SBA Updates Guidance and Increases Cap for Economic Injury Disaster Loans

Thursday, September 30, 2021

September 19, 2021 By Susan Kaplan

The most recent good news from the SBA is the increasing of the cap for COVID Economic Injury Disaster Loans from $500,000 to $2 million starting October 8th.

The SBA, is targeting hard-hit sectors of the economy. There will be an exclusive 30-day window for approving and disbursing funds for loans of $500,000 or less. Approval and disbursement of loans over $500,000 will begin after the 30-day period. To ease the COVID EIDL application process for small businesses, the SBA has established more simplified affiliation requirements to model those of the Restaurant Revitalization Fund.

COVID EIDL funds can be used for normal operating expenses and working capital, to make regular payments for operating expenses, including payroll, rent/mortgage, utilities, purchasing equipment, paying ordinary business expenses, and to pay business debt incurred at any time (past present or future). COVID EIDL funds will now be eligible to prepay commercial debt and make payments on federal business debt.

Reminders:

  1. The SBA is authorized to make COVID EIDL loans through December 31, 2021, or when funds are exhausted, whichever occurs sooner.
  2. Interest rates are: businesses: 3.75% fixed; private nonprofit organizations: 2.75% fixed
  3. Loan term is 30 years. COVID EIDL repayment is deferred until 2 years after loan origination, but interest will accrue. Payments of principal and interest are made over the remaining 28 years. No penalty for prepayment.
  4. Fees will vary but are minimal, credit scores will be taken into consideratio0n as well. A personal guaranty is required for loans more than $200,000, except in the case of a non-profit. Loans of $200,001 to $2,000,000 require a full personal guaranty from:
    • All individuals or entities owning 20% or more of the applicant business;
    • For sole proprietorships, the proprietor;
    • For independent contractors, the contractor;
    • For General Partnerships, all general partners;
    • For Limited Partnerships, all general partners and any limited partner who owns 20% or more of the partnership;
    • For Limited Liability Entities, the Managing Member and any member who owns 20% or more of the entity;
    • For Corporations, any individual or legal entity who owns 20 percent or more of the voting stock.
    • If no single owner owns 20% or more, then at least one individual or entity must provide a full guaranty.
  5. For loans under $25,000 no collateral is required, however:
    1. From $25,001 to $500,000 collateral requirements are as follows: Security agreement (UCC-1) lien required on business assets. A UCC filing is a legal notice that SBA will file with the Secretary of State to record a security interest against your business assets ($100 fee).
    2. $500,001 – $2,000,000: Security agreement (UCC-1) lien required on business assets and a best available mortgage on real estate owned by the applicant business. SBA will charge a one-time $100 fee for filing the UCC-1 lien. Additionally, the borrower will be responsible for recording the real estate lien and paying the associated fees.
  6. You may be eligible for a targeted EIDL advance that does not have to be repaid:
    1. Targeted EIDL Advance: If you are located in a low-income community, have 300 or fewer employees, and suffered greater than 30% reduction in revenue, you may be eligible for up to $10,000.
    2. Supplemental Targeted Advance: If you are located in a low-income community, have 10 or fewer employees, and suffered greater than 50% reduction in in revenue, you may be eligible for an additional $5,000 Supplemental Targeted Advance, for a total of $15,000 in Advances.
  7. You can apply for an increase at this time in your EIDL portal
  8. If you suffered working capital losses due to the Coronavirus pandemic, and meet the size and other eligibility requirements, you can apply for a new COVID EIDL here: https://covid19relief.sba.gov/#/
  9. More information on eligibility requirements and documents you need for the application can be found here: https://www.sba.gov/sites/default/files/2021-09/COVID-EIDL-FAQs-090821-508.pdf and here: https://www.sba.gov/funding-programs/loans/covid-19-relief-options/eidl/covid-19-eidl

CONTACT US: The expiration of the PPP, and soon of the Employee Retention Credit, make the EIDL program a great option for small businesses. You cannot expand your business or start a new business with these funds, but you can keep an existing business afloat. If you need assistance, our COVID task force is here to help you with eligibility, documentation, application, tax questions and more.