During times of need, the Small Business Administration (SBA) provides disaster loans, which are low-interest loans available to small businesses that have been impacted by crises like the coronavirus pandemic. The most common type of disaster loan for businesses affected by COVID-19 is the Economic Injury Disaster Loan (EIDL). Under the COVID-19 stimulus package with the Consolidated Appropriations Act, 2021, certain enhancements have been made to the EIDL program.
What is an Economic Injury Disaster Loan (EIDL)?
An EIDL is for businesses that don’t have any physical damage from COVID-19 but have experienced financial losses. The CARES Act modified the EIDL, making it easier for small businesses to qualify and adding an emergency $10,000 cash advance (more on that later).
The loan gives up to $150,000 in aid to businesses, but the actual amount you can borrow is based on “economic injury,” or in other words, the economic losses you’ve sustained. Funds can be used as working capital to pay bills and to pay fixed debts, payroll, and accounts payable. The money can’t be used to replace lost sales, expand your business, or to pay down long-term debt.
You cannot use the loan to pay:
- Dividends and bonuses
- Disbursements to owners (unless for the performance of services)
- Repayment of stockholder/principal loans
- Expansion of facilities or purchasing fixed assets
- Paying off debt owned by a Federal agency or SBA
- Paying any direct Federal debt, except IRS obligations
- Refinancing long-term debts
- Relocation
Currently, the interest rate for an Economic Injury loan is 3.75% for small businesses and 2.75% for nonprofit organizations. Repayment terms vary based on the borrower’s ability to repay the loan, and the maximum repayment term is 30 years.
Who is eligible for an SBA disaster loan?
To be eligible for any SBA loan, you must meet the SBA’s requirement of a small business, which means you have 500 employees or fewer. There are some exceptions for specific industries. You can check if your business qualifies using the Size Standards Tool from the SBA.
Small businesses of any size (and entity type—that includes sole proprietors) are eligible for an EIDL, as long as your business is located in a declared disaster area. You can check an up-to-date list of COVID-19 declared disaster areas here. As of this writing, all 50 states have become eligible for disaster assistance.
There are a few other things you should know about loan eligibility:
- Credit score: The SBA will perform a credit check when you apply. The SBA doesn’t give any guidelines on what your credit score must be, other than “acceptable to SBA.” Vague, we know. The good news is that if you don’t have good business credit, the SBA will consider other factors, like your history of on-time rent, utilities, insurance, and other bill payments.
- Collateral: For the EIDL loans under $200,000, no personal guarantee or collateral is required.
- Access to other credit: Under the CARES Act, you don’t have to prove that you don’t have access to credit elsewhere to qualify for the loan.
- Other SBA loans: If you have outstanding SBA loans, you can still apply for a disaster loan. The SBA encourages lenders of outstanding SBA loans to defer payments for up to 12 months for borrowers in declared disaster areas. Reach out to your lender to see if you’re eligible for a deferment. If you already have an SBA disaster loan, the SBA offers an automatic deferment.
$10,000 EIDL emergency grants for businesses in low-income communities
Under the CARES Act, businesses that applied for an EIDL could request to be considered for an emergency cash advance of up to $10,000. The advance was intended to provide immediate relief to small businesses experiencing a temporary loss of revenue.
There was no qualification to request the advance. Naturally, the funds went very quickly.
The Consolidated Appropriations Act, 2021, signed by President Trump on December 27, 2020, includes a new round of funding for the popular EIDL grant program, as well as a few updates. The new relief bill added $20 billion to replenish the EIDL emergency grant program. This time around, these funds are targeted to businesses in low-income communities who could not secure grants earlier this year because funding ran out.
If businesses in these communities received an EIDL emergency grant under the CARES Act that was less than $10,000, they are eligible to receive the difference between the amount they received and $10,000. The covered period for these grants has been extended through December 31, 2021.
NOTE: If you have a business in a low-income community and did not receive a full EIDL cash advance under the CARES Act, apply for an EIDL emergency grant ASAP as we expect funds to deplete quickly again.
Timing
Getting the grants under the CARES Act took much longer than the quoted three days, but the new law affords more flexibility for the SBA to process grant applications. It also extends the window for the SBA to disburse the funds from three days to 21 days.
