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SBA’s Economic Injury Disaster Loans (EIDL) Explained

The SBA Economic Disaster Injury Loan (EIDL) is distributed to non-farm private sector businesses affected by natural disasters and similar unpreventable economic downturns. Unlike the other SBA loan programs, the EIDL loan program is not only limited to small businesses.


The maximum EIDL loan amount is normally $2 million with an interest rate of 3.75% for small businesses and an interest rate of 2.75% for nonprofits. The loan term is up to 30 years.


However, due to the COVID-19 pandemic and overwhelming demand, the SBA has capped the EIDL loan amount at $150,000, with payments being deferred for one year.


Uses


The EIDL loan helps to keep your business running during disasters by providing working capital. Once the money is received, you are mostly free to use the money on the necessities that will keep your business running, such as payroll and making interest payments.


You cannot use the EIDL loan for:

  • Dividends and bonuses

  • Disbursements to owners, except when directly related to performance of services

  • Repayment of stockholder/ principal loans

  • Expansion of facilities or acquisition of fixed assets

  • Repair or replacement of physical damages

  • Refinancing long term debt

  • Relocation

It is important to note that the EIDL loan is not forgivable.


Eligibility


The EIDL’s primary qualification is to show that your business has suffered economic injury during a large crisis, such as the COVID-19 pandemic.


Unlike other SBA loan programs, the SBA EIDL program is not only limited to small businesses and you do not need to prove that you cannot receive funding from other sources to be approved for EIDL.


The following entities are eligible for EIDL:

  • Businesses with 500 or fewer employees

  • Sole proprietors

  • Independent contractor

  • Private non-profit organizations

  • Tribal businesses

Typically, SBA loan applicants need above-average personal credit to qualify. For loans of $25,000 or less, no collateral is required. For loans above $25,000, general security interest in business assets will be used for collateral instead of real estate.


COVID-19 Notice: Agricultural businesses with 500 or fewer employees are now eligible for EIDL loans.


Conclusion


EIDL loans are used by businesses that have been affected by natural disasters, such as floods and hurricanes. The extent to which the EIDL program will be stretched due to the COVID-19 pandemic is unprecedented.


The federal government has authorized several rounds of additional funding to be allocated to the EIDL program. On April 24, 2020, the CARES Act directed an additional $10 billion in funding to the EIDL program.

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