What You Need to Know About Changes to the EIDL

There is new information for business owners regarding the Economic Injury Disaster Loan program. This program has increased the amount that borrowers can receive, as well as relaxed the restrictions on when they’ll be required to pay it back.

To be clear, this is not “free money” as some of the other stimulus programs have colloquially and accurately been described. This is a loan like any other, however, the terms and approval requirements are more lenient than traditional loans, so it might be the thing that will help you and your business weather the COVID storm. 

What’s New With the EIDL?

When the program was unveiled through the CARES act in March 2020, it wasn’t clear how long business owners would need financial assistance. It has since become apparent that many businesses will close up shop without continued loans and stimulus, and the increases to the EIDL (among other programs) are the federal government’s acknowledgment of this fact.

Increase in Maximum Loan Amounts and How to Apply

The maximums of the EIDL have increased in all senses of the phrase. The maximum amount borrowers can receive has increased from $150,000 to $500,000. The period of time the loan is intended to cover has also increased from 6 months to 24 months.

When applying, you don’t need to request a particular amount, the SBA will determine the amount you’re entitled to by reviewing your gross revenue. Gross revenue is calculated from the sales of products or services, interest, dividends, rents, royalties, fees or commissions, reduced by returns and allowances for the applicant business.

Keep in mind that the SBA can only assess what information you give them, so be sure to coordinate with your financial and accounting professionals before submitting your application; you don’t want to leave money on the table because you forgot to provide pertinent documentation.

If you haven’t applied for a loan but intend to, there’s no requests necessary other than the application. Your request will automatically be subjected to the new $500k/24 month maximum.

For those applying for their first EIDL loan, you begin the process with the SBA’s application here. The December 31, 2021 deadline might seem far away, but as with any government program that has limited funds, it’s best to avoid being last in line. You never know when the money could run out.

I’ve Already Received My EIDL Loan, How Do I Get the New Increase?

If you’ve already received a loan prior to the cap increase, or are in the process of receiving it, don’t worry. There’s nothing you need to do, the SBA will reach out to you via email with the necessary instruction on how to request an increase.

Requests For Increases in Loan Amounts

If you have accepted a loan for less than the amount that was offered but now need the larger amount, that’s fine. Reach out the SBA prior to the December 31, 2021 deadline and let them know you are interested in borrowing a larger amount than you initially accepted.

If you haven’t done so already, it’s an excellent idea to set up an account with the SBA so you can stay informed and be knowledgeable about your loan in real time. This will simplify the process of increasing your loan.

Loan Terms

If you’re interested in getting a cash infusion for your working capital, it’s important to know the terms under which you’ll be paying the money back. There have been extensions payment deferments which I detail below, but what about the interest terms? Let’s take a look.

  • 3.75% for businesses (fixed)
  • 2.75% for nonprofits (fixed)
  • 30 years
  • No pre-payment penalty or fees

If you are borrowing more than $25,000 you will be required to provide some form of collateral in using business assets (machinery, furniture). If you are borrowing more than $200,000 you will be required to make a personal guarantee.

Deferred Payments

EIDL loans will have a deferred payment period of anywhere from 12 to 24 months, depending on when the loan was taken.

  • If you borrowed during 2020, your payment due date will change from 12 months to 24 months of when the funds were initially borrowed.

  • If you borrowed during 2021, your payments will be deferred from 12 months to 18 months from when the funds were initially borrowed

  • If you borrowed prior to 2020, something that would be unrelated to COVID, your payments have been deferred a couple of times and will now require you to begin paying again starting March 31, 2022

Keep in mind, just because your payments have been deferred doesn’t mean that the interest will stop accruing. The interest on your loans will continue to accrue! These loans are still loans, and no borrowers should confuse a delayed due date with a change to the nature of the loan terms when it comes to the interest owed.

With that in mind, it would benefit any borrowers to make payments during this deferment period if they’re at all able. There are no early payment penalties, so making payments whenever possible will end up saving you money in the long run.

Emergency Grants

The EIDL Grant program is confusing, ever changing, and occasionally out of money to grant. This March, the Congress allocated another $15 billion to the fund through the ARP, and put in new stipulations to ensure only the most vulnerable businesses are the ones that receive this money.

There are two sub categories for who may receive these funds. So what does that look like and who qualifies for these grants? Let’s review the latest requirements.

Recipients of the first category of emergency grant can receive as much as $10,000. In order to qualify for the targeted EIDL advance the business needs to:

  1. Be located in a low income community. If you’re not sure if your community means federal criteria for low income, you can find out on this map. Businesses run from your home do qualify.
  1. Have applied for the EIDL advance before the fund was recently replenished. Those who received a portion of the $10,000 eligible to them will be first in line; finishing the payment to them that was begun earlier. Those who applied and were denied due to the fund’s depletion will be next.

  2. Demonstrate at least a 30% decrease in gross revenue during consecutive 8-week period beginning later than March 2, 2020 (this is so specific that had I not gotten the information directly from the SBA website I would have assumed someone was taking creative liberty in their article).
      
  3. Employ 300 or fewer people.

Recipients of the second category of emergency grant can receive up to $5,000. The requirements for this grant are fewer, but more specific.

  1. Have applied for the EIDL advance before the fund was recently replenished. Same order of priority as listed above.
  1. Demonstrate at least a 50% decrease in gross revenue during a consecutive 8-week period beginning later than March 2, 2020.
  1. Employ 10 or fewer people.

There are aspects of the grant that are the same regardless of the type you apply for. These grants are non-taxable, they should be distributed to you almost immediately, and even if you end up turning down the EIDL loan, you’re still permitted to keep the grant with no strings attached.

Although I stated in the first paragraph of this article that the EIDL is not “free money,” this grant is very much free money and I would highly advise anyone who meets the requirements to apply for it. Also, you should apply now. If history serves to teach us anything, and I believe it does, this money will be depleted far sooner than people will stop applying to get it.

Last thing regarding the emergency grant, it is likely to change in nature before we are through the COVID economic crisis. These programs are created with the best intentions, but often have to be adjusted and altered as they don’t deliver in the way they were intended. Always ask your accounting professionals their take on particular programs before coming to a conclusion.

What Can I Use EIDL Funds For?

The purpose of the EIDL is to give business owners working capital for their general operating expenses. This allows them to pay their suppliers, accountants, rent, etc… It’s also okay to cover employee benefits with EIDL funds

It’s not meant for the purpose of paying dividends, bonuses, payroll. It’s definitely not to be used for paying back other loans, regardless of their nature.

If your concern is covering payroll, you should look into filing a PPP application. PPP funds are primarily meant to help pay employees, owners’ draw. If you have funds remaining, you can use  as well as necessary business expenses like rent and utilities.

There could be a little bit of confusion between the PPP and EIDL funds and their purpose. Both are loans meant to help businesses weather the financial storm caused by COVID, but they are not exactly the same.