What is an Economic Injury Disaster Loan (EIDL)?
The U.S. Small Business Administration (SBA) is offering an Economic Injury Disaster Loan (EIDL) of up to $2 million in assistance created to provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. The loss of revenue needs to be demonstrated comparing 2020 to 2019 but there is no minimal threshold.
How Funds Are to Be Used
These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. If credit is not available to you through other sources (i.e., a bank loan) you are able to apply for an EIDL. If you applied for the Paycheck Protection Program (PPP) loan you cannot use the proceeds of an EIDL loan for the same forgivable costs (i.e., payroll, rent, utilities).
Terms of the Loan
The interest rate is 3.75% for small businesses and 2.75% for nonprofits. In order to keep payments affordable, repayments may be made up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay. Personal guarantees are required. In some instances collateral may be required. Credit may not be available elsewhere.
Who is Eligible?
- Businesses with less than 500 employees
- Sole proprietors with or without employees
- Rental property owners (not originally on the list but later guidance indicates loss of rental income qualifies)
- Private nonprofits
How Do I Apply?
Small businesses apply using SBA Form 5 a two-page application form. You’ll need the following information:
- Most recent business tax return
- Personal financial statements of all owners over 20% (SBA Form 413D)
- Schedule of debts (SBA Form 2202)
- Request for Transcript of Tax Return, IRS Form 4506-T
- Additional information that may be requested, such as:
- Complete tax returns of any 20% owner
- Financial statements, including a year-to-date income statement, if there is no business tax return for most recent year end
- SBA Form 1368 providing monthly sale figures
- Gross revenue
- Cost of sales
- Lost rents
- Number of employees
Nonprofits apply using SBA Form 5, and will need to provide:
- Most recent tax return OR tax exempt certificate and three most recent years of the organization’s Statement of Activities
- Schedule of Liabilities
- Request for Transcript of Tax Return, IRS Form 4506-T, including affiliated entities
When Will I Receive the Funds?
Once the application is approved funding should be available within three-to-four weeks. Approval will focus on the use of the loan to pay expenses, not replacement of revenue. Credit history as well as the ability to repay the loan will be primary considerations in approving the loan.
For more information, see this helpful SBA Three-Step-Process flyer.