What You Need to Know About Applying for a COVID-19 Economic Disaster (EIDL) Loan

As COVID-19 continues to impact the United States, the federal government is taking action to ease the burden on taxpayers. Programs are in place to help businesses weather the pandemic. One of these programs is the Economic Disaster Lending Program (EIDL).

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EIDL is not new. It is an existing program administered by the Small Business Administration (SBA). However, the Stimulus Bill (also known as the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act) expanded the agenda. To be eligible for the program, a business must have no more than 500 employees.

Here’s what else you need to know:

How to count employees? The Small Business Administration (SBA) calculates all people employed full time, part time or on some other basis. You can find out more in the Rules here.

Are there any exceptions to the 500 employee rule? There are a few exceptions. Some notable exceptions include restaurants and hospitality businesses which may be eligible if they have 500 or fewer employees per place. Additionally, under CARES ACT, certain industries, including religious organizations, may have a cap based on revenue rather than the size of employees. You can find out more about the ASB website.

OK, does it matter what I do for a living? Yes. You cannot apply for a business that engages in illegal activities, lobbying, large gambling (more than one-third of your income) or if you engage in ‘live performances of a lascivious sexual nature. or directly or indirectly draw more than de minimis gross income from the sale of products or services, or from the presentation of any performance or exhibition, of a lascivious sexual nature. In addition, landlords cannot be more than 60 days behind on child support obligations.

What about non-profit organizations? Yes. Non-profit organizations are eligible. This also includes faith-based organizations, whether or not they provide secular social services. This includes churches that qualify for 501 (c) (3) status – even if they have not applied to the IRS for tax exemption.

I work for myself. Am I eligible? Yes. Sole proprietorships, independent contractors, concert economy workers and self-employed workers are also eligible for the EIDL program.

I have the impression that you have already written about this. Am I wrong? There is a similar loan program that is available for payroll expenses, the Paycheck Protection Program (you can find out more at these PPP loans here). But this one is a little different. Keep reading.

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You said this program existed before now. So what’s the catch? The catch is, to be eligible, you must have suffered significant economic damage and be located in a disaster area declared by the president. However, on March 13, 2020, the President of the United States issued a declaration of emergency under the Robert T. Stafford Disaster Relief and Emergency Relief Act. In other words, the whole country is now declared a disaster zone. This means that virtually any small business in the United States can consider a loan.

How much can I get? The maximum loan amount is $ 2 million. Loans are based on your “actual economic harm” as determined by the SBA, less recoveries such as insurance products. If you decide you need more money, you can, under certain circumstances, request an increase in the loan amount within two years of your initial loan approval.

It seems to take a long time. I need the money now. Help? If you need it, you can apply for an emergency grant advance of up to $ 10,000 – the SBA says you can get it in as little as three days. The loan advance will be forfeited if it is spent on paid vacation, payroll maintenance, mortgage or lease payments.

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So what can I use the money for? It is quite wide. You can use the money for payroll, rent or mortgages, or other operational costs. As with the PPP, you cannot double-dip: no use of funds for sick leave and family leave wages if you receive a tax credit for these costs under the Families First Coronavirus law. Response Act.

Are there any restrictions on money? A few. Notably, you cannot use an EIDL to refinance pre-existing debt or pay dividends.

Do I have to prove that my credit is already at its maximum, or that I have not been able to obtain credit elsewhere? No.

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How much does it cost? There are no upfront fees or prepayment penalties charged by the SBA – but your accountant or other tax professional may charge a fee to help you prepare the claim.

What about guarantees? Loans of $ 25,000 or less do not require any collateral.

Personal guarantee? Exempt for loans up to $ 200,000 until December 31, 2020.

What type of documents do I need to provide? It is a loan, so you have to provide financial elements. Fortunately, no first year tax return is required (phew) since loans can be based on your credit score. But you have to agree to let the SBA to review your tax records.

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So, to make a long story short, I had a hard time getting a loan before because I had some legal issues years ago. Does that disqualify me? Not necessarily. But the company would be excluded from the program if one of the owners who owns at least 20% of the capital of the company is currently incarcerated, on probation, on parole; being the subject of an indictment, criminal information, indictment or other means by which formal criminal charges are laid in any jurisdiction; or, in the past FIVE years, has been convicted of or pleaded guilty or competitor nolo (no challenge) to a felony, or has been placed on pre-trial diversion, parole, or probation (including pretrial probation) for a felony.

What is the interest rate? The interest rate for EIDLs due to COVID-19 is 3.75% for small businesses and 2.75% for nonprofits.

How long is the program available? You must apply by December 16, 2020, in most states.

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Can I apply for more than one type of loan? If you have had an EIDL loan before (between January 31, 2020 and April 3, 2020), you can still apply for a PPP loan as long as you use them for different expenses. You can also refinance an EIDL loan into a PPP loan but note that if you get a PPP loan, the grant of $ 10,000 will be subtracted from the amount of the PPP rebate

I know PPP loans can be canceled. What about EIDL (other than the advance you have already mentioned)? The short answer is no, apart from that lead. But an EIDL loan can be canceled if it is refinanced as part of a PPP loan depending on the date the EIDL loan was taken out.

Apart from the discount amounts, what is the real difference between PPP and EIDL? Size and use. The EIDL is a loan intended to cover six months of operating expenses. In comparison, the PPP is a loan primarily intended to help you cover your payroll for eight weeks. Also, applying for an EIDL loan is – allegedly – much simpler.

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Alright, I’m in it. Where do I sign ? You can start on the SBA website.

What if I can’t do it myself? I strongly recommend that you consult your tax specialist, your bank or your legal professional.

I am not sure about a loan. What else can I do to keep my employees on the payroll? If you are not interested in a loan, there are other options available to you. One of these provisions is the Employee retention credit or ERC, which is designed to help companies keep their employees on the payroll. You can read more here.

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