Small businesses get a $500,000 lifeline from the SBA
- The Small Business Administration (SBA) raised the loan limit of Economic Injury Disaster Loan (EIDL) to $500,000
- All loans made in 2020 will have a first payment due date extended from 12 to 24 months
- Changes applies to loans approved the week of April 6, 2021
- Borrowers who have loans are eligible to borrow more
- The SBA granted 12-months of deferment of principal and interest payments for existing loans prior to 2020
What is the Economic Injury Disaster Loan (EIDL)?
The EIDL program is part of the CARES Act. It provides low-interest loans to businesses experiencing economic slowdown due to the pandemic.
The original program provided loans to businesses and non-profit organizations with 500 or fewer employees suffering a revenue reduction of 30% or greater due to COVID-19.
The original program allowed businesses to borrow up to $150,000 if they endured up to 6 months of economic injury. The loan had an interest rate of 3.75% for businesses and 2.75% for non-profits, with 30 years to repay.
What did the SBA do to expand the EIDL?
The SBA broadened the scope of the existing EIDL program as a direct result of SMB demand.
New and existing loans are deferred until 2022.
The SBA is providing loans up to $500,000 for businesses suffering up to 24 months of economic injury. This is more than triple the original loan amount and 4 times the economic injury length.
The deadline to apply for or update an existing EIDL is December 31, 2021.
What if my small business has an existing loan?
For businesses with an existing EIDL, or those who have submitted a request, the SBA will contact you by email with details on how to request an increase and/or to extend payment due dates.
Businesses that borrowed up to $150,000 can submit a request for further funding. Businesses that requested the original loan amount can expand their request to up to $500,000.
Expect an email from an @sba.gov or @updates.sba.gov address with details on how to increase current loans or loan requests and/or extend payment due dates.
Companies that have already received an EIDL for the original amount or less will have up to 2 years after the date of their original EIDL loan to request more funding or extend payment dates, which is beyond the application deadline of December 31, 2021.
For businesses currently making payments under the SBA’s Pre Authorized Debit (PAD) or recurring payment plan, payments will not automatically be deferred. To stop recurring payments during the deferment period business will need to contact their SBA servicing center.
What is the maximum loan about for the EIDL program?
To be eligible for an EIDL, businesses must have 500 or fewer employees or qualify as eligible by the Small Business Administration’s Size Standards. Use this tool to answer a few questions to verify eligibility. In general, small business, cooperatives, and agricultural organizations with less than 500 employees are eligible. Most non-profits, including faith-based organizations are eligible, as are independent contractors and sole proprietorships.
Businesses need to provide collateral for loans over $25,000.
For loans over $200,000 the SBA requires a personal guarantee to repay the loan.
Businesses must notify the SBA if they plan to sell or transfer any collateral used to secure a loan under the program.
The EIDL aims to provide working capital to businesses. This includes funding for normal operating expenses, such as:
- Loan payments
Businesses should keep their EIDL funds in a separate account so they can prove how the loan was spent.
There are restrictions. EIDL funds cannot:
- Pay-off old debts
- Refinance other debts
- Buy capital assets
- Fund new construction
When is the loan due?
The new program will shift EIDL most payments to 2022. The SBA announced the extension of existing all loans in March of 2021, including Economic Injury Disaster Loans.
These are the updated deferment periods for the EIDL:
- EIDL made in calendar year 2020: first payment due date extended from 12 months to 24 months from the date of the loan.
- EIDL made in calendar year 2021: first payment due date extended from 12 months to 18-months from the date of the loan.
- SBA disaster loans approved prior to 2020 had an automatic deferment of principal and interest payments through December 31, 2020, extended to March 31, 2021. The new guidance offers an additional 12 month deferment of principal and interest payments, automatically granted. These borrowers may resume regular payment schedules before the payment due March 31, 2022.
Although the loan payment due dates were extended, it’s important for business to remember interest will continue to accrue throughout the period of the loan.
The Small Business Administration announced in February that it provided over $200 billion in emergency funding under the EIDL program to companies across the country. They currently report they’re approving over $500 million weekly to businesses who apply under the program. More than 3.7 million businesses have received loans.
To apply for a loan under the EIDL, the SBA has a website with general information as well as an online application site.