SBA Reopens Economic Injury Disaster Loans to Small Businesses, Independent Contractors and Gig Workers by Judd Appel, ABV

On June 15, 2020, the Small Business Administration (SBA) announced the reopening of its Economic Injury Disaster Loan (EIDL) program, which includes forgivable advances of up to $10,000, to help small businesses and nonprofits ease cash flow challenges resulting from the COVID-19 pandemic. The program, first introduced on March 27, had been suspended temporarily to allow the SBA more time to process a backlog of initial applications and receive additional government funding.

The EIDL program offers eligible borrowers low-interest, long-term loans of up to $2 million to be used as working capital as well as emergency EIDL grants of up to $1,000 per employee (up to a maximum of $10,000) that do not require repayment. As of June 12, the SBA had approved 1,332,955 loans representing almost $91 billion.

Am I eligible for the EIDL program?

EIDL loans and grants are available to nonprofits and small businesses in operation since Jan. 31, 2020, with less than 500 employees, including sole proprietors, independent contractors, freelancers, gig workers and agricultural businesses in all U.S. states and territories.

You may be eligible for a forgivable EIDL grant equal to $1,000 per employee (up to a maximum of $10,000) even if you do not receive approval for the loan. You also have the option to accept an EIDL grant and decline an approved loan.

In addition, you may qualify for an EIDL loan even if you received the benefit of a potentially forgivable loan under SBA’s Paycheck Protection Program (PPP) and use those dollars as working capital to cover fixed debts, payroll, accounts payable, employee sick leave and other costs required to maintain liquidity and continue operations that are not covered by the more restrictive PPP loans. However, you may not use EIDL to pay dividends and bonuses, refinance long-term debt, pay-off outstanding tax liabilities or pay for the expansion or replacement of your facilities or tangible assets.

How Much Can I Borrow?

Loans amounts are based on taxpayers’ actual economic damages arising from the COVID-19 pandemic. The application form will ask you to report your gross revenue from the past 12 months.

What are the Terms of the EIDL Loans?

The interest rate on EIDL loans for small businesses without access to other sources of credit is 3.75 percent. For nonprofits, the interest rate is 2.75 percent. Repayment terms may be as long as 30 years, and you have the option to defer your first payments for one year. Loans above $25,000 require collateral, including real estate, and potential personal guarantees.

How Do I Apply for an EIDL Loan?

You have until Dec. 16, 2020, to apply for an Economic Injury Disaster Loan directly with the SBA at https://covid19relief.sba.gov/#/ . However, it is recommended that you speak you’re your CPA and other advisors to determine the best strategies for improving liquidity and cash flow during this very challenging time.

About the Author: Judd Appel, ABV, is a director with BayBridge Capital Advisors (BCA), an affiliate of Berkowitz Pollack Brant Advisors + CPAs, which helps businesses raise capital, explore strategic partnerships and improve financial performance. He can be reached at the firm’s Miami office at 305-960-8858 or info@baybridgecapitaladvisors.com.