In response to the shuttering and struggles of hundreds of thousands of small businesses because of the COVID-19 pandemic, the federal government has rolled out several important programs to provide beleaguered business owners with financial assistance. In addition to low-interest, potentially forgivable loans offered through the Paycheck Protection Program, the U.S. Small Business Administration (SBA) has several other small business coronavirus funding options. Among them is the Economic Injury Disaster Loan (EIDL) Program.
What is the EIDL Program?
The SBA is offering EIDLs to qualifying businesses that they can use to “pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.” As of March 23, the EIDL program is open to businesses in every state, American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.
The EIDL Program provides working capital loans of up to $2 million at 3.75 percent per annum (2.75 percent for non-profits) for a term of up to 30 years to small businesses (including sole proprietorships, independent contractors and self-employed persons), private non-profit organizations, or 501(c)(19) veterans organizations who were in business as of January 31, 2020.
When reviewing an application for an EIDL, the SBA will consider the applicant’s credit history and ability to repay the loan. Additionally, businesses seeking an EIDL in an amount over $25,000 will need to pledge collateral to obtain funding, while the SBA will require guaranties for loans in excess of $200,000
The actual amount of each loan is limited to the economic injury as determined by the SBA, less business interruption insurance and other recoveries up to the administrative lending limit. The SBA also considers potential contributions that are available from the business and/or its owner(s) or affiliates. If a company is a significant source of employment, the SBA has the authority to waive the $2,000,000 statutory limit on EIDLs.
$10,000 Advances Available Through EIDL Program – In Theory
A central feature of the EIDL is the availability of advances of up to $10,000 to qualifying businesses that they can receive within days of submitting a successful application. The advance, which the borrower does not need to repay even if the borrower is denied a full EIDL loan, is intended to provide immediate economic relief to businesses experiencing a temporary loss of revenue.
However, high demand for loans through the EIDL program appears to be leading to significant reductions in the amount of advances that the SBA is actually distributing
Based on a bulletin from the SBA’s Massachusetts District Office, several news outlets are reporting that the SBA is implementing a cap of $1,000 per employee, up to a maximum advance of $10,000. As such, a business with four employees will only be eligible for a $4,000 advance, not the $10,000 maximum.
These reports have also cited a separate announcement from U.S. Sen. Brian Schatz of Hawaii, who serves on the Senate’s Banking, Housing and Urban Affairs Committee, that the change is a result of high demand for the loans. As of the early afternoon of April 10, Senator Schatz’s website discussion concerning EIDL Program loans states the following regarding the amount of available advances:
The law provides that applicants can request up to $10,000; however, it seems that the SBA may scale the advance based on the number of employees an applicant has. Based on reports, the SBA may provide $1,000 per employee for up to ten employees. However, SBA has not provided public guidance on how it will determine the amount of the advance. Please check back for updates.
Kreis Enderle attorneys will continue to monitor the administration of EIDL program loans, including any updated guidance as to EIDL advances.
Call Us for Assistance With the EIDL Program and Other Small Business Loans Related to COVID-19
We know this is an unprecedented time for business owners. Kreis Enderle remains steadfastly committed to providing guidance, counsel, and advocacy to help our clients weather the storm.
If you have questions regarding obtaining loans through the EIDL program, or have any other concerns or issues related to the COVID-19 pandemic, please contact the Business Law Practice Group at Kreis Enderle today.