Terms
As before, this cash advance is included in the total loan amount you receive. For example, say you are awarded an EIDL loan of $100,000, and you also qualify for the $10,000 advance. After you’ve received the advance, you will get the remaining $90,000 if your loan is approved—not an additional $100,000. Note that you do not need to be approved for an EIDL loan (or take an EIDL loan if you’ve been approved) to receive the EIDL advance. But, you do have to apply for the EIDL loan in order to apply for the advance.
The emergency cash advance does not need to be repaid.
Tax implications
The CARES Act required PPP borrowers to deduct the amount of their EIDL advance from their PPP forgiveness amount. The new relief bill repeals that requirement, allowing grant recipients to receive both their EIDL grant AND the full PPP forgiveness amount they qualify for.
How to apply for an EIDL
You can apply for an SBA disaster loan online, in person at a Disaster Recovery Center, or by mail. The online application is the fastest way to receive a decision about your loan, so we definitely urge you to apply online.
Here’s what information you’ll need to apply for the loan:
- Business’s legal name, trade name, and tax identification number
- Total gross revenue from February 1, 2019 through January 30, 2020
- Total cost of goods sold from February 1, 2019 through January 30, 2020
- Total amount of lost rents due to COVID-19 (for rental and commercial property owners only)
- Total nonprofit operational costs from February 1, 2019 through January 30, 2020 (for nonprofits only)
- For each owner you’ll need to know their:
- Legal name
- Title
- Ownership percentage of the company
- Social security number
- Date of birth
- Place of birth
- Residential street address
- Your bank name, account number, and routing number
To apply online:
Go to this website to start the online application. The SBA estimates that the online application will take two hours and 10 minutes to complete, so be sure to give yourself plenty of time.
Pro tip: If you press the back button during the application process, your information will not be saved and you’ll be forced to start the application over again. If you make an error, wait until the Summary page to fix it. That’s where you can edit your application without losing your work.
Page 1: Disclosures
Eligible entity verification: To be eligible for the loan you must meet one of the following criteria. In your application you’ll select the option that applies to you.
- Applicant is a business with not more than 500 employees. If you have less than 500 employees and are not a sole proprietor or independent contractor, you’ll select this option.
- Applicant is an individual who operates under a sole proprietorship, with or without employees, or as an independent contractor. Even if you have employees, if you’re a sole proprietor or independent contractor, you’ll select this option. If you report your business income and losses using the Schedule C, you’ll select this option.
- Applicant is a cooperative with not more than 500 employees.
- Applicant is an Employee Stock Ownership Plan (ESOP), as defined in 15 U.S.C. 632, with not more than 500 employees.
- Applicant is a tribal small business concern, as described in 15 U.S.C. 657a(b)(2)(C), with not more than 500 employees.
- Applicant is a business, including an agricultural cooperative, aquaculture enterprise, nursery, or producer cooperative, that is small under SBA Size Standards.
- Applicant is a business with more than 500 employees that is small under SBA Size Standards. If you have more than 500 employees but think your business still qualifies as small under the SBA standard, you can use the SBA Size Standard Tool to determine your eligibility. If you’re eligible, choose this option.
- Applicant is a private nonprofit organization that is a non-governmental agency or entity that currently has an effective ruling letter from the IRS granting tax exemption under sections 501(c), (d), or (e).
Review and agree to the conditions: Next, you must check to agree to all of the conditions of the loan. If you’re unable to check one of the boxes, you’re not eligible for the loan.
Page 2: Business Information
Business legal name: Enter the legal name of your business. Be sure to enter the same name that you use on tax documents, not your trade name or DBA name.
Trade name: If you use a name different from your business’ legal name, enter it here. If your trade name is the same as your business legal name, enter your business legal name.
EIN or SSN for Sole Proprietorship: If you’re a sole proprietor, put your social security number here. If you’re not a sole proprietor, put your federal employer identification number.
Organization type: From the dropdown list, select your organization type.
Is the Applicant a Nonprofit Organization? If you’re a nonprofit, check Yes. If you’re not a nonprofit, select No.
Is the Applicant a Franchise? If you’re a franchise, check Yes. If you’re not a franchise, check No.
