The COVID-19 pandemic has riddled the US with both a health crisis and an economic one. Small businesses have been particularly affected — according to the National Federation of Independent Business, 92% of small employers have been negatively impacted by the novel coronavirus.
In response to the woes facing the economy, the US government has allocated funds to help support businesses throughout the country by enacting the $2 trillion CARES Act. One of the programs for small businesses affected by this act is the Economic Injury Disaster Loan (EIDL) program.
As the EIDL’s name might imply, this program involves small businesses taking out a loan. In general, loans must be paid off over time with interest. Being saddled with interest rates and having to repay loans can create additional headaches for any small business owner.
Thankfully, at least part of the money involved with an EIDL may not need to be repaid. If you’ve requested and received an emergency advance as part of the EIDL program, that money can be forgiven. Read through for the full details on how you can receive forgiveness on your EIDL emergency advance.
Can EIDL Loans & Advances Be Forgiven?
There are two parts to the EIDL program: the loan itself and an advance on the loan. The main portion of the loan — which can be as high as $2 million — is generally not forgivable. You’ll need to repay the main portion of your EIDL proceeds. The advance, on the other hand, is a different story.
The advance — which sends $1,000 your way for every employee in your business and caps its limit at $10,000 — effectively acts as a grant. As such, you do not need to repay the advance. That means you’ll be able to put the money right into your business without needing to pay it off in the future.
There is also one exception to the main loan to keep in mind. If you received an EIDL between January 31, 2020, and April 3, 2020, and you apply for a forgivable Paycheck Protection Program Loan and then refinance your EIDL into the PPP, you can essentially have your EIDL forgiven. Note that if you didn’t receive your EIDL before April 3, this exception doesn’t apply to you.
How To Get Forgiveness On Your EIDL Emergency Advance
To receive forgiveness on the advance portion of your EIDL, you’ll need to spend the money you receive on earmarked categories — you can’t just spend it on anything. Per New York state, the eligible categories to trigger the advance’s forgiveness are:
- Paid leave to employees
- Maintaining payroll
- Paying for increased costs to purchase materials
- Mortgage payments
- Lease payments
- Making repayments on obligations unable to be met due to revenue losses
It’s also worth noting that the advance can still be forgiven even if your EIDL application is ultimately rejected. Additionally, if you take advantage of the SBA’s Paycheck Protection Program, your EIDL advance will be deducted from your PPP Loan forgiveness.
Having earmarked requirements for how the advance can be spent might be frustrating. However, the categories should still provide enough leeway to help keep your business afloat in these unprecedented times.
EIDL Repayment Terms
Because you do have to repay the main portion of your EIDL, you’re probably wondering what repayment terms you might receive. As for this portion of your EIDL, the SBA states that the interest rate will not exceed 4% per year (the current rate is 3.75%), and the term length will not exceed 30 years. Your exact repayment term length will depend on your ability to repay your loan.
These are unquestionably favorable repayment terms, which makes the EIDL program very valuable if you can get approved for a loan.
Additionally, disaster loans in “regular servicing” status on March 1, 2020, will have automatic deferments provided through December 31, 2020, according to the SBA. If your loan falls under this status, it may provide you with additional relief during the economic downturn caused by the coronavirus pandemic.
Also, remember that because the advance does not need to be repaid, you won’t need to worry about any interest rates or term lengths with that portion of your loan. This means that when estimating the cost of an EIDL, you should first subtract the amount the SBA advanced to your business from the overall loan before calculating the cost.
Other Resources For Coronavirus-Affected Businesses
If you need more help beyond an EIDL or emergency advance, Merchant Maverick has been working hard to lend a helping hand.
Visit our frequently-updated coronavirus hub for a slew of guides and resources to help your business through this turbulent time. You might be particularly interested in understanding the difference between EIDL and PPP Loans. You can also learn how to set up a gift card program for your business or how to best utilize your business credit card.
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