The Small Business Administration is a great resource for small business owners, connecting small businesses that wouldn’t otherwise qualify for funding to lenders that offer competitive rates and favorable repayment terms. One program that’s been getting a lot of attention in light of the COVID-19 pandemic is the SBA Economic Injury Disaster Loan (EIDL).
The EIDL program is reserved for small business owners that have faced financial hardship as a result of a disaster. Because President Donald Trump declared a national disaster as a result of the coronavirus, many small business owners will now qualify for this funding to keep their businesses afloat.
If your business has been impacted by the coronavirus, keep reading to learn more about how to apply for these low-cost loans so you can get the financial relief you need.
How An Economic Injury Disaster Loan & Emergency Advance Could Help Your Small Business
An EIDL has few restrictions on how funds are used. Your loan can be used as working capital to replace lost revenue as a result of the coronavirus. You can use your loan for payroll expenses, operational costs, or the rent or mortgage for your commercial building. You can’t, however, use funds to pay off existing debt, business expansion, or dividends.
The maximum loan amount available through this program is $2 million. However, your business may qualify for less, as borrowing limits are determined by the amount of economic injury you’ve suffered.
Businesses may shy away from applying for one of these loans because they’ve heard about the lengthy application process. While it is true that funding can take several weeks or longer, the Coronavirus Aid, Relief, and Security Relief (CARES) Act has made it possible to receive up to $10,000 in just days through the Economic Injury Disaster Loan Emergency Advance program. This gives you access to quick funding that is forgivable. In other words, your loan advance does not have to be repaid. The amount that you receive as a loan advance is based on your number of employees. You can receive $1,000 per employee for a total advance up to $10,000.
The interest rate for small businesses is 3.75%. Private, non-profit organizations receive interest rates of 2.75%. The maximum repayment terms for the EIDL is 30 years. Loans of $25,000 or less do not have to be secured with collateral. Personal guarantees for loans up to $250,000 have been waived through December 31, 2020.
How To Apply For An EIDL Loan
If your small business is struggling, an EIDL’s low interest rates, high borrowing limits, and lengthy repayment terms could be right for you. If you’re interested in applying for a loan, keep reading to learn what you need to do in order to avoid delays in processing and approval of your application.
1) Ensure You Qualify For Funding
Not every small business will qualify to receive a disaster loan, so make sure that you meet all qualifications before submitting your application. To qualify, you must meet the SBA’s small business size standards. For most businesses, this simply means that you must have fewer than 500 employees. However, there may be additional guidelines based on your specific industry.
You must also have a solid credit score and history to qualify. You must also show that you will be able to repay your loan.
Businesses involved in illegal activity, lobbying businesses, certain agricultural businesses, gambling businesses, and government entities are ineligible for the EIDL program. Principal business owners with at least a 50% stake that are more than 60 days behind on child support payments are also ineligible.
2) Complete Your Application
There are two ways to submit your EIDL application. The easiest is submitting an online application through the SBA website. If you’d prefer to mail in your application, you can do so by downloading and completing SBA Form 5: Disaster Loan Business Application and Form 1368: Additional Filing Requirements. The SBA estimates that it should take roughly two hours to complete your application, so make sure you set aside enough time to do everything correctly.
If you have any questions about the EIDL or need help submitting an application, you can contact SBA disaster loan customer service by phone or email. You can also contact your local SBA office for assistance. In some cases, an SBA Preferred Lender may also be able to offer assistance. When contacting the SBA or Preferred Lender, you can also inquire about other types of funding that may be an option for your business.
When filling out the application, you’ll need to provide information about yourself and your business. Any owner with at least a 20% stake in the business and general partners must also provide their information for the loan application. Some of the information you should expect to provide includes:
- Personal Information: Legal name, mailing address, phone number, federal EIN
- Business Information: Business name, address, entity type, type of business, number of employees
- Management Information: Names, titles, percentage owned, social security numbers, DOBs
- Financial Information: Monthly sales, optionalÂ financial forecast
You may be required to submit additional information at any point during the application process, so make sure that you’re prepared to respond promptly to any requests from the SBA.