Gross Revenues for the Twelve(12) Month Prior to the Date of the Disaster: The SBA has officially declared COVID-19 a disaster as of January 31, 2020. On this line, you’ll enter your gross revenue from February 1, 2019 through January 30, 2020. Your gross revenue is everything you earn before subtracting costs of goods sold and operating expenses.
Keep in mind that your 2019 tax return reports your gross revenue from January 1, 2019 through December 31, 2019, and you cannot use those figures here. Instead, you’ll need to generate a profit and loss report for the period of February 1, 2019 through January 30, 2020.
Cost of Goods Sold for the Twelve(12) Month Prior to the Date of the Disaster: Put your total cost of goods sold from February 1, 2019 through January 30, 2020. Cost of goods sold includes inventory that you purchase to resell, as well as raw materials and outsourced labor for goods that you produce. If you don’t have cost of goods sold, enter zero.
Rental Properties (Residential and Commercial) Only – Lost Rents Due to the Disaster: If you don’t have rental property you can skip this question. If you do have rental property, put the total amount of rent that you’ve lost as a result of COVID-19.
Nonprofit Cost of Operation for the Twelve(12) Month Prior to the Date of the Disaster: If you’re a nonprofit, put your total operational costs from February 1, 2019 through January 30, 2020. You can find this number on your profit and loss report.
If your entity is not faith-based, skip the next two line items.
Combined Annual Operating Expenses for the Twelve(12) Months Prior to the Date of the Disaster (January 31, 2020) for All Secular Social Services Provided by the Faith Based Entity: If you’re a faith-based entity, put your total operating expenses for secular social services from February 1, 2019 through January 30, 2020.
List the Secular Social Services Provided by the Faith Based Entity: List the secular social services that you provide. These are the services that were funded by the operating costs you listed on the previous line.
Compensation From Other Sources Received as a Result of the Disaster: If you received COVID-19 disaster relief assistance elsewhere, like through other loans, grants or business interruption insurance, put the total amount that you received.
Provide Brief Description of Other Compensation Sources: Describe who gave you additional assistance and the type of funding (for example, another loan or insurance payment) you received.
Business contact information: Enter your business address, phone number, and email address.
Date Business Established: This is the date your business was started. If you’re an S corp, C corp, or partnership, this information will be on your business’s tax return. Alternately, you can find this date on your Security of State’s website by searching your business’s information.
Current Ownership Since: If you’ve always been the owner, this date will be the same as the date your business was established. If there was a previous owner, you’ll enter the date that you took ownership of the business.
Business Activity: Select the activity that best describes what your business does from the dropdown list.
Detailed Business Activity: Choose the activity that best describes what your business does. This list changes based on what you selected under Business Activity. If you don’t see an option close to what you do, try selecting a different category under Business Activity.
Number of Employees (As of January 31, 2020): List the number of employees you had as of January 31, 2020. If you’re an employee of your business (like if you’re an S corp or C corp), include yourself in this number. If you’re a sole proprietor and don’t have any employees, put zero.
Page 3: Business Owner’s Information
Is Your Business Owned by a Business Entity?: If your business is owned by another business, check Yes. If you are the owner of your business, check No.
Individual Owner/Agent(s)
Owner/Agent 1: This is where you’ll enter your personal information. Under Ownership Percentage put 100 if you’re the sole owner of the business. If there are multiple owners, put the percentage of the business you own.
If you’re the only owner of your business, press next. If your business is owned by more than one person, click the Add Additional Owner button and continue entering the personal information of the owners.
Page 4: Additional Information
Answer the first three questions by checking Yes or No. The questions you’ll be asked are:
- In the past year, has the business or a listed owner been convicted of a criminal offense committed during and in connection with a riot or civil disorder or other declared disaster, or ever been engaged in the production or distribution of any product or service that has been determined to be obscene by a court of competent jurisdiction?
- Is the applicant or any listed owner currently suspended or debarred from contracting with the Federal government or receiving Federal grants or loans?
- Lastly:
- Are you presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction?
- Have you been arrested in the past six months for any criminal offense?
- For any criminal offense—other than a minor vehicle violation—have you ever been convicted, plead guilty, plead nolo contendere, been placed on pretrial diversion, or been placed on any form of parole or probation (including probation before judgment)?
