 | By Travis Miskowitz, Director, CFO Advisory |
The U.S. Small Business Administration announced major changes to its signature Economic Injury Disaster Loan (EIDL) program on September 8, 2021. This includes an increase to the maximum loan amount from $500,000 to $2 million and additional permitted uses of the loan proceeds including business debt payments among other enhancements. The program updates are a welcome change as the administration continues to focus on supporting hard-hit small businesses reeling from the pandemic. SBA is specifically targeting hard-hit areas of the economy such as restaurants, gyms and hotels that are struggling with re-openings and maintaining pre-pandemic levels of customer activity.
SBA EIDL Enhancements Include:
- COVID EIDL Max Loan Amount Increased to $2 million – SBA initially authorized a cap of $150,000 per loan applicant during 2020. This cap was subsequently increased to $500,000 per borrower and is now increased to $2 million. The loan proceeds can be used for normal operating expenses, including payroll, rent, mortgage, utilities, purchasing equipment, etc. Additionally, EIDL proceeds may now be used to prepay commercial debt and remit payment for federal business debt.
- Deferred Payment Period – SBA is providing a two-year payment deferral period after loan origination so small business owners can focus on getting through the pandemic without having to worry about making loan payments. Interest continues to accrue during the deferral period and borrowers will make monthly payments over 28 years after the deferral period expires.
- 30-Day Exclusivity Window – To ensure adequate funding levels inclusive of the new $2 million loan cap, SBA is implementing a 30-day window of approving and disbursing funds for loans of $500,000 or less. Approval and disbursement of loans over $500,000 will begin after the 30-day period expires, with SBA expected to approve loans up to $2 million beginning October 8th, 2021.
- Simplified Affiliation Requirements – To ensure a simplified application process for small business borrowers, SBA has established simplified affiliation requirements to mirror those used by the Restaurant Revitalization Fund. SBA has defined an affiliated business as an eligible entity that has equity or right to profit distributions of not less than 50 percent in the loan applicant or the contractual authority to control the business operations/direction of the applicant.
One of the more significant changes to the program allows EIDL recipients to use loan proceeds to make debt payments including monthly installments, deferred interest, and pre-payment on business debt. The loan proceeds may be used to pay debt that was incurred before and after submission of the loan application. This is a welcome update to the program as previously the funds could only be used to pay working capital and operational expenditures of the borrower.
EIDL loans are underwritten and funded directly by the SBA. The loan provides for a low-interest, fixed-rate, long-term borrowing solution to help borrowers overcome the effects of the pandemic. Maximum loan amount is $2 million, interest rate is 3.75% for businesses and 2.75% for Private nonprofit organizations, payment is deferred for 2 years and principal and interest payments are due over the next 28 years. Eligible borrowers can apply directly through SBA’s website here.