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By Mirel Barcelo, CPA

The Small Business Administration (SBA) is a U.S. agency dedicated to providing support to entrepreneurs and small businesses. One of its most well-known loans is the Economic Injury Disaster Loan (EIDL), which is granted to provide economic relief to businesses experiencing a temporary loss of revenue. The EIDL is not a new loan, but the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 has expanded the program.

The SBA was originally authorized to grant loans through June 30, 2020, but that has been extended through Dec. 16, 2020, or until funds are no longer available. To be eligible for an EIDL, you need to meet the following requirements:

• You have 500 or fewer employees whose principal place of residence is in the United States or you are a business that operates in a certain industry and meets the applicable SBA employee-based size standards for that industry.
• You are an individual who operates under a sole proprietorship, as an independent contractor, or are an eligible self-employed individual who was in operation on Feb. 15, 2020.
• You have not engaged in any activity that is illegal under federal, state, or local law.
• You are not a household employer–meaning employing nannies or housekeepers.
• You are not a 20% or more owner of an equity whose applicant is incarcerated, on probation, on parole, or has been convicted of a felony within the past five years.
• You are not owner of a business that has obtained a directed or guaranteed loan from the SBA or any other federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the government.

No tax return is required to apply and qualify for an EIDL. However, you will need to make a disclosure of your financials (income and expenses). The SBA may ask to review your tax records, and you cannot refuse.

Under the EIDL, the maximum loan amount is $2 million, based on your actual economic injury as determined by the SBA. It also grants up to $10,000 as an emergency advance, but as of July 11, 2020, the advances have been closed until further notice. The advance will be forgiven if it is spent on paid leave, maintaining payroll, mortgage, or lease payments. The interest rate on the remainder of the loan, due to COVID-19, is 3.75% for small businesses and 2.75% for nonprofits, and its maturity is 30 years.

The EIDL can be used on specific expenses, including payroll costs; costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave; insurance premiums; mortgage interest, rent, and utility payments; and interest payments on any other debt obligations incurred before Feb. 15, 2020. If this EIDL was not used for payroll costs, it does not affect your eligibility for the Paycheck Payment Program (PPP) loan. If it was used for payroll costs, you can use a PPP loan to refinance your EIDL loan.

Each business may apply for an EIDL only once. However, you can still apply for a PPP loan as long as you use them for different expenses. You can also refinance an EIDL into a PPP loan, but if you do get the PPP loan the $10,000 grant will be subtracted from the PPP forgiveness amount. The big difference is that the EIDL is supposed to cover up to six months of operational expenses, while the PPP loan primarily helps you cover payroll for eight weeks.

The SBA also offers other assistance alternatives, such as the Express Bridge Loan and the Debt Relief Program. The Express Bridge Loan offers up to $25,000 for businesses that already have a relationship with an SBA Express Lender, and it must be repaid in full or in part by proceeds from EIDL. The Debt Relief Program for loans not on deferment has the SBA making payments on loans for six monthly payments. For loans currently on deferment, the SBA will begin making payments after the deferment period has ended for six monthly payments. For loans made after March 27, 2020, and fully disbursed prior to Sept. 27, 2020, the SBA will begin making payments with the first payment due on the loan and will make six monthly payments. This relief is not available for PPP loans or EIDL.

If a loan is not for you, there are other incentives for business owners. The Employee Retention Credit and the Qualified Sick and Family Leave Wages Credit are available via the IRS under the CARES Act and Families First Coronavirus Response Act.

There are plenty of SBA options small businesses can take advantage of to apply for a loan. Depending on your business, the kind of loans you have already been granted, and the kind of payments you need to pay, you will find a loan you are eligible for. It is important you stay on top of every deadline and requirement for the loan to be granted.

Mirel Barcelo, CPA, is founder and owner of Corp 1 Financial Services LLC. She can be reached at mirel@corp1llc.com.

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