option to request a loan advance (grant) at the end of the application. Don't forget to do this. Otherwise you won't be considered for the grant. After you complete and submit your application, the SBA will generate a confirmation number. Keep that number to use for any follow-up with the SBA.

After You Submit Your Application

The SBA says you should receive your grant within three days. In the first round that process took more than a month. Note that the SBA usually deposits the grant funds into your bank account without notification -- so check your account early and often.

Many applicants are only interested in the grant and, in fact, have no intention of accepting an EIDL loan if offered one. This is perfectly legal, but loan terms are attractive so, if you qualify, you may want to review the offer before you say no. You will be asked to accept and agree to loan terms by the SBA before funds will be approved and disbursed. You don't need to worry about "accidentally" getting stuck with a loan.

Additional information about the COVID-19 EIDL program can be found on the SBA Coronavirus (COVID-19) page. If you need to follow up with the SBA, there are two ways to make contact:

• Phone: SBA Disaster Assistance Customer Service Center at 800-659-2955
• Email: disastercustomerservice@sba.gov