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Economic Injury Disaster Loans Under COVID-19 Relief

The SBA has recently announced that it is again making funding available to eligible small businesses under the Economic Injury Disaster Loan (EIDL) program. The EIDL program was launched in its current state (with an online application and advance of up to $10,000) in late March but has been closed to all but certain eligible agricultural businesses for the past several weeks. Eligible small businesses can apply for these loans on the SBA website.

The SBA is currently approving loans of up to $150,000 with a 30-year term and a 3.75% interest rate (2.75% for non-profits). Repayment begins twelve months after the date of the loan, and there is no prepayment penalty. The advance of up to $10,000 does not have to be repaid, however, if the borrower also received a loan under the Payment Protection Plan (PPP), their eligible PPP loan forgiveness will be reduced by the amount of the EIDL advance.

Purpose and Eligibility

Loan proceeds are to be used for “working capital to alleviate economic injury caused by a disaster occurring in the month of January 31, 2020, and continuing thereafter”. Examples of eligible uses of funds, per previously issued SBA guidance, include fixed debts (rent, etc.), payroll, accounts payable, and bills that could have been paid had the disaster not occurred. The same guidance lists some ineligible uses of funds, including:

  • Dividends and bonuses.
  • Disbursements to owners, unless for the performance of services.
  • Repayment of stockholder/principal loans (with exceptions).
  • Expansion of facilities or acquisition of fixed assets.
  • Repair or replacement of physical damages.
  • Refinancing long term debt.
  • Paying down (including regular installment payments) or paying off loans provided, or owned by another Federal agency (including SBA) or a Small Business Investment Company.
  • Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations.
  • Relocation (without the written consent of the SBA).

Make an Informed Decision

Borrowers should be sure to read and understand all conditions of their EIDL. These include collateral requirements for loans over $25,000, certain requirements pertaining to books and records, restrictions on future payments and distributions to owners or affiliated companies, and joint and several liabilities for any individuals who sign the loan on behalf of the business. Borrowers should consider the impact of these conditions on their existing financing arrangements, financial reporting requirements, and ongoing business operations.

Your Bonadio Team is Here to Help.

While these loans may seem simple on the surface, it is important to understand all elements of the loan. We are here to help, please reach out if you need any assistance with this program.

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We, therefore, make no warranties, expressed or implied, on the services provided hereunder.