The National Sea Grant Law Center


  • The Economic Injury Disaster Loan (EIDL) Program

  • July 14th, 2020 — by Thomas Finley — Category: COVID-19

  • The COVID-19 pandemic has resulted in thousands of closed businesses, trillions of dollars of damage to the economy, and millions of job losses. The government has determined it has a responsibility to help support businesses during this time, and one of the federal government’s most relevant tools is funding programs provided through the Small Business Administration (SBA). Economic Injury Disaster Loans (EIDL) are loans that the SBA distributes to help small businesses whenever a disaster is declared by the federal government. The loans ensure that a business has access to working capital and can pay for any business expense that it may encounter while it is recovering from the disaster.

    As a result of the economic impact of COVID-19, the entire country has been declared a disaster area. Thus, owners of small businesses within the SBA’s size standards and non-profit organizations in all 50 states, as well as Washington D.C. and U.S. territories, are able to apply for EIDL loans. In addition to the traditional EIDL program, the CARES Act provided the SBA with $10 billion to fund a new EIDL Advance program. Through this new program, businesses could receive a grant of up to $10,000, depending on the total number of employees ($1,000 per employee), that do not have to be repaid.

    Due to the amount of applications, the SBA suspended acceptance of EIDL and EIDL Advance applications earlier this year, but reopened the program in May for agricultural businesses. In June, with renewed funding from Congress, the EIDL loans were again made available to most types of business, including aquaculture businesses and sole proprietors. While applications for traditional EIDL loans are still being accepted, the SBA announced in mid-July that funding for the EIDL Advance program had been fully allocated.

    EIDL Changes due to COVID-19
    The CARES Act provided $60 billion for traditional EIDL loans and $20 billion for EIDL Advances. The CARES Act broadened the eligibility of traditional EIDL loans to more types of entities than were previously eligible under the SBA’s EIDL guidelines. Sole proprietors and agricultural businesses are now eligible to apply for EIDL loans. Agricultural businesses are those engaged in the production of food and fiber, ranching, raising of livestock, aquaculture, and all other farming and agricultural-related industries as defined by Section 18(b) of the Small Business Act. For agricultural businesses, the main concern with eligibility is whether the business meets the definition of “small business,” which is typically 500 or less employees.

    EIDL Application
    An eligible small business can apply for up to $2 million with an interest rate of 3.75% for small businesses, or 2.75% for non-profit organizations. EIDL loans can be repaid over 30 years. Since the loans are specifically for areas impacted by a disaster, payments do not start until 12 months after the loans are issued in order to provide time to recover from the disaster.

    With its application, a business must be able to document business losses and verify the information it provides. The SBA requires several documents to verify your application is truthful. A list of the documents can be found here.

    The most common reasons the SBA will deny EIDL funding are the applicant’s unsatisfactory credit history, inability to repay the loan, or eligibility restrictions due to personal history (such as delinquent child support payments) or type of business (such as gambling operations). Loans over $25,000 require collateral if possible, but the SBA will not deny a business for lack of collateral. If there is insufficient collateral, a business must pledge whatever it has available.

    EIDL Advances and PPP Loans
    A business can apply for both the EIDL program and a Paycheck Protection Program (PPP) loan. PPP loans are entirely forgivable if the borrower meets the expenditure thresholds of 60% payroll and 40% on specified expenses, such as mortgage interest, rent, or utilities. However, the forgivable amount will be affected if the business accepted an EIDL Advance grant. If the business is approved for both a PPP loan and an EIDL Advance, the amount of the EIDL Advance will be deducted from the forgivable amount of its PPP loan. A business can accept an EIDL loan and PPP loan without affecting the forgivable amount of the PPP loan as long as the loans are used for different purposes.

    While the business will have to repay an EIDL loan, the favorable terms of the loan, including a 30-year repayment window, make it an excellent option for businesses during the current economic disaster. The application process for EIDL loans is more stringent than the PPP loan application process. Applying businesses will need to show its ability to repay the loan, provide required collateral, and go through a credit check, but the SBA is trying to make the application process as simple as possible due to the current extraordinary circumstances.

  • Thomas Finley
    NSGLC COVID-19 Rapid Response Research Associate

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