Posted by James Financial Services Inc

Breaking Down Economic Injury Disaster Loans

Breaking Down Economic Injury Disaster Loans

The latest Paycheck Protection Program (PPT) and the current Economic Injury Disaster Loans (EIDL) program are the two loan bundles that the Cares Act offers to small business owners as a financial relief, under the SBA or the Small Business Administration. As of now, the majority of the small business owners were already informed of the said bundles.

The exceptional element of the EIDL program will be tackled in this article which is called Economic Injury Disaster Loan Emergency Advance. This feature of the EIDL program sets out emergency relief of $10,000 maximum without payment, in which it becomes effectively a subsidy. Thus, an application for an EIDL is a must in order to receive the advance.

As stated by the SBA, the advance does not have to be repaid, even if the EIDL is approved or not, and it will usually be received within days after a successful application.

Qualification: The business must be situated in a declared disaster area and must be able to meet the definition and size standards of a small business.

Small Business Administration: Definition standard for small business

    •    Is organized for profit.

    •    Has a place of business in the U.S.

    •    Operates primarily within the U.S. or makes a significant contribution to the U.S. economy via tax payments or utilizing American products, materials, or labour.

    •    Is independently owned and operated.

    •    On a national basis, is not dominant in its field. 

Size standards

In order to qualify in this program and to be able to apply for the loan advance, the business must have 500 or fewer people as its employees to be considered as a small business. On the other hand, in some industries, businesses require a higher number of employees. Thus, the SBA Table of Small Business Size Standards will indicate whether the industry is permitted to have more employees. Note that for the COVID-19 EIDL, references to alternate use of receipts (income) instead of number of employees are not applicable.

Location standard

Given that the coronavirus (COVID-19) is pandemic, it is applicable to all 50 U.S. states; Washington, D.C.; and U.S. territories, basically any small business in the United States and its territories eligible by location.

Nevertheless, Sole proprietorships, independent contractors, and self-employed persons will also be covered in these standards and loan availability options.

Loan Approval Conditions

The following loan approval conditions consider a few laid-back of traditional EIDL loan provisions:

    •    A maximum of $200,000 loan is allowed without a personal guarantee.

    •    First-year tax returns are not required and approval can be based on credit score.

    •    Proving the borrower’s capacity to getting another credit is not necessary.

    •    Loans of $25,000 or less require no collateral. For loans above $25,000, a general security interest in business assets can be used.

    •    the  borrower must allow SBA to review its business tax records

What's Available?

Due to the pandemic, many businesses are currently experiencing loss of revenue, thus COVID-19 EIDLs are developed to provide economic relief for these businesses. An immediate loan advance of $10,000 is a relief provided while waiting for the proceeds of the regular EIDL loan.

In order to support working capital for expenses like fixed debt and payroll costs, businesses can apply for an EIDL loan up to $2 million with an interest rate of 3.75% and can be payable in long terms for as long as 30 years. An automatic one-year deferral on repayment will be comprised in the COVID-19 EIDL, but the moment the loan was disbursed, the interest will also start running.

Upon filling out an EIDL application request for grant must also be done. The amount of approved grant is up to $10,000, but it will be determined by the number of employees a business has in which is subject to $1000 per employee.  For instance, a business that has 3 employees will receive $3000. The grant will be deducted from the loan forgiveness amount of any PPP loan receivable and it will be received within days of the EIDL loan application, based on the SBA. As mentioned earlier the grant amount is yours and requires no payment whether the EIDL application qualifies or not.

Streamlined Application

The application for EIDL can be done with the SBA because the Small Business Administration is the one funding it. The application process is already streamlined and it will only take 2hrs and 10 minutes or less to complete.

Disclosure

There will be a disclosure section that contains details of the loan and indicates that all information obtained will be used as a basis for the eligibility of the applicant upon the beginning of the application process.  A warning will also be included, wherein the applicant must provide the information needed in order for the loan to be processed. SBA will only relay on the applicant’s self-certification of eligibility to receive the advance, thus, they are reminding that there will be a perjury penalty if the information given will be proven wrong. Once the eligibility was been verified on the disclosure page, the next step will be the Business Information section.

Business Information

The income statement of the applicant as of January 31, 2020, will be required in this section. Bear in mind that not all questions must require an answer. Only those sections with a red star mark must be filled out. Those without marked will only be answered if it is applicable to the business.

Business Owners Information

This section requires specification of the type of ownership of the business, whether it was fully owned by another business. If the business is owned by individuals, information on each owner with a 20% stake or more is required. The information needed will be the following:

    •    Social Security Number

    •    Birthdate

    •    Birthplace

    •    Citizenship status

    •    Street address8

Additional Information

Questions related to criminal charges against any owners will be embedded in this section, afterward submission of the application will be next. Do not forget to review if the box indicating you want to be considered for the up to $10,000 advance was checked. 

Furthermore, to ensure that there will be no problem with the process of direct deposit of the fund, double-check and make sure that the bank information you put is correct. 

The application form can be downloaded through the web page of SBA Disaster Assistance. The deadline for the application for the majority of the states is before December 16, 2020, though several states extend it on December 21.

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