The Small Business Administration (SBA) has announced that it has reopened the Economic Injury Disaster Loan (EIDL) and EIDL Advance program to eligible applicants still struggling with the economic impact of the COVID-19 pandemic.

The EIDL program offers long-term, low-interest loans to small businesses and non-profits. For businesses that haven't been able to procure financing through the Paycheck Protection Program (PPP), an EIDL may provide another avenue to relief.

Program Overview

Applicants must be businesses with 500 or fewer employees, sole proprietors, independent contractors, or certain other small entities. EIDL funds come directly from the SBA and provide working capital up to certain limits.

The loans have terms of up to 30 years and interest rates of 3.75% for businesses, and 2.75% for non-profits. The first payment is deferred for one year. Plus, the Coronavirus Aid, Relief and Economic Security (CARES) Act has temporarily waved the program's usual requirements that applicants must have been in business for one year before the crisis and be unable to obtain credit elsewhere. A borrower of $200,000 or less doesn't need to provide a personal guarantee.

Recipients must use EIDL proceeds for working capital necessary to carry a business until resumption of normal operations and for expenditures needed to alleviate specific economic hardships related to the pandemic. These may include fixed debts (such as rent or mortgage), payroll, accounts payable and other bills that could've been paid had the disaster not occurred and aren't already covered by a PPP loan.

EIDL proceeds may not be used to refinance indebtedness incurred before the COVID-19 crisis, or to pay down loans owned by the SBA or other federal agencies. Loan funds also cannot be used to pay federal, state or local tax penalties, or any criminal or civil fine or penalty. Other limitations also apply.

Emergency grants

Under the CARES Act, EIDL applicants may request an Emergency Economic Injury Grant, also referred to as an EIDL Advance, of up to $10,000. The grant is to be paid within three days and must be used to:

• Provide paid sick leave to employees unable to work because of COVID-19,
• Retain employees during business disruptions or substantial shutdowns,
• Meet increased costs to obtain materials unavailable because of supply chain disruptions,
• Make rent or mortgage payments, or
• Repay other obligations that cannot be met due to revenue losses.

Recipients of an emergency grant don't have to repay it -- even if the business is eventually denied an EIDL. However, in April, the SBA implemented a $1,000 cap per employee on EIDL advances up to the $10,000 maximum. For example, an applicant with three employees would receive an advance of only $3,000.

The EIDL program may not have received as much attention as the PPP, but it's a valuable option for small businesses and non-profits striving to remain operational during the ongoing public health and economic crisis.

CRR has been closely following all guidance as it is released in order to best support our clients. If you have questions about the EIDL program, leave a comment below, or feel free to contact me directly. You can also visit our COVID-19 Resource Center for the latest updates, alerts, and impacts.