As of June 15, 2020, the EIDL loan program has reopened to all eligible small businesses.
Here’s everything you need to know about the EIDL before you apply.
What is the EIDL?
The Economic Injury Disaster Loan is an SBA disaster loan program that serves people affected by natural disasters in the U.S. For COVID-19 relief, all small businesses, including sole proprietors and independent contractors, can apply.
Business owners can borrow up to $2 million if their business is physically affected by a disaster (such as a hurricane or earthquake), OR economic injury. Most businesses are eligible to apply claiming economic injury from the coronavirus and the resulting economic slowdown that has negatively impacted them.
Suggested further reading: How to Get an SBA Disaster Loan (EIDL)
EIDL frequently asked questions
Maximum loan amount?
$2 million (but reporting is claiming the SBA is capping all loan offers at this time to $150,000 - we have begun to see this reported by small businesses, but cannot confirm if this applies to all applications)
Is it forgivable?
No, but the EIDL advance grant (up to $10,000) is automatically forgiven. That being said, if your business dissolves or is unable to repay the funds, it may be possible to have the loan forgiven.
Is collateral required?
If the loan is under $25,000 no; if it’s over $25,000 business property may be required as collateral, and if it’s over $200,000 then personal collateral will be required.
Is a credit check required?
Yes, there is a credit check as part of the application process.
When do I have to start making payments?
Payments have been automatically deferred for 12 months.
Where do I apply for the EIDL?
Directly on the SBA’s application portal. EIDL is managed and processed entirely by the SBA (compared to the PPP which is facilitated by banks and private lenders).
What are the loan terms?
3.75% for Businesses, 2.75% for Not for Profits; loan terms are long (generally 15 to 30 years)
Further reading: EIDL vs Paycheck Protection Program: The Breakdown
What can the EIDL funds be used on?
EIDL funds are intended to provide a business with working capital to keep businesses afloat during the pandemic—as such the permitted uses are very broad. It can be used to cover financial obligations and day to day operating expenses that could have been met had the disaster not occurred.
Examples of things you can spend the EIDL on:
- Fixed Debts (e.g. rent and utilities)
- Payroll (if you don’t have a PPP loan)
- Accounts payable
- Regular business expenses (such as monthly credit card payments)
Further reading: How to Use the PPP and EIDL Together
What can you not use EIDL funds for?
As mentioned above, the EIDL is flexible, as long the funds are supporting day-to-day business operations. But there are a number of restrictions to keep in mind.
You can’t use the EIDL for:
- Dividends and bonuses
- Disbursements to owners (draws and distributions), except when directly related to performance of services
- Repayment of stockholder/principal loans
- Expansion of facilities or acquisition of fixed assets (e.g. purchasing equipment such as a new camera)
- Repair or replacement of physical damages
- Refinancing long term debt (e.g. paying off previous large credit card debt)
Is it worth getting an EIDL loan?
Here’s what we like about the EIDL:
- It has a low interest rate. Traditional loans have higher rates, and depend heavily on your credit history and previous lender relationship.
- It has a long repayment term. Your monthly payments will be relatively low, so it’s less of a burden on your cash flow.
- Self-employed individuals qualify. Independent contractors and gig workers have a very difficult time getting a loan from other sources.
- It’s easy to apply. The simplified application form only takes a few minutes, as long as you have your financial docs ready.
- It’s government backed. A little cheesy, yes, but an EIDL loan represents a show of support from your government and taxpayers from across the US.
So if your business is in need of working capital to stay afloat, we think the EIDL is the best option out there.
How to apply for the EIDL loan
You can apply for a loan through the SBA’s Disaster Loan Assistance portal. The initial application has been streamlined, and requires no forms to be submitted.
You’re now also able to apply for an EIDL emergency grant within the application, which provides up to $10,000. The grant will not need to be repaid, even if you ultimately do not qualify for the SBA EIDL loan. However the grant will reduce your PPP forgiveness amount.
The application is short and straightforward. But you will need to provide the following:
- Verification of EIDL eligibility
- Gross revenues (via an income statement; February 2019 to January 2020)
- Cost of goods sold (via an income statement; February 2019 to January 2020)
If you need help with bookkeeping and financial statements for your EIDL application, Bench can help.
Further reading: How to Fill out Your SBA Disaster Loan Application
What about the $10,000 EIDL advance grant?
When businesses apply for the EIDL, they also can check off a box to receive an advance grant. The intention of the grant is to tide over businesses as they wait to hear back about their application.
It is typical for this grant to be deposited into your account with no other information. The SBA will reach out at a later date when they have processed the EIDL application and are communicating about a loan offer or rejection. Even if you are rejected for the EIDL or you choose to not accept the offer, you can keep the advance grant.
The EIDL advance grant is $1,000 per employee, with a maximum of $10,000. So sole props with no employees would only receive $1,000, for example.
Note: If a business receives both the EIDL + EIDL advance grant and a PPP loan, the EIDL advance grant will be subtracted from the total forgivable PPP amount.
Further reading: What Is the $10,000 SBA EIDL Grant?
EIDL, PPP, and PUA
A lot of businesses are weighing their options between the different relief programs. More importantly, these programs can all be pursued, but it’s the interaction between the EIDL, the Paycheck Protection Program (PPP), and Pandemic Unemployment Assistance (PUA) that you should be aware of.
The most notable distinction to keep in mind is that EIDL funds cannot be used to cover the same expenses PPP and PUA are covering (namely payroll).
If a business has both the EIDL and PPP, EIDL funds cannot be used for payroll at the same time as the PPP period.
If a business has both the EIDL and PUA, EIDL funds cannot be used to fund payroll while an individual is receiving unemployment or pandemic unemployment benefits.
Further reading: How the PPP, EIDL, and PUA Work Together