How can the CARES Act EID loan expansion help your business?

Small Business Loans available

There are two (2) distinct types of small business loans:

  1. The SBA Section 7(a) Paycheck Protection Program (“PPP”) Loans
    1. Applications are to be submitted directly to SBA loan participant banks
  2. The Economic Injury Disaster Loans (“EIDL”s)
    1. Applications are to be submitted online directly to SBA

Both are administered under the SBA guidance and rules. There are similarities and differences, so we will discuss each separately.

Economic Injury Disaster Loans (“EIDLs”)

The EIDLs are relief in addition to the small business interruption loans, PPPs, discussed above. These loans are available only to businesses located in an area affected by a disaster, the COVID-19 pandemic, that have suffered a substantial economic injury as a result of such disaster. Since Illinois has been declared to be a “disaster area” Illinois businesses will qualify. You may apply for both the EIDL and PPP loans at the same time.

Eligibility:

  • Businesses with not more than 500 employees.
  • Agricultural cooperatives.
  • Private nonprofit organizations.
  • Businesses that have suffered substantial economic damage as a result of COVID-19 for the period of January 31, 2020 to December 31, 2020.
  • Businesses must be located in a declared disaster area.
  • Businesses must have an acceptable credit history.
  • Businesses must have the ability to repay.
  • Applicants must not own property subject to a judgment lien owed by the US government.
  • EIDLs are available to businesses that received a PPP loan, provided that the EIDL is/was used for a purpose other than those permitted for PPP loans.

Loan Amounts: Up to $2 million.

Loan Terms:

  • No requirement for a personal guarantee for loans that are less than $200,000.
  • Business must have been in operation on January 31, 2020.
  • No requirement that applicants are unable to obtain credit elsewhere.
  • Statutory limit for EIDL interest rates is 4% per annum, however, the SBA has lower rates specific for business concerns impacted by COVID-19:
    • 3.75% for small business concerns; and
    • 2.75% for nonprofits.
  • EIDLs are not eligible for loan forgiveness.
  • The SBA may approve the applicant based solely on the applicant’s credit score and not require a tax return or tax return transcript or it may use alternative appropriate methods to determine the applicant’s ability to repay the loan.
  • Some EIDLs are now eligible for 12-month deferment
  • No fees or early payment penalties
  • Collateral is required for loans in excess of $25,000 to the extent such collateral is available.
  • Owners of more than 20 percent of the applicant business may be required to guaranty the EIDL.

Use of Loan Funds :

  • Working capital necessary to carry the business concern until resumption of normal operations.
  • Expenditures necessary to alleviate the specific economic injury, but not to exceed that which the business concern could have provided had the injury not occurred.
  • Providing paid sick leave to employees unable to work due to the direct effect of COVID-19.
  • Maintaining payroll to retain employees.
  • Meeting increased costs to obtain materials unavailable from the applicant’s original source because of interrupted supply chains.
  • Making rent or mortgage payments.
  • Repaying obligations that cannot be met due to revenue losses.

You may not use loan funds to:

  • Refinance indebtedness incurred prior to the disaster event.
  • Make payments on loans owed to another federal agency (including the SBA) or an SBIC.
  • Pay, directly or indirectly, any obligations resulting from a federal, state, or local tax penalty as a result of negligence or fraud, or any non-tax criminal fine, civil fine, or penalty for non-compliance with a law, regulation, or order of a federal, state, regional, or local agency or similar matter.
  • Repair physical damage.
  • Pay dividends or other disbursements to owners, partners, officers, or stockholders, except for reasonable remuneration directly related to their performance of services for the business concern.

Loan Advances are available:

The CARES Act allows businesses, that self-certify as eligible, to apply for an EIDL advance/ grant, in an amount up to $10,000, to be provided within 3 days after receipt of the application.

  • Advances can be applied to any allowable purpose under the section 7(b) program, including:
    • Providing paid sick leave to employees unable to work due to the direct effect of COVID–19.
    • Maintaining payroll to retain employees during business disruptions or substantial slowdowns.
    • Meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chain.
    • Making rent or mortgage payments.
    • Repaying obligations that cannot be met due to revenue losses.
  • If an applicant that receives an advance is subsequently denied an EIDL loan, the advance does not need to be repaid.
  • If an applicant receives an advance under the EIDL program and “transfers into, or is approved for, the loan program under” the 7(a) program, “the advance amount shall be reduced from the loan forgiveness amount for a loan for payroll costs made under such section 7(a). 

Application Process:  Apply directly on the SBA website using Business Loan Application (SBA Form 5).

  • There is no cost associated with applying for an EIDL.
  • There an obligation to take the loan if the SBA approves the application.
  • If denied, the applicant has six months to provide new information and submit a written request for reconsideration.

It is expected that additional guidance will be coming from SBA and other agencies regarding these loans. We will keep you posted as that information becomes available.

We will also be sharing additional information about the CARES Act provisions in the near future.

Should you have any questions or require assistance, contact us. B&D is open for business and we are available to help you.