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SBA Updates Guidance on COVID EIDL Program

  • U.S. Small Business Administration issues updated guidance on its COVID EIDL program
  • Program helps businesses and nonprofits that suffered economic losses due to COVID-19 with funds for working capital and operating expenses
  • Applications are being accepted through Dec. 31

Summary by Dirk Langeveld

The U.S. Small Business Administration has issued updated guidance on its COVID Economic Injury Disaster Loan program, including information on qualifying for these loans and appealing a denial.

The eight-page document says certain application processes have been updated for COVID EIDL loans made through Dec. 31, the program’s expiration date. COVID EIDL, which is designed to help businesses with working capital and operating expenses after suffering economic loss due to the COVID-19 pandemic, is distinct from the SBA’s standard EIDL program, which has a similar purpose for assisting businesses recovering from disaster.

COVID EIDL loans have a 30-year term and 3.75 percent fixed rate for businesses and 2.75 percent rate for private nonprofit organizations. Applicants can borrow up to $500,000, although collateral is required for loans of $25,000 or more and a personal guarantee for loans of $200,000 or more. The personal guarantee must be provided by all owners with an equity stake of at least 20 percent, or at least one owner if no one owns a 20 percent stake.

Payments on COVID EIDL loans can be deferred for up to 18 months, though interest will accrue during this period. There are no penalties for pre-payment.

The maximum loan amount is determined based on a calculation assessing whether the applicant is a business or nonprofit organization, and whether it was established prior to 2019, during 2019, or in January 2020. Businesses that applied for funding before the cap was raised to $500,000 can also apply for an increase in their loan amount, and applicants can apply for an increase even if they have done so already.

COVID EIDL funds cannot be used to start a business. Applicants are not restricted from using other COVID-19 relief options offered by the SBA, such as the Shuttered Venue Grant Operators program, as long as the other programs do no provide full economic compensation. Businesses and nonprofits can also receive additional compensation if they are affected by a disaster after receiving a COVID EIDL loan, although the loans cannot be consolidated and the new loan cannot be used to pay off the COVID EIDL balance.

Applicants who are declined can apply for reconsideration, and are encouraged to contact their local SBA office for support. The most common reasons for an application being declined include an unsatisfactory credit history, unverifiable information, ineligible citizenship status, ineligible business activities, unsubstantiated economic injury, or a failure to respond to SBA communications.

To be eligible, businesses or nonprofit organizations must have 500 employees or fewer. Applicants must meet other requirements including a credit score of at least 570; being in business or having evidence of investment on or before Jan. 1, 2020; and owners who are legal entities with an Employee Identification Number, citizens with a Social Security Number, or non-citizens who reside in the United States and are non-citizen nationals or qualified aliens.

Borrowers must provide certain tax documents to accompany their application. They must also retain tax returns and financial records for all loan funds spent for three years. Applications can be made directly on the SBA’s website.

The SBA says it has hired personnel and improved its processes, and expects to work through a backlog of COVID EIDL applications by the end of August. Loan funds are typically deposited electronically within five to 10 business days of the SBA receiving the completed loan documents.

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