Economic Injury Disaster Loan with New Emergency Grant of $10K

Monday, March 30, 2020 6:54:00 PM

Economic Injury Disaster Loan (EIDL) assistance program was in existence prior to COVID-19 for the purpose of assisting small business in the wake of any declared disaster. 

However, in the CARES Act there were addition provisions added to this current program, including a new Emergency Grant feature. 

Once a state has been designated a declared disaster, which President Trump essentially granted for every state including Texas on January 1, 2020, the loan program may then be administered directly from SBA. 

Note: this is different from PPP which is administered from SBA approved lenders.  EIDL and the emergency grant is direct from the SBA.

Purpose:

EIDL 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 due to a disaster.

Specifically, in response the COVID-19 pandemic, small business owners can also apply for an Economic Injury Disaster Loan advance/grant of up to $10,000. The loan advance/grant will provide economic relief to businesses that are currently experiencing a temporary loss of revenue.

Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid so long as it is used for approved expenses (see below).

Eligibility Criteria (note: same for the PPP):

  • If you are a business that employs 500 people or fewer, or if your business is in an industry that has an employee-based size standard through SBA that is higher than 500 employees; and
  • A small business, nonprofit, veterans’ organization, tribal business, or are self-employed, an independent contractor or sole proprietor

Highpoints - What Does EIDL Provide?

  • EIDL loans offer up to $2 million in assistance.
  • EIDL loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.
  • The interest rate is 3.75%.
  • SBA offers loans with long-term repayments, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.

Highpoints - What Does EIDL Advance Grant Provide?

  • The EIDL Grant program offers small businesses a one-time grant to cover costs in the short term. This is a smaller dollar, rapid, emergency grant of money.
  • Up to $10,000 advance.
  • SBA must distribute within three days of completing an application.
  • Requires that you will not have to repay the advance, even if you are subsequently denied for an EIDL loan.
  • Requires SBA to verify that you are an eligible applicant, which will take the form of an affidavit you sign under penalty of perjury.
  • Requires the grant to be used to cover paid sick leave, payroll, rent and mortgage payments, and other repayment obligations you cannot meet due to revenue losses.
  • Reduces the amount of loan forgiveness under the Paycheck Protection Program (PPP) by the amount of your EIDL grant.
  • Total of $10 billion appropriate for the Emergency Grants
  • You may obtain both an SBA disaster relief loan (EIDL) and PPP, so long as the funds are not used for the same purposes (see below in section: Impact of Receiving Both EIDL related to COVID19 and PPP)

 

How To Apply

For more information and to apply for these loans and emergency grant go to the online COVID-19 Economic Injury Disaster Loan Application page or contact the SBA disaster assistance customer service center at 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail disastercustomerservice@sba.gov.

The estimated time to complete the application is approximately 2 hours and ten minutes. 

 

Mid-April Update to this Post

As time has passed, the current reporting and lack of funding by applicants point to a current conclusion that the EIDL program was overwhelmed and underfunded for the demand.  As a result, well, there haven't been many results.  Applicants, even thoughts who received confirmation of receipt now approaching a month ago have yet to receive any loans, much less a $10,000 emergency grant.

It is being reported the SBA has shifted guidelines on this program and if any emergency awards are going to be given, they will only be $1,000 per reported employee prior to the COVID-19 pandemic. 

Changes to the EIDL Program in the CARES Act

  • “Covered period” means the period beginning on January 31, 2020 and ending on December 31, 2020, i.e. all of 2020 (Note: this is a different “covered period” than in PPP which is February 15, 2020 thru June 30, 2020)
  • No personal guarantee on advances and loans of not more than $200,000 during the covered period for all applicants;
  • Waives the previous EIDL requirement that an applicant needs to be in business for the 1-year period before the disaster, except that the business must have been in operation on January 31, 2020
  • Waives the previous EIDL requirements that an applicant demonstrate they were unable to obtain credit elsewhere
  • SBA may approve an applicant based only on credit score
  • SBA may choose not to require an applicant to submit a tax return or a tax return transcript for approval
  • SBA may use alternative appropriate methods to determine an applicant’s ability to repay.
  • An applicant shall not be required to repay any amounts of an advance, even if subsequently denied an EIDL, if the advance grants funds are used for any of the following:
    • providing paid sick leave to employees unable to work due to the direct effect of the COVID–19;
    • maintaining payroll to retain employees during business disruptions or substantial slowdowns;
    • meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains;
    • making rent or mortgage payments; and
    • repaying obligations that cannot be met due to revenue losses.

