What is an Economic Injury Disaster Loan? Are Oregon businesses eligible for the program?
An Economic Injury Disaster Loan (EIDL) is a type of Small Business Administration (SBA) loan available to small businesses during economic emergencies. EIDL loans existed before COVID-19, but they have become increasingly important in light of the economic uncertainty surrounding the pandemic and related closures.
In response to this uncertainty, the CARES Act expanded eligibility for EIDL loans beyond traditional SBA loan eligibility, and created an advance of up to $10,000 for EIDL applicants (which does not have to be repaid even if an EIDL loan is not ultimately received).
Unfortunately, the initial $10 billion appropriated to EIDL loans in the CARES Act ran out in just a few weeks, prompting Congress to appropriate an additional $10 billion in the Paycheck Protection Program and Health Care Enhancement Act (the Enhancement Act). The Enhancement Act also expanded EIDL eligibility to small agricultural enterprises, which have not historically been eligible for EIDL loans.
Due to the high demand for EIDL loans and the related advance, SBA has closed applications for everyone other than
small agricultural enterprises (defined below). However, for organizations or individuals who applied for an EIDL loan and advance prior to April 15, 2020, SBA is still processing these applications (including for non-agricultural enterprises) and will continue to fund eligible borrowers until funds run out.
Do I qualify?
EIDL loans are intended to provide emergency support for small businesses facing various types of disasters. In light of the COVID-19 pandemic, the entire country has been deemed a disaster area, which opened up EIDL loan eligibility to businesses across the country, including Oregon.
However, as indicated above, applications for EIDL loans and the related advance are currently only available to small agricultural enterprises with fewer than 500 employees, which include businesses engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural related industries (as defined by section 18(b) of the Small Business Act (15 U.S.C. 647(b)).
Prior to this restriction on applications, EIDL loans were available to other small businesses (as defined under the SBA size standards
based on the average number of employees and/or average annual receipts), private nonprofit organizations, and small agricultural cooperatives, as well as businesses, cooperatives, ESOPs or Tribal small business concerns with not more than 500 employees, sole proprietorships (with or without employees), independent contractors, and faith-based organizations. To the extent additional funds are appropriated and/or SBA determines it appropriate to do so, it is possible applications will be reopened for the above groups.
For purposes of determining eligibility, applicants (including agricultural enterprises) must include their affiliates (i.e. employees and receipts of other businesses under common control). Affiliation rules are complex and warrant careful scrutiny and, if appropriate, consultation with counsel to confirm eligibility.
In addition to the pertinent industry and employee or revenue size standards mentioned above, certain other businesses and industries are not
eligible for EIDL loans, such as those engaged in illegal activity, businesses offering live performances of a prurient sexual nature and businesses deriving a significant amount of revenue from gambling activities. The EIDL application
includes a list of other ineligible businesses that should be carefully reviewed by applicants to determine eligibility.
What are the EIDL loan terms?
The maximum EIDL loan amount is $2,000,000; however, per unofficial SBA guidance, SBA may be limiting the maximum amount of EIDL loans to $15,000 per applicant due to the high demand for such loans.
EIDL loans bear interest at 3.75% (2.75% for nonprofits) and have maturity dates of up to 30 years. In addition, no personal guarantee is required for loans up to $200,000 and no collateral is required for loans up to $25,000. The first loan payment is deferred until 1 year after loan origination (although interest accrues during deferment).
In addition, under the CARES Act, eligible applicants may apply for an advance of up to $10,000, which does not need to be repaid. Per unofficial SBA guidance, SBA is calculating the advance as $1,000 per employee, up to $10,000.
However, unlike the PPP loans, which are potentially 100% forgivable, EIDL loans are not forgivable and borrowers will be expected to repay their loans (other than the advance).
EIDL loans may be used for numerous purposes, including working capital needs, paid sick leave, payroll, increased material costs, rent, mortgage payments, and other repayment obligations.
How can I apply?
EIDL loans are administered through the SBA, which has created a streamlined application process. Applications are available here
Can I receive both an EIDL loan and a Paycheck Protection Program (PPP) loan?
Eligible borrowers may obtain both an EIDL loan and a PPP loan, but the funds must be earmarked for different purposes. For example, PPP loans should be used predominantly for payroll costs. Conversely, EIDL loans can be used for working capital and other purposes. Although EIDL loans may be used for payroll costs, if you have a PPP loan to cover payroll, the EIDL loan should be used for different purposes (to avoid double dipping).
In addition, if you received an EIDL loan between January 31, 2020 and April 3, 2020 to cover payroll costs, you will need to refinance this EIDL loan into a PPP loan.
Are there any scams/fraud alerts I should be aware of?
