What You Need to Know Before Applying for an Economic Injury Disaster Loan (EIDL)

Small businesses are facing extraordinary economic disruptions during the COVID-19 pandemic. While social distancing and the closure of all nonessential businesses helps to limit the virus' spread, these measures have caused catastrophic impacts on business revenue. The Federal government has modified its prior disaster loan program to provide some relief to small business owners during the time of social distancing.

In March, Congress passed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES). A component of the act expanded the Small Business Administration’s (SBA) existing Economic Injury Disaster Loan Program (EIDL) to allow for eligible businesses to apply for loans if they have suffered economic injury as a result of the COVID-19 pandemic. The EIDL program previously existed in the context of physical, natural disasters, but the CARES Act amended applicable language to allow it to apply to emergencies such as the current pandemic.

Unlike the Payment Protection Program loans (PPP) discussed in previous publications (See Overview of CARES Act and Additional Details on the PPP), EIDLs are low-interest, long-term loans that do not have the same forgivable component as PPP loans. However, under some circumstances using an EIDL in conjunction with a PPP loan may be advantageous for an eligible business.

This article provides an overview of who can apply for EIDLs, describes EIDL-specific components and benefits, and gives a brief synopsis of the differences between an EIDL and a PPP loan and how the two can be used together.

• Who can apply/eligibility:
  • The following entities may apply for an EIDL, provided the entity was in existence on January 31, 2020, and has suffered an economic injury as a result of COVID-19:
    • Businesses with less than 500 employees
    • Cooperatives, employee stock ownership programs and tribal small business concerns with fewer than 500 employees
    • Sole proprietors and independent contractors
    • Small business concerns
    • Private nonprofit organizations
    • Small agricultural cooperatives
• EIDL Specifics:
  • The amount of an EIDL may be up to $2 million, but it is limited to the entity’s actual economic injury due to COVID-19.
  • The interest rate on an EIDL is 3.75% fixed for small businesses and 2.75% fixed for nonprofit organizations.
  • Loan proceeds can be used for payroll costs and related benefits, fixed debts, accounts payable, mortgage or lease payments, and obligations that cannot be met due to lost revenues as a result of COVID-19. Loan proceeds may not be used for dividends and bonuses; disbursements to owners, except when directly related to the performance of services; repayment of stockholder/principal loans, except when repayment is on an interim basis as a result of the emergency/disaster and non-repayment would cause undue hardship; expansion of facilities or acquisition of fixed assets; repair or replacement of physical damages; refinancing long term debt; and other ineligible uses as provided for by the SBA.
• Benefits of the EIDL Program:
  • An entity can apply for a $10,000.00 emergency advance that is entirely forgivable, regardless if an application for an EIDL is denied.
  • There is no personal guarantee required on EIDLs under $200,000.00.
  • An entity does not have to show that it is unable to obtain credit elsewhere to be eligible.
• Comparison to PPP loans/Usage with PPP loans:
  • EIDLs are not forgivable, aside from the initial $10,000.00 emergency advance, where PPP loans may be entirely forgiven under certain circumstances. Because EIDLs are not forgivable, EIDL proceeds may be used for more purposes than PPP loans (limited uses of PPP loans include payroll costs and related benefits, interest on mortgage payments/other business debt, rent, and utilities).
  • An entity may apply for and receive both an EIDL and a PPP loan, so long as the entity does not use the two loans for the same purposes. For example, an entity may choose to use its EIDL proceeds on rent or mortgage payments while using the PPP loan proceeds on payroll expenses. Note, however, for entities applying for and receiving both an EIDL and a PPP loan, if the EIDL was received between January 31, 2020 and April 3, 2020, and used for payroll expenses, any PPP loan proceeds must be used to refinance the EIDL proceeds.
  • The program period for an EIDL is through December 31, 2020, whereas the period to apply for and receive a PPP loan is through June 30, 2020.
  • For entities applying for and receiving both an EIDL and a PPP loan, the $10,000.00 EIDL emergency advance is subtracted from the PPP loan forgiveness amount.
  • Unlike PPP loans, which are processed through SBA-approved lenders, an eligible business can apply for an EIDL directly through the SBAby clicking on this link.