Impact of Receiving Both EIDL related to COVID19 and PPP

If you received an EIDL loan related to COVID-19 between January 31, 2020 and the date at which the PPP becomes available, you would be able to refinance the EIDL into the PPP for loan forgiveness purposes.

The current assumption is that for the vast majority of EIDL’s who later receive a PPP, the EIDL will be refinanced and rolled into the PPP so that the transfer, via refinancing, is such that there is no duplication.

However, you may not take out an EIDL and a PPP for the same purposes.

Specifically, the law says, “Nothing…shall prohibit a recipient [small business] of an economic injury disaster loan [(EIDL)]…made during the period beginning on January 31, 2020 and ending on the date on which covered loans [(PPP loans)] are made available that is for a purpose other than paying payroll costs and other obligations…(i.e. payroll, costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; employee salaries, commissions, or similar compensations; payments of interest on any mortgage obligation; rent; utilities; and interest on any other debt obligations that were incurred before the covered period)…from receiving assistance under [(PPP)].”

But you may, and should, apply for both loans

If you took advantage of an emergency EIDL grant award of up to $10,000, that amount would be subtracted from the amount forgiven under PPP.

We anticipate this will be made clearer in soon-to-be released regulations and guidance on PPP, which we will update this article with once published.  But for now, the recommendation if you think you will apply for both loans – an emergency EIDL grant now, and a PPP as soon as the approved lenders come online – make sure to distinguish, track, and document to the best of your ability any EIDL grant funds (the $10,000) that are used for purposes other than for the 7 allowed purposes of a PPP loan.

But recall that EIDL grant funds can only be used for: “providing paid sick leave to employees unable to work due to the direct effect of the COVID–19; maintaining payroll to retain employees during business disruptions or substantial slowdowns; meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains; making rent or mortgage payments; and repaying obligations that cannot be met due to revenue losses.”

Inherently there is confusing overlap in approved uses of funds.  Again, we expect clarity on this specific point, but for now, it appears that those wanting to apply for both programs with maximum effect and not duplicating purposes, need to document and use the emergency EIDL grant funds for, “meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains, making mortgage [principal] payments, and repaying obligations that cannot be met due to revenue losses.”

As the law is currently written, there appears to be a distinction in approved use of funds between EDIL grants and PPP related specifically to mortgage principal payments.  PPP specifically states PPP funds can only be used for the interest expense on a mortgage, not the principal.  PPP makes this clear with the wording, “payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation).”

Meanwhile the EIDL grant use of funds allows for,”making…mortgage payments.”  EIDL grant does not specifically limit the use to only interest on a mortgage like PPP.  Meaning, it currently appears that a recipient of an EIDL grant could use the grant to pay the principal portion of their business mortgage, but not the interest portion, and this would not cross into the prohibition on using the funds for the same purposes.

Of course, some businesses will need to use the EIDL grant for expenses like payroll and rent to even make it to the timeframe when PPP comes online. If this is your case, use the EIDL grant money in those ways to stay afloat, and we will work through the results of this in the future as new guidance becomes available. 

While confusing, it appears likely that if you use an EIDL grant for payroll, sick leave, rent or other of the 7 purposes that your eventual PPP will cover, but the EIDL grant simply bridges the time gap from now until you secure your PPP, that your PPP forgiveness amount will just be reduced by the amount of your EIDL grant that was used for expenses in the 7 PPP categories. This makes sense that you would have already received a grant so to later get effectively an addition grant/loan forgiveness from PPP for the same expenses over the same time would be a double dip.  

Needless to say, it is critical that you document and track exactly what money proceeds you spend on specific expenses.