If you’re a small business owner struggling to stay afloat because of COVID-19, you may be eligible for borrower-friendly funds from the government.
The federal government created several programs to help small businesses recover from the economic impact of the virus throughout the pandemic. COVID-19 Economic Injury Disaster Loan (EIDL) is one of them.
On September 8, 2021, the U.S. Small Business Administration announced a change to EIDL. The updates include an EIDL loan increase and more flexibility when using the funds.
What does the EIDL loan update mean for your business? How to apply for the program?
Let’s find out.
EIDL Loan Refresher
An EIDL loan is a direct long-term loan from the U.S. Small Business Administration (SBA). It’s intended to help small businesses cover operating expenses and other financial obligations that they’re unable to meet because of a pandemic or natural disaster.
The initial COVID-19 EIDL program offered coverage for up to 24 months of economic injury, with a maximum loan cap of $500,000. If you’re awarded funds through an EIDL loan program, you could spend those on working capital and regular expenses like healthcare benefits and rent.
The COVID EIDL loan program ends on December 31, 2021, or whenever funds run out. All applications must be submitted before December 31, 2021.
EIDL Loan Increase and Program Updates
At the start of September 2021, the SBA published updates to its COVID EIDL program, including a loan cap increase.
The program updates are as follows:
- The maximum loan cap increased from $500,000 to $2 million.
- You can now use funds to pay for payment or prepayment of commercial business debt.
- You can now use funds to pay for regularly scheduled federal debt payments.
- The first payment is now automatically deferred to 24 months from the loan origination date (the original deferment period was 18 months).
- Simplified affiliation requirements: You are considered an affiliate of any business you control or have at least 50 percent ownership in.
- Expanded eligibility to businesses in industries most affected by the pandemic (industries listed using the North American Industry Classification System (NAICS) codes).
Most of the changes went into effect on September 8, 2021, but applicants requesting more than $500,000 had to wait until October 8, 2021 for the SBA to begin approving.
As a small business owner, you have access to more funds after this update and can also use those funds for debt payments.
However, you may not use the funds to expand your business, make prepayments on a federal loan, or start a new business.
EIDL Loan Terms
Unlike the Paycheck Protection Program (PPP), the EIDL is a loan and must be repaid.
Here’s a refresher of the loan terms in the EIDL program:
- Loan terms: 30 years
- Maximum loan amount: $2 million
- Interest rate: 3.75% fixed for businesses; 2.75% fixed for private nonprofit organizations
- Payment deferment: Automatically deferred for 24 months with interest accruing during the deferment period
- Prepayment penalty: None
- Collateral: Required for loans greater than $25,000
- Personal Guaranty: Required for loans greater than $200,000
Who Should Apply for a Loan or Loan Increase?
If you’re a small business owner struggling to cover ordinary business expenses due to the pandemic and you meet the eligibility requirements, you should consider applying for a COVID EIDL loan.
The program provides borrower-friendly financial assistance for small businesses impacted by the pandemic in the form of a low-interest long-term loan.
The SBA defines a small business as a business or agricultural enterprise with fewer than 500 employees, including affiliates.
Some businesses in industries that were the most impacted by the pandemic may apply for the program even if they have more than 500 employees. You can view the complete list of qualifying industries by their NAICS codes on the loan eligibility screening page.
To be eligible for the program, your business must be physically located in the United States and have experienced working capital losses due to COVID-19.
Here are some additional eligibility requirements you should know:
- The business must have been in operation on or before January 31, 2020.
- The business must have a valid IRS-issued Taxpayer Identification Number (TIN).
- Owners, members, or partners that own more than 20 percent of the business must be U.S. citizens, non-citizen nationals, or qualified aliens with a social security number.
If you’ve already applied for or already have an EIDL advance, you can submit a request for a loan amount increase. You may do this if you have business debt you need to pay or if your total economic injury is greater than $500,000.
Understanding Your Maximum Eligible Loan Amount
The COVID EIDL program determines how much money you can apply for based on how long you have been in business.
