One option for seeking financial relief under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act is the Economic Injury Disaster Loans (“EIDLs”) program, which program is administered by the Small Business Association (“SBA”) and provides loans to small business, private non-profits, sole proprietors and independent contractors that were in operation on Jan. 31, 2020, as a means for providing working capital.
EIDLs may be for a principal amount not to exceed $2 million and bear interest at a rate of 3.75% for businesses and 2.75% for non-profits. Principal and interest on these EIDLs may be deferred for up to four (4) years, and long term repayment plans may be available depending on the size of the loan. EIDLs may be used to pay expenses that the applicant impacted by the COVID 19 disaster could have met had the disaster not occurred, such as fixed debts, accounts payable, payroll and other operating expenses. Please note that while EIDLs and Paycheck Payment Program Loans (“PPP Loans”) seemingly each allow for recovery of at least some of the same expenses, a business cannot receive funds from both programs to pay for the same expenses.
For businesses that are in immediate need of assistance, an attractive provision of this program is that it includes a $10 billion grant component to be used to advance $10,000 to small businesses and non-profits that have been impacted by the disaster within three (3) days of making application for the EIDL, which grant is not required to be repaid regardless of whether the entity receiving it ultimately has its application for an EIDL denied.
Unlike PPP Loans, credit underwriting is required for granting an EIDL, although the credit-elsewhere requirements are waived. Personal guarantees are required for loans below $200,000 and ability to repay is a consideration in the approval process. Unsecured loans are available up to $25,000. However, if a business borrows more than $25,000 collateral is generally required if there is anything the borrower can pledge, with the preference being real estate as collateral. In order to qualify, the applicant must substantiate that the reason the loan is needed is related to the declared disaster, not just generally due to an economic downturn.
The application process is handled directly with the SBA online at DisasterLoan.SBA.gov, rather than through a bank. There is no fee to apply.
Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.