Finances and Taxes

Big Changes Made to EIDL: SBA Increases Loan Caps for Small Business Owners

Gusto Editors  

The COVID-19 pandemic continues to affect individuals and small businesses throughout the United States, and many employers are still reeling.  $150 billion still remains in the EIDL fund, and in an effort to get more loans out to the businesses that need it the most, the SBA has made some changes. On September 9, 2021, the Small Business Administration (SBA) announced key updates to the Economic Injury Disaster Loan (EIDL) under a program known as COVID EIDL; among these updates is an increase in the loan cap amount. 

Keep reading to get the whole story and understand how these changes may affect your business. 

What is the EIDL? What is the COVID EIDL?

First, a refresher: EIDL is an SBA loan program offering businesses that have experienced financial loss (“economic injury”) due to a disaster. While EIDL precedes the COVID-19 pandemic, once the virus began to affect small businesses in the spring of 2020, the SBA announced a special COVID EIDL program in order to help borrowers overcome the effects of the pandemic by providing working capital employers could use on ordinary business expenses.  

How has the COVID EIDL program changed?

On September 9, 2021, the SBA announced updates to COVID EIDL that include the following: 

  • An increase to the COVID EIDL cap: the maximum COVID EIDL amount a borrower can apply for will be increased from $500,000 to $2 million.
  • A deferred payment period: payment of the COVID EIDL loan will be deferred until two years after the loan originates (this is up from the 18-month deferment period the COVID EIDL program had stipulated before). Keep in mind that during this time, interest will still accrue and that loan payments (principal and interest) must be paid over the remaining 28 years. 
  • A 30-day exclusivity window: to ensure that smaller businesses have the opportunity to access funds, the SBA is providing a 30-day window (September 8, 2021 through October 8, 2021) during which only loans of $500,000 or less will be approved and disbursed. Starting on October 8, 2021, all loan applications will be reviewed. 
  • Expanded eligible use of funds: COVID EIDL funds may now be spent on payments for federal business debts (including debt incurred from the SBA or SBIC) and/or prepayment for commercial debt. Eligible debt may be incurred anytime (past or future) and EIDL recipients are allowed to spend loan proceeds on monthly installments, deferred interest, and/or prepayments. 
  • Simplified affiliation requirements: to make the application process easier for borrowers, the affiliation requirements are now simpler. Under the new definition, an affiliate is a business you control or a business in which you have at least 50 percent ownership. Also, the SBA articulated that eligibility has been expanded to businesses in the hardest-hit industries that have 500 or fewer employees per physical location—as long as the business (and its affiliates) have 20 or fewer locations. (Previously, COVID EIDL eligibility requirements around business size were stricter.)

The COVID EIDL program ends on December 31, 2021 (or earlier, if funds are exhausted) when EIDL will revert back to its regular program. 

Loan terms for COVID EIDL

Here’s what you need to know about the terms for EIDL:

  • (As mentioned above) the maximum loan amount a business can borrow is $2 million; however, the SBA will only begin approving loans greater than $500,000 starting on October 8, 2021
  • The loan term is 30 years and the interest rate is 3.75 percent for businesses and 2.75 percent for non-profits 
  • Acceptable uses of COVID EIDL proceeds include:
    • Payroll
    • Rent
    • Mortgage
    • Utility payments
    • Payments on business debts, including federal business debt
    • Prepayments on commercial debt 
    • Operating expenses and ordinary business expenses
  • The COVID EIDL loan program will run through December 31, 2021 (or until funds are exhausted)
  • Collateral is required for loans larger than $25,000 and a personal guarantee is required for loans greater than $200,000
  • Fees are as follows:
    • For loans of $25,000 or less, there is no fee (as long as the applicant applies directly through the SBA) 
    • For loans between $25,001 and $500,000 there is a $100 fee for filing a lien on the borrower’s business assets (see the bullet point on collateral above) 
    • For loans between $500,001 and $2 million there is a $100 fee for filing a lien on the borrower’s business assets, and if real estate is being used as collateral, the borrower is responsible for recording the real estate lien and paying any associated fees

Am I eligible for a COVID EIDL?

In order to be eligible for a COVID EIDL, your business must have:

  • suffered a financial loss due to COVID.
  • operate within the U.S. 
  • been open and operating by January 31, 2020.
  • no more than 500 employees along with affiliates, or employ no more than 500 people per location (certain exceptions based on size are made for non-profit organizations).
  • No more than 20 locations. 

If you are a sole proprietor, you must be a U.S. citizens, non-citizen nationals, and qualified aliens with a valid Social Security Number are eligible for COVID EIDL loans

If you are not a sole prop, your business must have a valid IRS-issued tax identification number (TIN), and each owner, partner, shareholder of over 20 percent must be an American citizen, non-citizen national, or qualified alien with a valid Social Security Number. 

You will be considered ineligible if the business:

  • engages in any illegal activities at the federal, state, or local level.
  • had more than a 50 percent change in ownership after January 31, 2020 (unless the new owner is a family member or partner). 
  • earns over a third of its gross revenue from gambling activities.
  • has 50 percent or more ownership by someone who is delinquent on child support payments. 
  • has 20 percent or more ownership by someone who is currently incarcerated or subject to an indictment, arraignment or facing felony charges. 
  • has 20 percent or more ownership by someone who has been convicted of a felony within the past year. 
  • packages loans and earns more than a third of its gross revenue from packaging SBA loans. 
  • engages in political or lobbying activities. 
  • is owned by a member of Congress. 
  • is a life insurance company. 
  • received revenue in 2019 and did not file a 2019 tax return.

Commonly asked questions on COVID EIDL

Still got burning questions about the program? We’ve got you covered. 

I haven’t heard back about my COVID EIDL application; should I submit another application?

No. The SBA is actively discouraging borrowers from submitting duplicate applications; they claim that if they receive multiple applications for the same loan, an applicant should expect further delays.

I already received my EIDL, can I increase the amount now that the limits have been raised?

Yes! You can increase the total loan amount up to whatever you qualify for—or to $2 million, whichever is lower. You can request your increase online by logging into your account here. (Do not apply for another loan or your application may be flagged as fraudulent.)

The increase amount you qualify for is: the loan amount you qualify for minus the loan amount you have already received. 

If I get an increase on my loan, what does that mean for the payment period?

If your loan amount is increased, then the deferment period will be 24 months from the date the original loan was disbursed; not from the date the loan was increased  

I have questions about increasing my EIDL. Who can help me? 

Call the SBA Customer Service Center at 800-659-2955 or email  [email protected]

What records do I need to keep?

Make sure to retain tax returns and all records of loan funds spent for at least three years. 

Gusto Editors
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