If anyone assisted you in completing this application, whether you pay a fee for this service or not, that person must enter their information below: If someone helped you with the application, whether you hired them or not, you must enter their contact information here. Check Yes if you give the SBA permission to talk to this person about your application. Check No if you do not.
I would like to be considered for an advance of up to $10,000: Check this button if you’re requesting an emergency $10,000 cash advance. Remember, this advance can be forgiven if you use the money for maintaining payroll, rent and mortgage payments, the increased cost of materials or supplies, or paying other obligations that can’t be met due to revenue loss. Again, while this qualification applies for forgiveness, there isn’t a qualification for the actual advance.
Where to send funds
Bank Name: Enter the name of your bank.
Account Number: Enter the account number of the account where you’d like the funds to be deposited.
Routing Number: Enter your bank’s routing number.
I hereby certify UNDER PENALTY OF PERJURY UNDER THE LAWS OF THE UNITED STATES that the above is true and correct: Carefully read the declarations above. If you agree to the declarations check the box.
Page 5: Summary
The final page of the application is the summary of your application. Review the details and make sure that you entered all your information correctly. An error could result in your loan application being delayed or denied, so you definitely want to take the time to review your application.
If you need to make changes, click on the Edit button.
Once you’re happy with the application, check the I’m Not a Robot button and press Submit.
What happens after you apply?
Traditionally, the SBA disaster loan application is a three-step process.
Step 1 is to apply for the loan by completing the online application. Under the CARES Act, the SBA loan process has been streamlined, and EIDLs can be approved by the SBA just based on credit score alone.
Still, it’s helpful to know how the traditional loan process works, in case your loan requires additional processing time.
Step 2 is when your loan processing decision is made. Here’s what happens:
- SBA reviews your credit.
- SBA verifier estimates the total property damage or economic loss to your business.
- An SBA loan officer determines your eligibility for the loan.
- A loan officer works with you to provide any necessary information needed to approve or deny the loan. The SBA states that its goal is to make a decision about an application within two to three weeks. But this could be longer with an increased volume of applicants.
- A loan office contacts you with loan recommendations and next steps. You’ll also receive information about your loan decision in writing.
During Step 2, it’s likely that your loan processor will request the following information:
- SBA Loan Application (SBA Form 5 or 5C)
- Personal Financial Statement (SBA Form 413)
- Schedule of Liabilities (SBA Form 2202)
- Tax Information Authorization (IRS Form 4506T)
Step 3 is when your loan closes and funds are distributed to you. Here’s what happens:
- SBA sends you Loan Closing Documents for you to sign.
- After you sign the documents, an initial disbursement is made within five days. For an EIDL, the initial payment is $25,000.
- A case manager is assigned to you and will help you meet the loan conditions. They will also schedule future disbursements until the entire loan amount is paid.
- If your circumstances change and you need to increase or decrease your loan, you can make adjustments after the closing date.
Timing
Here’s how long each step traditionally takes. Keep in mind that the lead times could be longer with an increased number of applicants:
| Step | What Happens | Turn Around Time |
| 1 | Business owner applies for the loan | Two hours to complete the online application |
| 2 | SBA makes loan processing decision | 2-3 weeks |
| 3 | Loan closed and funds distributed | Within 5 days after signing the Loan Closing Documents |
Best practices for applying
Here are some tips to ensure that your application is processed as quickly as possible:
- Apply online. The SBA states that the fastest way to have your application processed is by applying online.
- Triple check that the information on your application is correct. Incomplete applications will not be accepted, which means that you’ll experience delays processing your loan.
- Make sure your numbers are up to date. Before you fill out your application, update your bookkeeping to ensure the numbers you provide are accurate. If a loan officer requests additional documentation, you may need things like a year-to-date profit and loss report and monthly sales figures. Since you only have seven days to comply with additional requests, it’s best to have your numbers current.
Already got your EIDL loan?
Make sure you track your expenses to demonstrate that you are using the loan proceeds according to the terms. We’ve got you covered in this easy tracker.
An SBA disaster loan can be a much-needed lifeline for businesses impacted by the COVID-19 pandemic. If you’re looking for more relief resources, here’s a comprehensive list of public and private loans, grants, and financial support programs aimed at small businesses.
This post was originally published on April, 10, 2020.
