Recent Updates To The Economic Injury Disaster Loan Program
The Small Business Administration (SBA) has made a few significant clarifications to the Economic Injury Disaster Loan (EIDL) program, which the federal government passed as part of Coronavirus Aid, Relief, and Economic Stability Act (CARES Act). These clarifications may affect small business owners who have applied under this program, or who plan to apply in the future.
As a part of the CARES Act, the government allocated $10 billion towards the EIDL program to be disbursed on a first-come, first-serve basis. Under the EIDL program, each business applicant could receive up to $10,000 as an advance which they would not have to pay back. In addition, the SBA capped the working capital loans at $2 million, allowed up to $200,000 in loans without a personal guarantee, and did not require collateral for loans of $25,000 or less. Further details on this program can be found here: https://beresfordlaw.com/emergency-grants-for-small-businesses/ and https://beresfordlaw.com/more-information-about-the-economic-injury-disaster-loan/.
Unfortunately, the EIDL program is quickly running out of funds, and the SBA faces a very high volume of applications. While efforts have been made to provide further funding to the EIDL program, the SBA has recently clarified the scope of the EIDL program by placing two major limitations on the funds available to small businesses.
First, the SBA has clarified that it will calculate the advance based upon the number of employees employed by the business applicant as of January 31, 2020. Specifically, the SBA may provide up to $1,000 per employee up to a maximum of $10,000. This will negatively affect small businesses with only a handful of employees that expected a full $10,000 advance, as they will likely receive far less funding. This may also impact businesses that wish to apply under the EIDL program in the future. Some organizations, such as the American Dental Association, have lobbied to remove this restriction, but no such changes appear to have been made yet.
Second, despite the promise of funding up to $2 million dollars for each working capital loan, and the fact that the average application request currently stands at $200,000, the SBA appears to be capping initial loan disbursements under the EIDL at two months of working capital, up to a maximum of $15,000. While this may change, especially if the government funds the program further, it presents a serious problem for many businesses seeking working capital to stay afloat in the near term.
The SBA and many lending institutions have urged small businesses to take advantage of the Payroll Protection Program (PPP), which has different requirements and benefits. A further discussion of this program can be found here: https://beresfordlaw.com/what-you-should-know-about-the-payroll-protection-program/. Although the PPP has run out of funding as well, further funding is expected to be forthcoming, and some lenders are still accepting applications.
Please continue to check in with us at Beresford Booth for further updates on programs available to individuals and businesses relating to COVID-19.