SBA Economic Injury Disaster Loan
In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan (EIDL). The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
This is a longstanding program offering low-interest loans for businesses that have suffered losses from some kind of disaster. The loans are made directly by the S.B.A., you don’t have to go through a bank. Federal legislation in response to the pandemic committed more money and relaxed some of the S.B.A.’s usual requirements for disaster loans. It also added a provision essentially offering applicants small grants.
The program offers partial loan forgiveness. Businesses can request up to $10,000 of a disaster loan as a grant, providing economic relief to businesses that are currently experiencing a temporary loss of revenue.
This loan advance will not have to be repaid. The S.B.A. is supposed to disburse this (up to $10,000) advance - the portion that does not have to be repaid - within three days of receiving an application from an owner who self-certifies that he or she is eligible for the aid. However, the S.B.A. is currently running far behind that schedule. In normal times, it typically takes around two weeks for the S.B.A. to make a decision on a disaster loan application, and up to a week after that for the loan check to be disbursed. Keep in mind, during the whole year of 2019, the S.B.A. processed $38M worth of loans. They are now tasked with processing $376 billion.
The rest of the loan can be repaid on a term of up to 30 years. The interest rate is 3.75 percent for small businesses and 2.75 percent for nonprofits. No payment is due for the first year.
SBA Loan Aid will complete your SBA loan application. We will need a signed and dated IRS form 4506-T giving permission for the IRS to provide SBA your tax return information, a copy of your most recently filed Federal income tax return, a schedule of liabilities, and your business’s gross revenues and cost of goods sold for the 12 months that ended Jan. 31, 2020, and a year-to-date profit-and-loss statement.
The S.B.A. does not require a personal guarantee on loans of less than $200,000. Business assets, like machinery and equipment, can be used to secure loans of up to $500,000; and larger loans may require real estate, whether it’s your business’s or your own, if you have it.
For these loans the S.B.A. will determine how much you can borrow using a formula intended to approximate six months of your operating expenses. To calculate that, we will generally subtract the cost of goods sold from revenue and apply for half of that sum. However, because of high demand, the S.B.A. has told us this week during discussions that at least initially, they will only lend up to two months of working capital, capped at $15,000.
The loans cannot be used to refinance previous loans; anything else is fair game. The new Coronavirus elements of the EIDL program, like the $10,000 grants, end at the end of this year on Dec. 30, 2020.