Should You Apply for an EIDL Loan?

We’re now many months into the coronavirus pandemic in the United States, and while most businesses have reopened, others have not been allowed to, or have opened and then had to close again.

This is especially true for the restaurants and bar industry, but other businesses are still struggling as well.

That leaves business owners looking for ways to cover things like their payroll and other expenses to stay afloat.

Many business owners are also finding that things they thought might help them, such as their business interruption insurance, don’t apply right now.

Coronavirus business interruption insurance issues have been rampant around the country, with many insurers refusing to pay, citing a pandemic as something not covered.

One type of financing available from the Small Business Administration that might help is the Economic Injury Disaster Loan, but is it right for your business and situation?

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What is an EIDL?

An EDIL is different from a Paycheck Protection loan (PPP), although both are offered to small businesses and even independent contractors right now.

Since EIDL is a program run through the SBA, you do have to be a small business to qualify, but the small business qualification is pretty liberal. If you employee 500 or fewer people, you may be eligible.

COVID-19 EIDLs are to help provide economic relief if your business is dealing with a loss of revenue because of the pandemic. There was, at one point a $10,000 loan advance available, but that’s not currently being offered.

You can apply for an EIDL loan of up to $2 million, which will help provide working capital for expenses including payroll and fixed debt. One of the big perks of the COVID EIDL is that it includes an automatic deferral on repayment for one year, but interest does start to accrue at dispersal.
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What Types of Businesses Are Eligible?

As was touched on, according to the SBA, a small business is described as having 500 or fewer employees for the purposes of getting an EIDL.

The EIDL differs from the PPP in several ways, including the fact that the EIDL isn’t based on using payroll numbers to calculate the amount of the loan.

The SBA capped the maximum loan amount available to $15,000 because of high demand.

The SBA doesn’t outline specifically the credit requirements for eligibility, but the approval standards are less rigorous than what you find with other types of SBA loans.

Only pretty major credit issues are likely to disqualify you, such as being more than 60 days delinquent on child support, having judgments against you for federal debt, or having federal tax liens of more than $10,000.

There are certain things that you can’t use the proceeds of an EIDL for.

Some of these include paying dividends or bonuses, expansion of facilities, or the repair of physical damages. The proceeds can’t be used for refinancing long-term debt, or payment of federal debt except for IRS obligations.
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Should You Take the Funds from an EIDL?

If you apply and are approved for an EIDL, should you take it?

That’s a maybe.

You should read the fine print carefully.

One of the perks is that you don’t have to make your first payment for a year, but as was mentioned, interest is accruing during that time.

You may also be required to have collateral for your loan, and then if you do, you can’t sell anything that is collateral without getting permission from the SBA.

According to the fine print, you may also have to hire an independent accountant to review your financial statements.

Can You Also Get a PPP?

If you’re wondering if you can get both an EIDL and a PPP loan, the answer is yes, but you can’t use the funds for the same expenses. As an example, if you get a PPP and you use the funds from that loan for payroll, you can’t then use an EIDL for payroll too.

If you don’t meet the requirements for a PPP, then an EIDL may be a good alternative for you.

If you decide that you want to apply for an EIDL, you do it directly through the SBA. The application volume is high, and as such, the SBA does advise applying online.

There are financing options available for businesses that are struggling right now, but always read the fine print carefully and the terms of any funding you accept to ensure it’s the right long-term decision for your business.

Susan

Susan is an avid writer, traveler, and overall enthusiast.

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