EIDL coronavirus loans: all you need to know

Note: Until April 24, the Small Business Administration emitted $4.8 billion in advances from EIDL. However, it is now alone accepting new applications from agricultural businesses “due to limitations in the availability of funding and the unprecedented submission of applications already received”.

As small businesses continue to struggle with the coronavirus crisis, the US government is stepping in to help – sort of.

Rolling out the $349 billion CARES Act Paycheck Protection Program was difficult, to say the least. Applicants faced technical problems, stringent criteria and, in some cases, banks that already had no more money to give. Amid the confusion, desperate business owners are turning to another Small Business Administration initiative in hopes of getting some quick cash: the Economic Disaster Loan program.

Abbreviated as EIDL, it is usually associated with a natural disaster (think hurricanes, floods, and wildfires). And it has a pretty strong selling point. Through EIDL, small business owners in need can not only apply for a loan, but also receive up to $10,000 upfront. They don’t have to pay it back, and it’s supposed to be disbursed quickly.

“Free money within business days? It doesn’t get much more appealing than that,” says Ken Alozie, CEO of Greenwood Capital Advisors.

However, there have already been major problems with EIDL’s convoluted details and disastrous launch. Here’s everything you need to know.

Who is eligible for EIDL?

Businesses in all 50 states, US territories, and Washington, DC with fewer than 500 employees are eligible, as are private nonprofits and veterans’ organizations. (Some businesses with more than 500 workers may also be eligible, depending on SBA size standards for the industry.)

Applicants had to be in business by January 31.

How to apply to EIDL?

Go here.

Applicants will be judged on their credit history and ability to repay. The application also asks about gross revenues, the cost of their property, lost rent, operating expenses, the number of employees they have, and what other types of reimbursements they plan to get.

“They’ve streamlined the application process, so instead of the two hours it used to take initially, it’s now a 10-15 minute application,” says Alozie. “It’s as easy as checking a box to be considered for the $10,000 grant.”

How much can I get from EIDL?

EIDL loans are up to $2 million. Small businesses are subject to an interest rate of 3.75%, while non-profit organizations have an interest rate of 2.75%. Terms are up to 30 years.

Wait. Does EIDL provide scholarships or loans?

This is where it gets interesting. The SBA said EIDL applicants trying to survive the coronavirus outbreak can get a $10,000 emergency advance on their loans. Since this advance does not have to be repaid, some people have referred to it as a grant.

“This loan is intended to be a very quick fix to help employers now,” says Mark Baran, director of the accounting firm Marc Paneth. “They call it an advance, but it’s just, ‘Here’s $10,000, use it for what you need.'”

What can I use EIDL funds for?

The EIDL grant can be used for virtually any business purpose, according to Alozie, who is also a mentor with GOAL. Think about paid sick days, payroll, purchasing materials, paying rent, and paying off obligations. Funds are not supposed to be used for physical repairs, additions, bonuses, or long-term debt refinancing.

“These are relief funds for companies that were viable before this crisis to get them through and minimize the number of people they would have to lay off,” adds Alozie.

EIDL vs. PPP: What’s the difference?

There are a few factors that distinguish EIDL from PPP.

The first is the entity granting the loan. The SBA itself processes EIDL applications, while PPP applications must go through banks like Wells Fargo or Bank of America.

The PPP also has stricter restrictions on the use of the money. PPP loans may qualify for forgiveness later, but for this to happen at least 75% of them must be spent on payroll costs. There is no requirement like this for EIDL. (“It’s not a forgivable loan, it’s a real loan,” Baran says.)

Finally, PPP loans can be much larger than EIDL loans. The maximum PPP loan is $10 million, while the largest EIDL loan is just $2 million.

Can a company benefit from both EIDL and PPP?

Yes, you just can’t use both for the same purpose, says Todd McCracken, president of the National Small Business Association.

You can also turn an EIDL loan into a PPP loan, potentially eligible for a forgiveness and reducing the interest rate to 1%, as Sen. Bill Cassidy, R-La., explained in a recent webinar.

How long does EIDL last?

The SBA originally promised that EIDL advances would be paid out within three days of a successful application, but that doesn’t seem to be happening. McCracken says the SBA is “slammed” with demands. Senator Brian Schatz, D-Hawaii, seemed to confirm this in an article on his website.

“Overwhelming interest in the program slowed the process down,” Schatz wrote. “It is therefore difficult to estimate when the candidates will receive the advance.”

What is this EIDL hoax?

Social media, especially Twitter and Reddit — is full of irate small business owners who say they applied for EIDL weeks ago only to hear nothing back. Some of them started the hashtag #EIDLHoax to express their grievances and demand solutions.

There is even a Petition change.org with about 400 signatures called “Hold the SBA Accountable for EIDL Failures”.

McCracken warns that there are real EIDL scammers out there too. Fraudsters emailed small business owners, he says, “making themselves look like the SBA website or portal or something [and] trying to collect people’s financial information.” So be careful.

What else should I know?

Misinformation and rumors are everywhere online due to the sensitive nature of the issue and the piecemeal launch of EIDL and PPP. A prime example is the fact that on Monday, the Massachusetts District Office of the SBA job on its website that advances from EIDL were limited to $1,000 per employee up to $10,000 (as opposed to $10,000 at all levels). Meanwhile, the national SBA website continues to show that the advances are $10,000.

It makes a huge difference, especially if you are self-employed. If a business owner was planning on getting $10,000 and putting expenses on a credit card in the meantime, and all of a sudden they find out they’re only getting $1,000, they may be stuck with that debt .

Another widespread rumor is that EIDL loans can actually be capped at $15,000 for two months. The SBA did not return Money’s request for clarity on this or on the advances.

“If they’re changing the rules of the game now, it’s really tough on business planning,” McCracken said.

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