If your business was in operation on or before January 1, 2019, then you can use the following formula to calculate your maximum eligible loan amount:
Maximum Eligible Loan Amount = (2019 Gross Sales - 2019 Cost of Goods Sold) x 2
The SBA internally calculates the maximum eligible loan amount for businesses started after January 1, 2019 (but before January 31, 2021).
Requirements for Loans Greater Than $500,000
If your economic injury is greater than $500,000, you can apply for a higher amount. The SBA will perform a cash flow analysis on your business to determine your loan amount.
For loans of $500,000 or lower, you must meet a minimum credit requirement of 570. However, if you plan to apply for more than $500,000, you need a minimum credit score of 625.
Additionally, for loans larger than $500,000, you must sign a UCC-1 statement (Universal Commercial Code-1) and put up business real estate as collateral.
A UCC-1 ensures that lenders (the SBA in this case) will be paid if you default on your loan or file bankruptcy. It’s a public statement showing that the SBA can claim your business property if you don’t pay your loan.
How To Apply for an EIDL Loan Increase
Both new applicants and those with existing loans can apply for funds from the SBA loan program.
Those with existing applications should request a loan increase instead of submitting another application. In other words, make sure you submit one loan application per business.
If you already have an EIDL loan, you can follow these steps to submit a request for a loan increase under the higher loan limits update:
- Log in to your SBA portal account (do not create a new application).
- In the Status section of your dashboard, select Request More Funds.
- Answer questions in the portal.
- Submit any required documents.
- Enter your loan increase request amount.
How To Apply for a New Loan
If you qualify for the EIDL program but don’t already have an application or a loan, you can apply as a new applicant.
Here are the steps to follow for submitting a new EIDL application.
- Complete the Intake Form.
- Sign up for the SBA portal (you’ll receive an email invite after completing your intake form).
- Complete the portal steps.
- Submit all relevant documents (listed at the bottom of this section).
- Respond to SBA requests for signatures, confirmations, or additional documents.
You can speed up the process by ensuring you have your tax information handy when you get started. Altogether, the process shouldn’t take more than an hour.
How To Apply Through Email
The best way to request more funds is through the SBA portal. However, if you don’t see the Request More Funds button on your dashboard, contact the SBA via email.
Send an email to CovidEIDLIncreaseRequests@sba.gov, and type “EIDL Increase Request for [Your 10 digit application number]” in the subject line.
Your email should include the following information to identify your business:
- Application number
- Loan number (if you’ve already been approved)
- Business name and address
- Business owner name(s)
- Phone number
Don’t include any financial documents or other attachments in your initial email. The SBA will follow up and let you know which documents they need.
Required EIDL Loan Documents
When applying for the EIDL program, you’ll need to provide several documents to help the SBA calculate your economic injury.
All loan applicants must submit the following documents to confirm federal income taxes:
- Federal income taxes
- IRS Form 4506-T (Request for Transcript of Tax Return)
- ODA Form P-022 Standard Resolution
If you’ve already filed IRS Form 4506-T for another loan program, you’ll need to file a new one for the EIDL.
For those of you applying for a loan greater than $500,000, you need to provide the additional documents:
You will also have to provide a list of the real estate you own using the intake form template.
The SBA may request additional forms from you during the application process. Keep checking your SBA portal and email accounts while waiting to hear back about your application.
What To Expect After You Apply
After you apply for your loan, you can check the SBA portal to see the status of your application. You’ll be able to see if they are processing your loan or if it has moved to the funding stage.
The decision timeline for loans less than $500,000 is three weeks. For loans greater than $500,000, it may take up to six weeks to receive a decision.
If approved, you’ll need to submit the final documents, and the funds should be dispersed within a week. However, an influx of new applications and requests for funding increases may result in disbursement delays.
Once the EIDL funds hit your account, you can use them to pay for operating expenses and business debt. All loan repayments are automatically deferred for two years following the origination of your loan. But keep in mind that interest will accrue during this time.