Read the latest on the impact of COVID-19 and BST's response.

Economic Injury Disaster Working Capital Loans

What is an Economic Injury Disaster Loan (EIDL)? 

An Economic Injury Disaster Loan (EIDL) is a working capital loan intended to assist small businesses through disaster recovery. Monies are to be used to meet ordinary and necessary financial obligations that could not be met as a direct result of the disaster, including fixed debt, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. These loans are not intended to replace lost sales and/or profits or expansion.

Funds come straight from the U.S. Treasury. Businesses do not go through a bank to apply.

 

What is the $10K Emergency Grant?

Through December 31, 2020 eligible entities can receive up to a $10K advance which will be granted within three days of the application. There is no obligation to repay this amount. It is not necessary to have an approved EIDL loan to receive the emergency grant. If you also secure a Payroll Protection Loan (PPP) the amount of the grant will be subtracted from the forgiveness amount.

 

Keep in mind if you are applying for both the PPP and EIDL loans, funds must be used for different purposes. If you receive a PPP loan that amount will be reduced from the approved amount of the EIDL.

 

Contact Information:

  • Customer Service Center Phone Number: 1-800-659-2955
  • Hearing Impaired Number: 1-800-877-8339
  • Email: disastercustomerservice@sba.gov
  • Completed Application Mailing Address:

US Small Business Administration

Processing and Disbursement Center

14925 Kingsport Road

Fort Worth, TX 76155

(Editorial note:  The SBA is working hard to get their on-line system to handle the significant volume of applications.  At the moment the only way to apply is with a paper application.  We have included a copy of that application for your convenience.)

 

Who Is Eligible:

In general, all of the following entities that have suffered substantial economic injury caused by a disaster provided they were in existence on January 31, 2020,

  • Businesses with fewer than 500 employees
  • Cooperatives, ESOPs, and tribal small businesses with fewer than 500 employees
  • Sole proprietors
  • Independent contractors
  • Most private nonprofits

 

Ineligible Entities:

  • Agricultural enterprises as defined in Section 18(b)(1) of Small Business Act
  • Religious organizations
  • Charitable organizations
  • Gambling concerns (those who derive more than 1/3 of annual revenue from legal gambling activities)
  • Casinos & racetrack

 

EIDL Loan Specifics:

  • Filing Deadline: December 21, 2020
  • Application Cost: There is no cost to apply
  • Interest Rate:
    • 3.75% max for small business
    • 2.75% max for not-for-profits
  • Term: Max 30 years
    • Installments are calculated on borrower-by-borrower basis and will ultimately determine the loan term
  • Amount: Max of $2 Million, Max Unsecured is $25K
    • Less: business reduction insurance and other “recoveries”
    • Less: any amount of the Paycheck Protection Program loan granted
    • Potential contributors (owners and affiliates) also considered
  • Eligibility Restrictions: Any borrowers who did not comply with any previous SBA loans
    • Includes borrowers who did not maintain flood insurance and/or hazard insurance
  • Refinancing: Cannot be used to refinance any long-term debts
  • Repayment: payments on COVID-19 EIDL are deferred for one year
  • Personal Guarantee: up to $200K can be approved without personal guarantee
  • Additional Insurance Requirements: If collateralized property is in a special flood or hazard zone, the applicant must purchase and maintain flood insurance
    • Coverage must be the lesser of 1) the total disaster loan, 2) the insurable value of the property, or 3) the maximum insurance available
  • No obligation to take the loan if offered
  • Can have other disaster loans and still qualify, but the loans cannot be consolidated

 

Requirements:

  • Acceptable credit score (acceptable is not currently defined)
  • Must show ability to repay
  • Collateral for all loans over $25,000
    • Applicants will not be denied for lack of collateral, but the borrower is required to pledge what is available as collateral, including real estate
  • Must have physical presence in declared disaster area
    • Economic presence alone does not meet the requirements
    • Having a PO Box in the area does not qualify as physical presence

 

Application Process:  

  • Step 1: Apply
    • Apply online using Electronic Loan Application (ELA) on SBA’s website https://disasterloan.sba.gov/ela
    • In-person at a disaster center or
    • By mail
  • Step 2: Property Verified & Loan Processing Decision Made
    • SBA reviews credit, will estimate losses and determine eligibility
    • SBA can make a loan while your insurance recovery is in process
    • Loan officer works with borrower to get all required information
    • Decision is estimated at a 2-3 week waiting period
    • Loan officer contacts you with information & discuss next steps
  • Step 3: Loan Closed & Funds Disbursed
    • Loan closing documents sent to borrower for signature
    • Initial disbursement made within 5 days
    • Assigned a case manager to help ensure borrower is meeting loan conditions and schedule disbursements for the remaining loan amount
    • Loan can be adjusted after closing for; unexpected repair costs or receiving additional insurance proceeds ultimately lowering the amount of the loan

 

Application Things to Know:

  • Be sure to file complete and accurate information – the biggest delay in processing applications is due to missing information.
  • Can request additional or reduction of original loan amount
  • If denied, applicants have an additional six months to provide new information and submit written request for reconsideration.
  • Be prepared to explain your needs, including:
    • Taking on new obligations
    • Facing expense increases
    • Expecting industry to recover more slowly
    • Cash flow has slowed

 

What Sections of the Application Do I Need to Complete?

We recommend that you file electronically, as it is faster and more accurate than paper applications. You should complete the following sections, at a minimum:

  • Business Loan Application (SBA Form 5)
    • Completed & signed by business applicant
  • IRS Form 4506-T
    • Completed and signed by:
      • Each principal owning 20% or more
      • Each general partner or managing member
      • Any owner who has more than a 50% ownership in an affiliate business (as defined as business parent, subsidiaries and/or business with common ownership or management)
    • Completed copies, including all schedules, of your most recent federal income tax returns for the business, or provide an explanation if not available
    • Personal Financial Statement (SBA Form 413)
      • Completed, signed and dated by the applicant, each principal owning 20% or more of the business and each general partner or managing member
    • Schedule of Liabilities listing all fixed debts (SBA Form 2202)

 

 

Other Additional Information for Application:

You should also prepare to submit the following information:

  • Completed copies, including all schedules, of the most recent federal income tax returns for:
    • Each principal owning 20% or more
    • Each general partner or managing member
    • And each affiliate when any owner has more than 50% ownership in the affiliate business (affiliate included but not limited to business parents, subsidiaries, and/or other businesses with common ownership or management)
  • If the most recent federal return is not available, a year-end P&L and balance sheet for the tax year is acceptable
  • A current year-to-date profit & loss statement
  • Monthly sales figures (SBA Form 1368)

 

About the Author

Chelsea Bell is a Senior Associate on the CFO for Hire team. Chelsea is a graduate of Johnson & Wales University with a Bachelor’s in Accounting with a minor in Economics and a graduate of SUNY Albany with a Masters in Professional Accountancy. Chelsea specializes in closely held businesses and not-for-profits.

cbell@cfo-for-hire.com/ 518-459-6700


Posted on March 31, 2020 at 9:52 AM