Economic Injury Disaster Loans are back: A renewed lifeline for small businesses

Since the onset of COVID-19, the federal government has adjusted eligibility guidelines to better serve those affected by the pandemic.

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Legacy Toys Store Manager Jeff Kasper sorts through shipping boxes at the store in the Mall of America on June 16, 2020 in Bloomington, Minnesota. - The US economy continues to bleed fresh jobs in the aftermath of COVID-19 shutdowns, even as it reopens and as the Paycheck Protection Program (PPP) and other federal initiatives mitigate some of the downturn’s harshest impacts. Legacy Toys has used its PPP loan to build out an e-commerce business from its seven stores in Minnesota and North Dakota that now see “skyrocketing” demand for curbside pickup from reopened stores, said owner Brad Ruoho. But Legacy, which obtained a $160,000 PPP loan, still has only rehired 35 of 75 staff members. The malls are operating at reduced hours, which means the stores require fewer workers, Ruoho said.

Photo by KEREM YUCEL/AFP via Getty Images

The U.S. Small Business Administration resumed taking applications for low-interest Economic Injury Disaster Loans and EIDL Advance grants.

The government had been limiting applications since April 16 to agricultural businesses, which were not previously permitted to apply.

“The SBA is strongly committed to working around the clock, providing dedicated emergency assistance to the small businesses and nonprofits that are facing economic disruption due to the COVID-19 impact,” SBA administrator Jovita Carranza said in a statement.

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What is an EIDL loan?

Unlike Paycheck Protection Program (PPP) loans, which were created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, EIDL loans have long been a part of the SBA’s toolkit to help provide economic assistance during times of disaster.

These low-interest loans were intended to give monetary aid to businesses who qualify.

Since the onset of the coronavirus, the federal government has adjusted eligibility guidelines to better serve those affected by the pandemic. Sole proprietors, freelancers and independent contractors are among the newly eligible groups for EIDLs.

Similar to a PPP loan, EIDL loans provide funds for industries struggling to stay afloat in the wake of the coronavirus or any other qualifying disaster.

An EIDL loan can be used to cover payroll and inventory, pay debt or any other business-related expenses.

The interest rate on these loans is 3.75% for small businesses and 2.75% for nonprofits. You can take up to 30 years to repay your loan, with the first payment deferred for one year.

On the other hand, PPP loans not eligible for forgiveness are subject to 1% interest and must be repaid within five years, according to the latest guidelines.

EIDL grants available for up to $10,000

If you applied for an EIDL loan, you were also able to apply for an EIDL Advance, which is a grant from the SBA of $1,000 per employee, up to a maximum of 10 employees and $10,000.

You could apply for and receive an EIDL Advance even if your EIDL loan application is not approved. And, unlike other pandemic-related relief programs, which left many applicants unsure of their status, EIDL Advance loans are supposed to be disbursed within a few days of approval.

The EIDL Advance program concluded on July 11 after disbursing the entire $20 billion allocated by Congress.

Still, nearly all of the U.S. government-backed programs to provide economic relief have been plagued with delays due to demand, including the PPP program, which ran out of its first round of funding in just 13 days.

Although PPP loan forgiveness rules have been relaxed after sharp criticism from businesses, a PPP loan recipient still has to fill out an application proving how the funds were used.

Even though the SBA recently announced a new “EZ Forgiveness Application” intended to streamline the process, an EIDL Advance doesn’t have any post-disbursement requirement, which could make it more appealing to some.

As of July 3, more than $134 billion in EIDL loans have been approved.

How does an EIDL work with the other available programs?

Although there are a number of programs that provide financial assistance to small businesses, it can be dizzying to keep up-to-date on the most recent rules and guidelines.

Here are some things to keep in mind if you haven’t yet applied for any assistance:

  • You can apply for a PPP loan and an EIDL loan and be approved for both as long as the funds are used for different purposes. PPP loans are primarily intended to maintain payroll and help keep your staff employed; EIDL loans can be used for a wider range of expenses.
  • PPP loans can be up to $10 million, EIDL loans are reportedly capped due to demand at $150,000 or less, according to several reports. The SBA website, however, lists the maximum loan amount at $2 million.
  • Know that if you did receive an EIDL Advance and you’re also approved for the PPP, the amount of the EIDL Advance will be deducted from any loan forgiveness amount on your PPP.
  • You have until December 31 to apply for an EIDL loan under the expanded criteria put in place due to the pandemic. The last day to apply for the PPP was August 8.

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