More than a year after the COVID-19 pandemic began, small businesses and nonprofit organizations across the country still seek financial assistance to deal with the economic ripple effects.
The most pressing question being when Paycheck Protection Program (PPP) funds run out, what should you do? One option might be the pandemic-modified Economic Injury Disaster Loan (EIDL) program, now known as the COVID-19 EIDL. But before you decide to apply, it’s wise to read the fine print.
Throughout its history, the SBA’s EIDL program has provided funds to organizations during federally declared disasters. The basic terms included up to $2 million in loans issued directly by the SBA for a term up to 30 years at an interest rate not to exceed 4%. The COVID-19 national emergency increased the popularity of EIDL as a second vehicle — alongside the PPP — to create access to needed capital.
Because the pandemic crisis didn’t directly align with the EIDL program structure, the CARES Act and subsequent legislation carved out a separate EIDL program, the COVID-19 EIDL, which waives two requirements of the original EIDL: 1. Personal guarantees of EIDLs up to $200,000, and 2. Borrowers being required to be in business for at least a year (the CARES Act does, however, require that borrowers be in operation on Jan. 31, 2020).
Additionally, for the COVID-19 EIDL, the SBA limited loan sizes to the lower of $150,000 or six months of working capital due to the large volume of loan requests received. NOTE: Effective April 7, 2021, loan sizes were increased to the lower of 24 months working capital up to a maximum of $500,000. If your loan was approved prior to the week of April 6, 2021, you have two years from the date you signed your loan to request additional funds.
Individual loan amounts under the EIDL program are determined based on the projected revenue loss an organization might suffer as a result of a disaster. Because projected revenue losses are more difficult to determine in the current pandemic than in a natural disaster, organizations may be uncertain about what size loan they are actually eligible for.
While PPP funding provides opportunities to many small businesses and nonprofits, it is designed to primarily cover payroll costs and limited operational expenses. In contrast, the COVID-19 EIDL funds can be used for nearly all working capital needs, subject to restrictions.
Currently, the SBA is reaching out directly to eligible small businesses — no open application process is available — under the Targeted EIDL Advance program, which would provide additional assistance up to $10,000.
If you decide an EIDL is right for your organization, review the FAQs regarding the program and the online application portal on the SBA website (www.sba.gov).
Currently, the application process uses an initial online application that is reviewed by the SBA and is followed up by a request for supplemental information. Take note that the deadline for the EIDL application process is Dec. 31, 2021.
Step 1: Initial online application — The initial form gathers basic information about the organization. Keep in mind that the form is “smart” — it validates data for proper format and unless all fields are filled out appropriately, you cannot advance to the next page.
Once the application is submitted, you will be given an application number to use for correspondence with the SBA. An email address and phone number are also provided to check on the application. Throughout the process, you or your main point of contact will receive loan status updates from the SBA via email, as well as any requests for additional information.
Step 2: Follow-up request — Next, the SBA will email your loan application number and a request to set up an account on their online portal. Additional information may be required.
Step 3: Review loan documents — Once you’ve successfully created an account on the SBA portal and your loan is approved, you’ll receive another notification along with the actual loan documents. Carefully review all of the loan provisions. While EIDL proceeds can be used for all types of working capital — as opposed to the limited allowances in the PPP — there are some restrictions to consider before you sign on the “dotted line.”
Step 4. Before signing, consider your total financial situation — If you are comfortable with the loan restrictions, take stock of all federal monies you have received and review the cross-program eligibility rules on the SBA website before you sign the documents. The EIDL is subject to single audit requirements that are placed on any organizations that use more than $750,000 in one year.
The decision to take on additional debt isn’t easy and should be done with care. It’s important to weigh your options and determine whether the individual loan restrictions, reporting requirements, and interactions with other funding sources are suitable for your situation.
The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment or tax advice or opinion provided by CliftonLarsonAllen LLP (CliftonLarsonAllen) to the reader. For more information, visit CLAconnect.com.