Joseph Most, J.D. and Shayna Byrne, J.D.
02.25.21 | Client Alert
The Small Business Administration (SBA) is currently accepting new Economic Injury Disaster Loan (EIDL) applications from all eligible small businesses. Please see our collection of COVID-19 EIDL Key Facts and Figures below for a quick refresher on COVID-19 EIDL eligibility criteria and terms.
On December 27, 2020, the President signed the Consolidated Appropriations Act, 2021 (CAA) into law, which amends the Coronavirus Aid, Relief, and Economic Security (CARES) Act to allocate $40 billion to the SBA to expand the EIDL program. The COVID-19 EIDL offers favorable terms including low interest rates and payment deferral options. The expansion of the EIDL program should help provide further relief to small businesses located in the U.S.
COVID-19 EIDL Eligibility & Terms
|Eligible Entities||• Businesses with 500 or fewer employees or defined as small per SBA.gov/Size-Standards
• Cooperatives with 500 or fewer employees
• Agricultural enterprises with 500 or fewer employees
• Most private nonprofits
• Faith-based organizations
• Sole proprietorships and independent contractors
|Ineligible Entities||• Entity is engaged in certain illegal activity
• A principal of the applicant who has a 50% or greater ownership interest is more than 60 days delinquent on child support obligations
• Entity presents live sexual performances
• Entity derives more than 1/3 of gross annual revenue from legal gambling activities
• Entity is engaged in lobbying activities
• Other ineligible EIDL applicants (such as real estate developers) are further listed in the SBA guide
|Substantial Economic Injury||A business must also suffer substantial economic injury due to COVID-19. This means due to COVID-19, a business is unable to:
• Meet its obligations as they mature;
• Pay its ordinary and necessary operating expenses; or
• Market, produce, or provide a product or service ordinarily marketed, produced, or provided by the business concern
|Maximum Amount||EIDL Loan - 6 months of working capital or $150,000, whichever is less
EIDL Advance - $1,000 per employee, maximum $10,000
|Interest Rate||3.75% APR (fixed) for businesses
2.75% APR (fixed); non-profits
|Collateral Requirements||Required for loans over $25,000
No personal guarantee is required for COVID-19 EIDLs or advances.
|Forgivable||• NO – EIDL Loan
• YES – EIDL Advance
A recipient of a COVID-19 EIDL Advance will not be required to repay the advance even if subsequently denied a COVID-19 EIDL.
|Payment Deferral||Deferred for one year from date of note; interest still accrues|
|Use of Proceeds||The EIDL funds can be used for working capital and normal operating expenses, such as continuation of health care benefits, rent, utilities, and fixed debt payments.|
For any COVID-19 EIDL loan, there is no requirement that an applicant must be unable to obtain credit elsewhere.
How to Apply
Prospective applicants may apply for a COVID-19 EIDL online, directly through the SBA. The following link will bring you directly to the SBA’s online application: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/covid-19-economic-injury-disaster-loans.
An applicant must submit a self-certification under penalty of perjury, attesting to its eligibility to receive a COVID-19 EIDL with its application.
The SBA extended the deadline to apply for an EIDL from December 31, 2020 to December 31, 2021. The EIDL applications including reconsideration applications will continue to be accepted pending the availability of funds.
COVID-19 EIDL Increase (Reconsideration)
Eligible borrowers who accepted a loan for an amount less than the full amount offered have up to two years after the date of the loan note to request an increase for additional funds, even after the application deadline of December 31, 2021.
If an applicant’s COVID-19 EIDL was declined by the SBA, the borrower has 6 months from the date the application was declined to request reconsideration, even if the application was declined on or near December 31, 2021. For example, if a borrower’s COVID-19 EIDL application was declined on December 31, 2021, the borrower may request reconsideration on or before June 30, 2022.
If a borrower declined the original loan offer, the offer is considered to be withdrawn. Applicants can request a reacceptance within six months of the original offer, even after the application deadline of December 31, 2021.
COVID-19 EIDL Advance
In the application for an EIDL, a small business may request an advance of $1,000 per employee, limited to $10,000 in total, that does not need to be repaid. The CAA authorizes advances through December 31, 2021 subject to availability of funding.
Interaction Between COVID-19 EIDL Advance and Original Paycheck Protection Program (PPP) Loan
Favorable changes may apply to a business who received an EIDL Advance and a PPP loan. Under prior law, an EIDL advance will reduce the amount of payroll costs in an application for PPP loan forgiveness. The new law, as amended by the CAA, provides that an EIDL advance will not reduce payroll costs for purposes of PPP loan forgiveness.
On January 6, 2021 the SBA released an Interim Final Rule (IFR) that indicates an EIDL made between January 31, 2020 and April 3, 2020 may be refinanced into an Original PPP Loan. The IFR also indicates that an EIDL must be refinanced to include an EIDL Advance in payroll costs for purposes of PPP loan forgiveness. Further administrative guidance is expected to address the implications of refinancing of an EIDL into an Original PPP Loan and when it may be required.
Interaction Between COVID-19 EIDL, EIDL Advance and Employee Retention Tax Credit (ERTC)
At this time, there is no rule prohibiting a combination of the COVID-19 EIDL, the EIDL Advance, and the ERTC. In other words, an eligible business may receive both the COVID-19 EIDL, an EIDL Advance and claim the ERTC on qualified wages.
It appears that COVID-19 EIDL and the EIDL Advance proceeds that are used to pay sick leave or maintain payroll may be included in the calculation for the maximum allowable ERTC. This is in-line with the congressional intent of the COVID-19 EIDL, EIDL Advance, and the ERTC. The purpose of the EIDL is to provide economic relief to businesses in the form of a loan and/or grant to enable the business to meet financial and operating expenses that could have been met had the disaster not occurred. The purpose of the ERTC is to provide economic relief in the form of a credit which will enable businesses to retain their employees in light of a reduction in gross receipts or a government order requiring the business to fully or partially shut-down due to COVID-19.
For more information on this topic or any other matter related to the COVID-19 pandemic, please contact your Berdon advisor and visit Berdon’s COVID-19 Information Center.
Berdon LLP New York Accountants