One additional point to note is that you must indicate that you wish to receive the Emergency Advance on your application in order to be considered for a forgivable advance up to $10,000.
3) Gather Documentation
In addition to a completed application, you also need to submit documentation to support your need for the EIDL. The documentation that should be submitted with your application includes:
- Federal Income Tax Returns: You must submit your last three federal income tax returns, along with all corresponding schedules. If you haven’t filed three tax returns, submit any that you have.
- IRS Form 8821: Your application also requires the submission of IRS Form 8821 – Tax Information Authorization. General partners and owners with at least a 20% stake in the business must also complete and sign this form.
- Balance Sheet: A balance sheet dated within 90 days of applying for the EIDL is required as part of the application process.
- Profit & Loss Statement: A current P&L statement must be included with your application.
- Schedule Of Liabilities: A schedule of liabilities is another financial document required when applying for the EIDL.
- Affiliate Information: If applicable, the federal income tax returns and IRS Form 8821 of all affiliates must be submitted.
Be aware that this is the minimum required for your EIDL application. The SBA may request additional documentation and forecasts in order to approve your loan.
4) Keep In Contact
As mentioned earlier, there may be additional documentation and information required in order to process your loan. Make sure that you respond as quickly as possible and provide all the requested information in order to expedite the loan process.
Also, don’t hesitate to contact the SBA or one of its local offices at any point in the process if you need assistance filling out your forms, have questions about requirements, or need other advice and guidance.
Avoid These Common Application Mistakes
Some delays in the EIDL process are beyond your control. However, there are a few mistakes you can avoid in order to get through the process more efficiently. Make a note of these mistakes and take your time when applying to prevent any issues that could delay funding.
Double-check that all information is entered accurately. It’s easy to transpose a number in your federal EIN, for example, and doing so can delay the processing of your application. Check that all information is accurate, and when you’re done, check again.
Not all fields will apply to your business. For example, you may be the sole owner of the business, so you don’t have to list other owners on your application. However, you must make sure that you fill out every field that’s applicable to your business. And don’t forget to add your signature!
All required documentation must be submitted with your application in order for it to be processed. In addition to the forms and documents you must submit for yourself, don’t forget to submit all documentation from other owners, general partners, and affiliates.
Failure To Follow Up
While your application is being reviewed, the SBA may require additional information or documentation. Make sure to answer your phone or check your email to ensure you receive these communications so you can respond promptly.
Falling For Scams
Be aware of potential scams. All emails from the SBA should be from an email address ending in sba.gov. Emails or phone calls asking for an upfront payment to track or expedite your loan are fraudulent and should be reported to the SBA. If you’re in doubt as to whether a phone call or email from the SBA is legit, email or call the organization using contact info from the official SBA website.
Sending Outdated Information
The financial documents that you send over must be current; that is, they must be dated within 90 days of applying for your loan. You must also submit your three most recent federal income tax returns. Sending outdated documentation can delay the processing of your loan.
What Happens After You Apply
After you apply for the EIDL program, it’s now (mostly) a waiting game. You’ll be assigned a loan officer that may request additional information and can offer assistance if needed. If you applied for the Emergency Advance, you can receive your funds in as little as a few days after your application has been filed successfully. The EIDL itself may take longer to hit your bank account if you’re approved. Expect to wait at least several weeks to receive funding.
If you applied online, you can use the SBA Economic Injury Loan Portal or the Disaster Loan Assistance Portal to check the status of your loan. You will be required to enter your password and email address or username that you used to register. You can also contact the SBA by phone or email to inquire about the status or to ask any questions. Be prepared to provide information such as your legal name, business name, and federal EIN. Learn more about checking the status of your EIDL.
If your loan is approved, congratulations! If you were denied, there are plenty of other options to explore to get the financial relief your business needs.
Other Options For Small Business Coronavirus Relief
It’s pretty scary out there in the world today, and there are many things that are beyond our control. However, one thing that small business owners can do is be proactive in seeking loans and other forms of financial relief. Unsure of where to start? Check out our COVID-19 hub to learn more about the financial opportunities available to you. Merchant Maverick is working around the clock to provide the most up-to-date and relevant information to help small business owners like you overcome the economic effects of the coronavirus. Good luck!
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