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On September 9, 2021, the U.S. Small Business Administration (SBA) announced important changes to the COVID-19 Economic Injury Disaster Loans (EIDL) program, with the most significant modification being the increase of the loan cap from $500,000 to $2 million. The SBA noted these changes have been implemented to enable small businesses, many of which are still recovering from the pandemic, to take advantage of the still available EIDL funds of over $150 billion.
The COVID-19 EIDL program will be available through December 31, 2021, and offers 30-year loans with fixed interest rates of 3.75% for small businesses, including sole proprietors and independent contractors, and 2.75% for not-for-profits.
Below is a summary of the most important changes to the EIDL program, all of which are effective immediately:
1. EIDL loan cap increased from $500,000 to $2 million: In addition to this increase, businesses may use loan proceeds for any normal operating expenses and working capital but also to prepay commercial debt and make payments on federal business debt. Loan proceeds may be used to pay debt incurred both before and after submitting the loan application. Before these changes, funds could be used only for working capital needed to keep the business running.
2. EIDL repayments deferred to 2 years after loan origination: EIDL repayments have been deferred by an additional six months. Borrowers now won’t have to begin repaying for EIDL until two years after loan origination; however, interest will accrue during this time. Payments of principal and interest may be made over the remaining 28 years of the loan.
3. EIDL loans of $500,000 or less will be approved and disbursed first: The SBA is implementing a 30-day exclusivity window of approving and disbursing funds for loans of $500,000 or less. This will ensure smaller businesses are able to access these funds before larger loans over $500,000 are disbursed.
4. EIDL affiliation requirements have been simplified: The SBA has simplified the affiliation requirements to make the application process easier for small businesses. The requirements are now more similar to those of the Restaurant Revitalization Fund.
5. EIDL eligibility has been expanded to cover businesses with 500 or fewer per location: Organizations in the hardest-hit industries with no more than 500 employees per physical location are now eligible, as long as the business, together with its affiliates, has no more than 20 locations. However, a new regulation also limits entities that are part of a single corporate group to receive a combined total not to exceed $10 million in EIDL loans. For this limit, entities are considered part of a single corporate group if they are majority-owned, directly or indirectly, by a common parent.
As you determine whether your business should take advantage of the EIDL program, Moore Colson can help you by developing a multi-week cash flow projection, which will assist in identifying any operating cash flow shortfalls. After helping you understand your business’s cash flow needs, we can help you navigate the options available to cover any projected shortfalls, including applying for an EIDL. Contact us to learn more, and be sure to subscribe here to get our news and alerts.
