CARES Act

SBA EIDL Program Significantly Lowers Loan Amount and Limits New Applications

The Economic Injury Disaster Loan (EIDL) program offers low interest, non-forgivable loans administered by the Small Business Administration (SBA). Historically, this program has been the primary form of federal assistance for businesses experiencing losses from disasters such as hurricanes, tornadoes, and wildfires. However, it gained wider attention after the global pandemic was declared a qualifying disaster in terms of eligibility for the EIDL program.

After scores of small businesses applied for EIDL loans and emergency grants in the first few weeks of the global pandemic, the program quickly reached its capacity. Congress provided $60 billion in new funding to the program – $10 billion for emergency grants and $50 billion for loans – in its latest round of COVID-19 related legislation. However, the program continued to be so overwhelmed by demand that the SBA has now drastically limited the size of loans and is blocking nearly all new loan applications.

In the early days of the pandemic, small businesses (those with less than 500 employees) were told they could borrow up to $2 million, based on the amount of economic injury they were experiencing. Now, the SBA has quietly imposed a $150,000 borrowing limit.

In addition, the SBA is now only allowing farmers, ranchers, and certain other agricultural businesses to submit new applications as it works through its overwhelming backlog of loan applications. According to a statement on the SBA’s website, “At this time, only agricultural business applications will be accepted due to limitations in funding availability and the unprecedented submission of applications already received.”

The EIDL is separate from the Paycheck Protection Program (PPP) authorized under the CARES Act. Companies are able to obtain both an EIDL and a PPP loan as long as the proceeds are not used for the same expenses. An existing EIDL loan can be refinanced into a PPP loan. Unlike the PPP, the EIDL loan size is not dependent on a company’s number of employees, which made it a preferred option for smaller businesses.

The EIDL program was also an attractive option because of its favorable loan terms. Businesses are charged no upfront fees or early prepayment penalties, and repayment terms are determined by a borrower’s ability to repay the loan, up to 30 years. It carries an interest rate of 3.75 percent for small businesses and 2.75 percent for non-profits. The EIDL can also provide an emergency grant of $10,000 – even before loan approval – to cover certain payroll, supply chain, and other disaster-related costs.

The news that the EIDL program is essentially now closed for all but a narrow subset of businesses is certainly unwelcome, especially given the ongoing lack of clarity around PPP eligibility and loan forgiveness. We are continuing to monitor the situation and will keep you informed of any developments as they emerge. If you have any questions about these or any other matters, please contact your Kreischer Miller relationship professional or any member of our team. We also continue to update our COVID-19 Resource Center, which you can access here.

Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.