What is an Economic Injury Disaster Loan (EIDL)?

It’s a traditional SBA loan specifically designed as disaster relief for working capital to small businesses. After the current coronavirus (COVID-19) pandemic, the Economic Injury Disaster Loan (EIDL) program has given expanded powers from the federal government under the CARES Act.

Any small business in designated states and territories that is impacted by the coronavirus outbreak can apply for an EIDL directly from the SBA at low-interest with cash up to $2 million. With the expanded qualification, you can also receive a cash advance of up to $10,000 instantly to overcome temporary difficulties. This cash advance is forgivable if you spend the money on maintaining payroll, rent, utilities, interest payments on debts, or other financial obligations.

How to Apply for an Economic Injury Disaster Loan?

The SBA has declared all U.S. states and territories disaster areas in order for all small businesses eligible to apply for an EIDL. Small businesses can apply for an EIDL at the SBA Disaster Loan website. In order to expedite the application process, business owners should provide the following information required by these forms:

  • SBA Form 5 for disaster loan application
  • SBA Form 413 for the personal financial statement. This form is to be provided by every partner and stockholder that owns 20% or more interest in the business.
  • SBA Form 2202 for the schedule of liabilities
  • SBA Form 1368 for additional EIDL filing requirements
  • Monthly business financial statements for the SBA to conduct the economic injury analysis of pre- and post-disaster revenues.

To make the eligibility easier for affected businesses, the CARES ACT has given up certain standard EIDL requirements. Unlike typical EIDLs, businesses that are affected by the COVID-19 are not required to provide collateral or a personal guaranty, except for loans larger than $200K, tax returns to demonstrate repayment ability, or to be operational for one year preceding to the disaster provided the business was in operation by January 31, 2020.

Application Process for the Economic Injury Disaster Loan (EIDL)

You can apply for the EIDL on the SBA’s Disaster Loan Assistance website. The application typically takes a few hours to complete and requires applicants to verify their needs and eligibility. The applicants are also required to provide business information and how their businesses are affected by the coronavirus outbreak.

You can also apply for EIDL through downloading and mailing a paper application to the SBA. Furthermore, you can call the SBA Customer Service Center (800-659-2955) or send an email to disastercustomerservice@sba.gov to obtain disaster loan details and an EIDL application.

After you’ve been approved for an EIDL, the SBA will notify you by sending you the loan agreement to sign and inform the loan amount and terms you’ve qualified for. After receiving the signed agreement, you can have the funds into your bank account within three to five business days.

If you want to receive $10,000 advance from the SBA, make sure you request it to be disbursed within three days of applying. In addition, you don’t have to repay it even if your EIDL loan application is declined.

The timeline for getting approval on your EIDL application varies and based on your situation and provided documentation. Generally, it takes two to three weeks if you’ve provided accurate details. All loan decisions will be provided in writing.

Apply for a Disaster Loan

Qualification Criteria for Coronavirus Disaster Loan

Eligible borrowers for an EIDL related to the coronavirus include:

  • Any business that is physically located within the SBA declared states and territories
  • Any business that has suffered, or is likely to suffer, considerable economic injury due to a disaster
  • A business with a good credit score and repayment ability.
  • Any small business that meets SBA’s lending requirements with employees not more than 500
  • Any private or nonprofit organizations
  • Independently owned franchises
  • Any ESOP company with employees not more than 500
  • Sole Proprietors and Self-employed workers
  • Independent contractors and gig workers
  • Tribal businesses and 501(c)9 veterans organizations

The following businesses do not qualify for an EIDL:

  • Agricultural companies
  • Religious organizations
  • Charitable organizations
  • Gambling businesses
  • Businesses with a credit available elsewhere

How Can You Use an EIDL?

The Economic Injury Disaster Loans provide working capital to small businesses that have suffered a substantial economic injury because of the disaster. You can use EIDL to cover your daily business operational expenses, including:

  • Maintaining payroll to retain employees
  • Providing paid sick leave to employees
  • Payment for increased costs to obtain materials or supplies
  • Rent or mortgage payments
  • Accounts payable; and
  • Other mandatory payments that cannot be met due to the disaster’s impact

NOTE: This working capital loan may not be used for refinancing, expansion, or infrastructure improvements.

Terms and Rates of an EIDLs

The disaster impact on your business and the amount of funding you will qualify will determine the amount and specifics of your loan. Generally, the terms and rates for these specific EIDLs include:

  • The loan amount is up to $2 million, based on the SBA economic injury analysis without any upfront fees or early payment penalties.
  • The interest rate is 3.75% for small businesses and 2.75% for nonprofits without credit available elsewhere.
  • The SBA offers longer repayment terms up to 30 years to keep them affordable.
  • The repayment term will be determined on a case-by-case basis, and your ability to repay the loan.
  • A personal guarantee is required for the loan amounts in excess of $200,000
  • Automatic deferral of loan payments for all of 2020 and up to one year
  • Grants through the EIDL program only available until the end of this year.
  • Apart from the $10,000 advance, the rest of the loan is not forgivable.

Tips for Applying EIDLs

When applying for these EIDLs, make sure to be prepared with these handy tips:

  • Keep your total gross revenue details ready for 2019
  • Don’t include your Cost of Goods sold unless you report it on your tax returns
  • Provide your business tax ID number (EIN)
  • Confirm all the details before submitting your loan application and ensure the details are accurate.
  • Use the same business contact information that you use on your federal tax returns.
  • If your loan application is denied, you will be given six months to prepare and submit a written request for reevaluation.

The Bottom Line

After the coronavirus outbreak, the federal government has offered many coronavirus relief programs for small businesses. The SBA’s Economic Injury Disaster Loan Program is one of them that provides a lifeline for businesses that are in a cash crunch due to coronavirus pandemic. The same program has used by many businesses previously when impacted by hurricane and flood disasters.

Recently, the federal government has sanctioned several rounds of additional funding to the EIDL program with an additional $10 billion directed by the CARES Act. We strongly believe more funding will be available in succeeding stimulus and relief legislation. To learn more about the SBA’s COVID-19 assistance programs, visit the SBA website for more details.

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MichaelGavin
Merchant Advisors
Merchant Advisors
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