The Oregon Division of Financial Regulation
has provided an alert on three possible scams related to the coronavirus: (1) scams claiming a miracle cure or too-good-to-be-true government relief; (2) scams requiring downloads to view coronavirus maps (which may load malware on your computer); and (3) scams promising a guaranteed high return on investments.
The Oregon Department of Justice also released tips
on how to spot and avoid scams and maintains a website summarizing some of the common scams targeting Oregonians.
In addition, the Treasury Inspector General of Tax Administration (TIGTA) has identified a possible scam
related to the Economic Impact Payments that many individuals are entitled to under the CARES Act. The TIGTA believes that criminals may try to intercept such payments or attempt to steal sensitive taxpayer information, and the TIGTA website provides contains tips on how to avoid this type of scam.
Criminals are opportunistic, so be on the lookout for suspicious activity and alerts from government and law enforcement in order to remain vigilant.
What is an SBA Express Bridge Loan?
An Express Bridge Loan (EBL) is a type of SBA loan available to small businesses during economic emergencies. It is meant to help “bridge” the gap with a small amount of funding while applying for a direct SBA Economic Injury Disaster loan. EBL loans are intended to provide direct loan assistance to small businesses located in communities facing various types of disasters. As mentioned previously, the entire country has been deemed a disaster area in light of the COVID-19 pandemic, which has opened up EDL loan eligibility to businesses across the country.
To qualify, the small business must meet all of the typical requirements of the SBA 7(a) Loan Program. Thus, the business must qualify as a “small business,” as defined under the SBA size standards
(based on the average number of employees and/or average annual receipts). An important note is that nonprofit businesses are ineligible for EBL loans.
The maximum gross loan amount is $25,000, which accrues interest at a maximum of 6.5%. The maximum loan term is 7 years. Any funds received from the loan must be used exclusively to support the survival and/or reopening of the small business.
What other SBA funding options are available during the crisis?
The CARES Act appropriated $17 billion for immediate small business relief in the form of loans under the 7(a), 504 and microloan programs (“Non-Disaster Loans”).
Each of these loan types were in existence prior to the COVID-19 pandemic, but the CARES Act temporarily modified them so that the SBA will cover all loan payments (including principal, interest and fees) for six months. This means that eligible borrowers will have no obligation to pay the amounts paid by SBA. This program is available for existing Non-Disaster Loans and new Non-Disaster Loans obtained between March 27, 2020 and September 27, 2020.
In addition, SBA has notified lenders
that they may (but are not obligated to) provide temporary relief to borrowers in the form of deferred payments on these loans. Interested borrowers should reach out to their lenders to see whether deferral is available.
A brief overview of the Non-Disaster Loan programs is provided below. Various guaranty requirements, fees and collateral requirements may apply to the loans described here, so a potential borrower should look into each program and contact potential lenders to determine the loan terms that may apply.
- 7(a) Loan Program: The SBA 7(a) Loan Program provides up to $5 million for eligible borrowers who do not have available credit elsewhere and need financing for short-term and long-term working capital needs, including refinancing current business debt. There are many different types of 7(a) loans, as described in more detail on the SBA’s website. These loans are administered by lenders who share a portion of the risk of the loan with the SBA. It is important to note that the newly created PPP loan is a type of 7(a) loan, but is not eligible for the debt relief described above (since PPP loans may be 100% forgivable).
- 504 Loan Program: The SBA 504 loan program provides eligible borrowers with up to $5.5 million to acquire fixed assets, such as machinery, real estate, or buildings, for expansion or modernization projects. The loans are made at low interest rates, with long repayment terms of up to 25 years. Eligible borrowers are required to make a contribution of 10% of the project costs, with the remaining 90% of the costs being loaned at least 50% by a third-party lender and up to 40% by a Certified Development Company. 504 loans are administered by Certified Development Companies, which are non-profit corporations established to promote economic development in their communities. Additional information about the 504 Loan Program can be found here.
- Microloan Program: The SBA Microloan Program provides loans of up to $50,000 to eligible borrowers for start-up and expansion expenses. The average amount of a microloan is $13,000 to $14,000. The loans are administered by mission-based lenders who also provide business counseling services.
- SBA Express Loan Program: The SBA Express Loan (EL) Program provides loans of up to $350,000 to eligible borrowers. Unlike other 7(a) loan programs, this program features an accelerated turnaround time for SBA review: SBA will respond to the application within 36 hours. The maximum loan term is 7 years, and lenders are not required to take collateral for loans up to $25,000 (although they may use their existing collateral policy for loans over $25,000).
Do I qualify for one of those other loans, and how can I apply?
Generally, to be eligible for such a loan, a small business must be based in the U.S., meet SBA’s applicable size standards
, and demonstrate an ability to repay. The SBA’s Lender Match Tool
helps match potential borrowers with SBA-approved lenders, including Certified Development Companies, to streamline the loan application and approval process.
Legal Editor: Laura Warf, May 2020.