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    EIDL Loans - What You Need To Know

    EIDL Loans

    The SBA Economic Injury Disaster Loan (EIDL) program’s list of disasters was expanded to include the coronavirus pandemic. Small businesses experiencing a temporary loss of income were invited to apply for low-interest SBA loans. 

    The government also offered an advance of $10,000, which does not have to be repaid, but will be deducted from any EIDL awarded. If you are wondering how I can get SBA loans, here is what you need to know.

    What Is An EIDL Loan?

    The SBA Economic Injury Disaster Loan is a long-standing government program set up to help businesses recover from natural disasters or an economic crisis. Traditionally, disasters have included tornadoes, earthquakes, floods, and forest fires. The loans are intended to help businesses continue to function during a crisis.

    As the coronavirus spread across the country, the Trump Administration declared COVID-19 a national emergency. Accordingly, coronavirus joined the list of eligible reasons for small businesses to seek federal financial assistance.

    Small businesses, defined as those with 500 or fewer employees, sole proprietors, and independent contractors, are eligible to apply. EIDL is also available to non-profit organizations and tribal businesses.

    Included in the program is an emergency EIDL grant of a maximum of $10,000. The grant amount is based on $1,000 per employee. You are not required to repay the advance, even if your application for an EIDL loan is denied.

    The Terms

    • The maximum loan amount is $2 million, although according to reports, the SBA is capping loan amounts at $150,000 to slow the disbursement of total funds available.
    • You have up to 30 years to repay your loan, depending on your ability. Each applicant is being judged separately.
    • The interest rate is low, 3.70% for small businesses, and 2.75% for non-profits. Principal and interest can be deferred for up to one year.
    • If you apply for less than $200,000, you will not need a personal guarantee.
    • Loans less than $25,000 can be obtained without collateral.
    • No prepayment fees are required.
    • Your first payment is not due until one year after the date the promissory note is signed.
    • You cannot use your EIDL funds to expand your business property or purchase fixed assets, nor to repair facility damage.
    • EIDL funds cannot be used to make payments on any outstanding loans you may have, nor to refinance debt or pay taxes owed to the IRS.
    • If you see that COVID-19 is causing more damage than anticipated, you can apply for a loan increase. You need to act quickly because the SBA will not accept loan increase requests more than two years after initial loan approval unless you can demonstrate extraordinary circumstances.
    • SBA loans have strict requirements for record-keeping. You will want to keep all paid receipts, paid invoices, canceled checks, contracts, and any other documents that prove how loan funds have been spent.

    PPP Vs EIDL - What Is The Difference?

    • PPP, the Paycheck Protection Program is primarily designed to help you keep your employees on your payroll.
    • Small businesses, sole proprietors, independent contractors, and freelancers can apply. You will receive a PPP loan in an amount equal to 2.5 times your monthly payroll costs.
    • If you maintain your payroll for eight months, the PPP loan that you receive is forgivable.
    • You can use the PPP loan for expenses in addition to payroll, such as paying rent or mortgage and utilities. If you use more than 75% of the PPP loan to cover other expenses, you forfeit the forgiveness aspect of the loan.
    • EIDL is not a forgivable loan. Within the parameters of eligible uses, you are free to use EIDL for operating expenses and additional costs beyond payroll and overhead.
    • If you applied for an EIDL Advance, the amount you received will be deducted from the total loan funds awarded to you.

    What Can EIDL Be Used For?

    The first round of EIDL funds was quickly depleted. When the second round was funded, there was a similar rush of applications, causing the entire system to shut down. If you already applied for an EIDL, you may have noticed a delay. With the second round of funding on the verge of depletion, funds are now restricted to agricultural businesses with fewer than 500 employees.

    Eligible agricultural businesses include:

    • Aquaculture
    • Ranching and raising of livestock
    • Production of fiber and food
    • Farming and other agriculture-related industries as defined by the SBA.

    If you applied for EIDL funds you should be seeing the money in your account now.

    Funds can be used for:

    • Payroll
    • Accounts payable
    • Fixed debts such as mortgage or lease, utilities, etc.
    • Other expenses that cannot be covered because of the impact of COVID-19 on your cash flow.

    Conclusion

    Key Take-aways:

    • The coronavirus pandemic shut  down the economy, hitting small businesses across America.
    • The government responded by declaring COVID-19 a national emergency. Small businesses, sole proprietors, and freelancers became eligible for EIDL funds.
    • New applications are restricted to agricultural businesses, but, if you have already been approved, funds should arrive soon.
    • EIDL is not a forgivable loan, like PPP, but permitted uses are broader.