The purpose of Economic Injury Disaster Loans (EIDL) is to help businesses meet financial obligations and cover operating expenses that could have been met had the pandemic not occurred. EIDL are part of the Coronavirus Relief Options available to small businesses via the Small Business Association (SBA) made possible by the CARES Act and additional subsequent legislation.
Who is Eligible for EIDL?
The following types of businesses that were operational before February 15, 2020, are eligible to apply for an EIDL:
- Those with 500 or fewer employees OR those defined as “small” according to SBA business size standards
- Cooperatives with 500 or fewer employees
- Agricultural businesses with 500 or fewer employees
- Most private nonprofit organizations
- Faith-based organizations
- Sole proprietorships
- Independent contractors
The EIDL program is in effect until December 31, 2021, and applications are processed on a first-come, first-served basis.
Who is NOT Eligible?
Businesses engaged in any of the following are NOT eligible for an EIDL:
- Illegal activity
- Loan packaging
- Speculation
- Multi-sales distribution
- Gambling
- Investment
- Lending
Details of the EIDL Program
EIDL loans are offered at a 3.75 percent fixed interest rate for small businesses (including sole proprietors and independent contractors) and a 2.75 percent fixed rate for private nonprofit organizations.
In March 2021, the SBA extended deferment periods for all disaster loans, including EIDL loans. Deferral details differ depending on the year that the loan was made. For loans made in 2020, the first payment due date is 24 months from the date of the note. The time frame is extended from 12 months. For all loans made in 2021, the first payment is due 18 months from the loan date. The time frame is extended from 12 months.
Interest accrues during the extended deferment period, and borrowers can make interest payments during that time.
Targeted EIDL Advance Grant
The Targeted EIDL Advances are grants of $10,000. The grants are free and 100 percent non-repayable. Targeted Advances are for small businesses with 300 or fewer employees located in low-income areas and suffered an economic loss greater than 30 percent in 2020 relative to 2019.
Targeted EIDL Advance Grants are second-round grants. The first round ended in 2020. Only the difference between what was received and $10,000 is available for those who received funds in the first round. For example, if a business received a $5,000 EIDL Advance in 2020, it is only eligible to receive $5,000 in this second round of Targeted EIDL Advance Grants.
There is no need to apply for these targeted grants, as the SBA is reaching out to those who applied for round one of the grants first, then to other qualifying businesses. The qualifying process for these free money grants is more stringent than for an EIDL.
How EIDL Funds can be Used
If approved for an EIDL loan, a small business may use the funds for:
- Working capital
- Ordinary operating expenses such as employee healthcare benefits, rent, utilities, fixed debt payments, and payroll
The same goes for Targeted EIDL Advance Grants.
How EIDL Funds can’t be Used
EIDL funds cannot be used to:
- Repay pre-existing debt
- Refinance another debt
- Purchase capital assets, new construction, or vehicles
Also, note that EIDL funds must not co-mingle with other funds and should be kept in a separate account for designated use.
EIDL Repayment
No payments are required on EIDL loans for one year from the date of the note. After loans are funded, applicants receive their amortization schedule after their loan is funded. When payments begin, applicants can be paid by mail or online.
As mentioned earlier, Targeted EIDL Advance Grants do not ever need to be repaid.
How to Apply for an EIDL
Applications are available via the Small Business Association (SBA) Disaster Customer Service website.
The SBA will reach out to businesses that qualify for the Targeted EIDL Advance Grant.
As always, your trusted CPA can assist your small business when navigating the ever-changing guidelines on disaster relief programs for businesses.
If you need some assistance, we would be happy to help. Contact me, Amit Chandel, CPA, CTS, CTP, CTC, CVA, CTRS, CExP, CGMA, LLM (tax), Author, or Crystal Wampler, here or at 562-281-1040. We are always available to answer any questions you may have.
