More Information About The Economic Injury Disaster Loan
In addition to the Payroll Protection Program (PPP) – discussed by my colleague Nicholas L. Jenkins in the following article: https://beresfordlaw.com/what-you-should-know-about-the-payroll-protection-program/ – small businesses should also consider taking advantage of other forms of assistance offered by the Small Business Administration (SBA) pursuant to the Coronavirus Aid, Relief, and Economic Stability Act (CARES Act). One of these additional programs is the expansion of the Economic Injury Disaster Loan (EIDL) program, previously discussed by my colleague, Casey E. Clifton in the following article: https://beresfordlaw.com/emergency-grants-for-small-businesses/.
Unlike the PPP, EIDL loans do not contain loan forgiveness provisions and must be paid back in full. The interest rate on the loans also differs: 3.75% for small businesses and 2.75% for nonprofits, with fixed terms of up to thirty (30) years. Additionally, while PPP loans do not require borrowers to provide collateral, the SBA may require secured collateral for any loans above $25,000 under the EIDL program.
As mentioned by Mr. Clifton, the EIDL program offers one particularly advantageous perk: it allows borrowers to request an advance of up to $10,000 that does not need to be paid back, and which will be granted even if the SBA ultimately denies the loan application. Requesting the grant does not, however, guarantee that the SBA will grant the desired advance amount. The SBA considers several factors in its decision to grant funds, and does not appear to have provided much guidance on those considerations. Finally, unlike PPP loans, the SBA may require secured collateral for any loans above $25,000 under the EIDL program.
Use of Funds
Unlike PPP loans, which a borrower can only use to cover expenses for an 8 week period of time after receiving the loan, EIDL loans can be used for expenses from the period of January 31, 2020 through December 31, 2020. Borrowers must use the EIDL advance, however, for approved debts and expenses, which include:
- Operating Expenses;
- Accounts Payable;
- Fixed Debts (rent, mortgage, utilities).
Although borrowers may apply for both PPP and EIDL loans, the SBA will reduce any loan forgiveness under the PPL by the amount of the EIDL advance received by the borrower. This prevents “double dipping” by applicants.
Please Contact Us
Like the PPP, the EIDL continues to evolve as the U.S. government assesses how to respond to the current crisis. Please feel free to contact the lawyers at Beresford Booth to answer any questions about the Economic Injury Disaster Loan Program, the application process, and whether accessing these funds will serve the needs of your business.