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OP-ED: COVID EIDL Proving to Be an Unsung Hero of SBA Relief Programs

Each of the major COVID-19 relief programs overseen by the U.S. Small Business Administration has received praise for its ability to deliver crucial relief to entrepreneurs. Countless businesses faced an uncertain fate when reduced consumer demand and government shutdowns drastically reduced their revenues last year, and the programs helped them survive until an economic rebound began. 

Although it hasn’t received as much attention as other SBA COVID-19 relief programs, the COVID Economic Injury Disaster Loan program has proved to be an unsung hero in helping businesses recover from the pandemic. 

New programs such as the Paycheck Protection Program, Restaurant Revitalization Fund, and Shuttered Venue Operators  Grant program have provided assistance but have also been plagued by issues such as fraud, technical glitches, and a slow rollout of funding. Conversely, the COVID EIDL program simply updated an existing EIDL program that had provided relief to businesses suffering temporary revenue losses due to circumstances like natural disasters.  

This program was well-suited to assist businesses suffering from pandemic-related losses. The COVID EIDL program simply expanded EIDL offerings to all small businesses and certain agricultural producers with 500 employees or fewer, with a few supplemental offerings designed to help businesses in underserved communities. Funds can be used to pay for working capital and other normal operating expenses.

According to the latest SBA data, the program has proved popular despite its relative lack of fanfare. More than 3.8 million EIDL loans have been approved, totaling $252.3 billion. In Connecticut alone, more than 37,000 businesses have been approved for $2.72 billion.

Unlike the other SBA programs, which offer grants or forgivable loans, EIDL loans must be repaid. However, the financing terms are generous enough that they don’t create an undue burden on business owners. Loans have a 30-year term with a 3.75 percent fixed interest rate for for-profit businesses and a 2.75 percent rate for nonprofits, and are capped at $500,000. The SBA does not charge any additional fees or pre-payment penalties.

As with any loan, businesses and nonprofits must meet certain requirements and provide relevant information to be considered. This includes:

  • A credit score of at least 570
  • Being in business, or showing evidence of investment, on or before Jan. 1, 2020
  • When applying as a legal entity, having an Employee Identification Number
  • When applying as an individual, being a U.S. citizen with a Social Security number or a non-citizen residing in the United States who is a non-citizen national or qualified alien
  • Collateral for loans of $25,000 or greater
  • A personal guarantee provided by all owners with an equity stake of at least 20 percent for loans of $200,000 or greater (or at least one owner if no one has an equity stake of 20 percent or greater)
  • Certain documentation, including 2019 federal tax returns and IRS Form 4056-T
  • Borrowers must retain tax returns and financial records for all loan funds spend for three years

Loans are determined by different formulas based on when a business or nonprofit opened:

  • A for-profit that opened before 2019 determines their loan by subtracting the 2019 costs of goods sold from their 2019 gross receipts and doubling the figure
  • A for-profit that opened in 2019 subtracts the average monthly cost of goods sold (multiplied by 12) from their average monthly gross receipts (multiplied by 12), then doubles the figure
  • For-profits that opened in January 2020 use the same formula as those that opened in 2019, but using 2020 figures
  • Nonprofits that opened before 2019 calculate their loan by subtracting 2019 total expenses from 2019 total revenues and doubling the figure
  • Nonprofits that opened in 2019 or January 2020 multiply their average monthly expenses for 2019 or 2020 by 12 and double the figure

Alternatively, businesses and nonprofits that opened in 2019 or earlier can calculate the sum of lost rent on investment real estate by subtracting 2020 rent received from up to 24 months of lost rent in 2019, then doubling the sum.

Applicants are eligible for the figure they calculate or $500,000, whichever is less. The process involves some number crunching, but can result in a significant economic boost for businesses in need of extra money to maintain their operations.

Businesses also have the option of deferring payment on a COVID EIDL loan for 18 months. This deferral option is useful for businesses that need a little more time to rebuild their revenues, especially now as the spread of the COVID-19 Delta variant again raises concerns of diminished consumer demand or renewed business restrictions.

With small businesses often struggling to access funds, the COVID EIDL program offers a welcome resource for business owners. It also raises the possibility that the SBA might pursue other creative adaptations of its existing products to expand financing opportunities for entrepreneurs.

The COVID EIDL program runs through Dec. 31. We encourage all business owners in need of funding to review the updated guidance and consider applying for a loan.

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