US small businesses have been a major casualty of the COVID-19 crisis. The U.S. Chamber of Commerce reports that a total of 54% of the nation’s small businesses are closed or will close soon as a result of the pandemic. To help mitigate the heavy economic damage, Congress passed the unprecedented $2 trillion CARES Act, which includes $350 billion in coronavirus stimulus relief for small businesses. It can be a little tricky, though, sussing out all the different Small Business Administration (SBA) loans and programs for small businesses included in this package.
One of the small business funding programs funded under the CARES umbrella, Economic Injury Disaster Loans (EIDL) include a forgivable cash advance—essentially a grant—of up to $10,000 from the SBA. Read on to learn more about EIDL loan advances and how to get one.
What The SBA EIDL Loan Advance Program Is & How It Can Help Small Businesses
On top of the traditional SBA funding programs, the CARES Act established several new programs to provide economic relief to small businesses affected by COVID-19. One of these programs is EIDL loan advances. EIDL disaster loans are an existing SBA disaster loan program, but the US government has recently expanded the program, opening it up to virtually any small business, and added forgivable advances on EIDL loans. The advances, in particular, have gained a lot of interest from small business owners, as these advances do not need to be repaid.
There are now two parts to an EIDL loan. The first part is the loan itself—which can be as large as $2 million—and the other is an immediate advance on the loan, which can be as large as $10,000 and which the SBA says you can receive in just a few days. The advance portion of the loan is forgivable, i.e., you do not need to repay it, even if you ultimately are not approved for the EIDL. The rest of the loan is not forgivable but can provide important relief for your small business over the coming months. Not to be confused with the popular Paycheck Protection Program (PPP) loan program, which is meant to help you cover payroll for eight weeks, the EIDL is to help businesses cover six months of operational expenses.
What Your Small Business Could Get From The Program
As mentioned, the EIDL loan itself can be up to $2 million—depending on how much the SBA approves you for—and the advance portion is up to $10,000. However, if you have fewer than 10 employees, you will not receive that large of an advance. Businesses can only receive an EIDL advance of $1,000 for each employee (with a cap of $10,000). This means if you have four employees, you’ll receive an EIDL grant of $4,000. If you are self-employed, the advance will be $1,000. This funding cap was implemented due to the overwhelming popularity of the program and the limited amount of funding available.
How soon will the advance arrive? According to the SBA, Economic Injury Disaster Loan advance funds will be made available “within days of a successful application.” But on Reddit and social media, business owners are reporting that it is taking longer — or that they have not heard back on the status of their advance after a week of applying; this is likely because the SBA is currently inundated with applications. Nevertheless, we have to assume that the funds will eventually come through and that the sooner you apply, the better.
Again, you will have to repay the main portion of the EIDL loan proceeds, but not the EIDL advance. However, there is an exception: if you already received an EIDL loan between January 31, 2020 and April 3, 2020, you can apply for a forgivable PPP loan, refinance your EIDL into the PPP, and have the EIDL forgiven that way. If you do this, the $10,000 grant will be subtracted from the PPP forgiveness amount. But if you haven’t already received your EIDL loan, this will not apply to you.
As far as repayment terms on EIDL loans, term length can be up to 30 years; The interest rate is 3.75%, and you can defer your loan payments for a year before you start paying on the loan. This is a high-quality loan, and if you need it you shouldn’t hesitate to apply because funding for this program may soon be exhausted. You must apply no later than December 16, 2020, in most states.
What You Need To Qualify For An EIDL Loan Grant
Because the entire country has been declared a disaster area, most small businesses are eligible to receive an EIDL loan. Even sole proprietorships, nonprofit organizations, self-employed individuals, and gig economy workers are eligible. If you are eligible for the loan, then you are eligible for the advance/grant, even if your loan application is not ultimately approved.
Here are some more specifics about the criteria your business needs to qualify for an EIDL loan and the forgivable grant:
- Business must have fewer than 500 employees (businesses in certain industries may have more than 500 employees if they meet the SBAâs size standards for those industries)
- Businesses cannot be engaged in illegal activities as defined by federal guidelines (e.g., marijuana dispensaries) or lobbying
- Business owners cannot be more than 60 days behind on child support
- Your business cannot be a strip club, casino, or agricultural enterprise (farm)
- Business owners cannot be currently incarcerated; on parole or probation; subject to any current criminal charges or proceedings; pled guilty to a felony or been placed on parole or probation for a felony within the past five years
EIDL loans of $25,000 or less do not require collateral, and no personal guarantee is required on loans less than $200,000.
What You Can Use EIDL Proceeds For
EIDL loan proceeds and advances can be used payroll, paid leave, leases or mortgages, or other operational costs. You may not use the EIDL to refinance existing debt (there is another SBA program for COVID-19 debt relief). Also, if you apply for the PPP loan as well as an EIDL, you have to use the loan proceeds for different purposes. For most businesses, that would mean using the PPP to cover payroll (since at least 75% of your PPP proceeds must be used on payroll), and using the EIDL to cover non-payroll expenses.
How To Apply For The Economic Injury Disaster Loan Grant Program
You can find the COVID-19 Economic Injury Disaster Loan Application on the SBA’s website at covid19relief.sba.gov; may also be able to apply through your preferred SBA lender. The application is fairly straightforward, and most business owners shouldn’t have a hard time completing it. It is basically a streamlined version of the normal EIDL application and should take no more than two hours to complete.
You will, however, have to provide some basic information about yourself and your business (SSN, address, etc.), as is typical for applying for any business loan, and you’ll have to let the SBA check your credit history and tax records.
Other Resources For Coronavirus-Affected Businesses
I hope this post has been helpful. If your business has struggled under COVID-19 and you think you qualify for the EIDL, I recommend applying for the loan ASAP, since available funds are surely going quickly.
Here are some additional resources might be able to help your small business during these trying times:
- Small Business Loan Resources & Guides For Businesses Affected By The Coronavirus
- SBA Paycheck Protection Program (PPP) Loans Explained: How They Work, Who Qualifies, & Where To Apply
- Your COVID-Affected Small Business Might Be Eligible For SBA Loan Debt Relief Via The CARES Act
- Applications For Contractor & Freelancer PPP Loans Begin Today: Hereâs What The Self-Employed Should Know
- How The CARES Act Coronavirus Stimulus Package Could Help Your Small Business & Employees
- How To Keep Your Employees On Staff And Busy During The Coronavirus
Finally, we have a COVID-19 small business hub with even more resources, including topics specific to certain sectors such as retail, restaurants, salons, and others. If you find our content useful, please share it with other members of your small business community. We can get through this crisis together by sharing accurate information within the small business community and taking swift, smart action to keep our businesses afloat during this critical time.
The post How SBA Economic Injury Disaster Loan (EIDL) Emergency Advances Work & Where Your Small Business Can Get One appeared first on Merchant Maverick.