Does the surge in COVID-19 cases have you on edge about the economy in general and your business’ prospects specifically? You’re not alone. The good news is that it’s not too late to set up a safety net of sorts through the U.S. Small Business Administration’s (SBA) COVID-19 Economic Injury Disaster Loan (EIDL) program.
The SBA expanded eligibility for the EIDL program in September 2021, but that news may have flown under the radar for many businesses. You might discover you now qualify, but you have to act fast — the application deadline is December 31, 2021. Here’s what you need to know to take advantage of this friendly financing.
The options for financial assistance
The COVID-19 EIDL program offers low-interest, fixed-rate, long-term loans to small businesses that need working capital to manage the economic effects of COVID. It also provides advance grants that don’t require repayment to certain businesses that suffered significant losses during the pandemic.
Loans to small businesses
The loans have a 30-year term and a fixed interest rate of 3.75 percent and 2.75 for nonprofit organizations. You can use the proceeds for any normal operating expense, including payroll, rent/mortgage, utilities, and other common business expenses. As a result of the September update (see below), you can also use the loan funds to pay or pre-pay business debt incurred at any time (including after submitting the application) and make regularly scheduled payments on federal debt.
You can’t, however, use loan proceeds to:
- Expand your business,
- Make prepayments on debt to a federal agency (including the SBA) or small business investment company, or
- Open a new business.
Targeted EIDL advances for qualified businesses
Targeted EIDL advances of up to $10,000 are available for businesses that:
- Are located in low-income communities or low-income areas
- Have no more than 300 employees, and
- Suffered more than a 30 percent reduction in revenue during an eight-week period beginning on March 2, 2020, or later.
Additional $5,000 Supplemental Targeted Advances are available for businesses that:
- Are located in low-income communities or low-income areas
- Have no more than ten employees, and
- Suffered revenue declines of more than 50% during an eight-week period beginning on March 2, 2020, or later.
You needn’t repay either type of advance.
Expanded eligibility (and other good news)
Perhaps you looked into the COVID-19 EIDL program early on only to discover that your business didn’t qualify. If that’s the case, it’s worth taking another look because recent changes have opened up the program to many more businesses.
Before September 8, 2021, the program was only open to organizations with 500 or fewer employees, including affiliates. Then the SBA announced that it also was available to businesses in the hardest-hit sectors with 500 or fewer employees per physical location, as long as the business (including its affiliates) has no more than 20 locations.
The hardest-hit sectors are:
- Educational services
- Arts and entertainment
- Recreation (including gyms)
- Hotels and other accommodations
- Restaurants and other food services
- Beverage makers (including breweries, wineries, and distilleries)
- Clothing makers and stores
- Sporting goods, hobby, book, and music stores
- Air transportation
- Transit and ground transportation
- Scenic and sightseeing transportation
- Publishing (except online)
- Motion picture and sound recording
- Broadcasting (except online)
- Rental and leasing services
- Laundry services
The SBA made several other favorable updates to the program, including:
- Increasing the maximum loan amount from $500,000 to $2 million,
- Extending the payment deferment period to two years after the loan origination date for all loans (interest will accrue during that period, and you then will have 28 years to make your principal and interest payments), and
- Simplified the affiliation requirements by defining an affiliate as a business under your control or in which you have 50 percent or greater ownership.
Continuing eligibility requirements
To take advantage of the COVID EIDL relief, you must
- Be physically located in the United States or a designated territory,
- Have suffered working capital losses due to the COVID pandemic, and
- Have been in operation on or before Jan. 31, 2020.
Businesses (other than sole proprietorships) must have a valid tax identification number. And each owner, member, partner, or shareholder of 20 percent or more must be a U.S. citizen, non-citizen national, or qualified alien with a valid Social Security Number.
That’s not all — your credit score comes into play, too. For loans of $500,000 or less, your credit score must be at least 570. For larger loans, the minimum credit score is 625. Personal guaranty and collateral requirements may also apply, depending on the loan amount.
The loan size calculation
For loans up to $500,000, your maximum loan amount is determined by a formula based on when you began operations. If you were operating before January 1, 2019, your maximum loan is the lesser of:
- (2019 gross receipts or sales – 2019 cost of goods sold) x 2
For larger loans, the SBA will perform a cash flow analysis of the business to confirm its ability to repay the proposed loan and your existing debt obligations.
Requesting an increase on an existing loan
If you previously obtained a loan amount under your maximum allowance, under the new rules, you can apply for an increase through the COVID EIDL portal. The increase is determined by the loan amount you’d qualify for if applying today, less the loan you’ve already received.
For example, if you qualify for a $700,000 loan now and received $500,000 earlier, you can request an increase of $200,000.
You can defer payment on the increase for 24 months from the date the loan was initially disbursed. If you received a loan in 2020 or 2021 that doesn’t have a 24-month deferment, the SBA will reset the deferment period to 24 months from the initial disbursement date.
You have two years after loan origination — or until the program funds are exhausted — to seek an increase. If you’re seriously considering it, you’d be wise to act now, before the funds dry up.
The impending deadline
In November 2021, the SBA issued updated guidance on the grant application deadlines for the COVID EIDL program.
It will accept grant applications for loans and targeted advances until December 31, 2021, and continue to process applications after that date until the program’s funds are exhausted. It advised businesses seeking supplemental targeted advances to submit EIDL applications by December 10, 2021, but is accepting applications until December 31. The problem is that the SBA can’t legally process those applications after that date. As a result, applications for supplemental advances submitted close to the deadline may not be processed.
Note: The SBA will accept reconsideration and appeal requests received before December 31, 2021, if received on a timely basis. For reconsiderations, you must submit within six months of the date your application was declined. Appeals must be received within 30 days from the date your request for reconsideration was declined.
The necessary documentation
Not surprisingly, the SBA requires significant documentation when you apply. For businesses in operation before Jan. 1, 2020, you’ll need to provide:
- 2019 Federal Income Taxes, including all schedules
- 2020 Federal Income Taxes, including all schedules, if available, or a year-end profit-and-loss statement and balance sheet for that tax year
For businesses that began operating in 2020, you must provide your 2020 Federal Income Taxes, including all schedules. If those aren’t yet available, you can submit internally or externally prepared business financial statements, including a balance sheet and profit-and-loss statement.
For loans greater than $500,000, you’ll need to provide:
- SBA Form 2202, Schedule of Liabilities
- List of real estate owned
- SBA Form 413, Personal Financial Statement for general partners, managing members, and all owners of 20 percent or more of the applicant business
Both time and the available funding for the COVID EIDL relief program are quickly running out. Go to SBA.gov for additional information and get in your grant application before the deadline.