Federal Economic Injury Disaster Loans for Small Businesses

March 24, 2020

The coronavirus pandemic has severely restricted access to funds for many struggling small businesses. Government authorities have responded to these needs and provided some new or expanded funding options for business owners severely impacted by this disruption. While additional measures are anticipated to further assist small businesses during this time of crisis, business owners who are currently unable to pay operating expenses may wish to consider alternative funding through the Economic Injury Disaster Loan program offered by the Small Business Administration (SBA).

SBA Economic Injury Disaster Loan Program

As part of the Coronavirus Preparedness and Response Appropriations Act, the SBA has instituted the Economic Injury Disaster Loan Program. This program is now part of the SBA’s menu of existing disaster loan options and can potentially help many small businesses pay fixed debts, payroll, accounts payable and other bills that the business was unable to pay due to a disaster declaration. Unlike other SBA loan programs, Economic Injury Disaster Loans (EIDLs) are direct loans from the SBA rather than SBA-guaranteed loans through third-party lenders.

Qualifying small businesses (including small agricultural cooperatives and small aquaculture enterprises) and nonprofits located in all U.S. states and territories may receive EIDLs in amounts up to $2 million. Interest rates are fixed at 3.75% for small businesses and 2.75% for nonprofits. EIDLs have a maximum loan term of 30 years.

Eligibility under the program depends on whether the business (1) qualifies as a “small business” under SBA regulations and (2) has suffered “substantial economic injury” as a direct result of the disaster. The definition of a “small business” varies by industry but generally is based on the number of employees a business has or the amount of revenue a business generates annually. The phrase “substantial economic injury” means a decrease in income from operations or working capital resulting in the inability to pay ordinary and necessary operating expenses. Though the SBA will consider businesses on a need basis, candidates should have exhausted all other borrowing options and have no other available resources.

Similar to other SBA disaster loan programs, the application process for EIDLs may be completed online or on paper using SBA Form 5. The documents required to be submitted as part of the loan application can be burdensome and include the following:

  • IRS Form 4506T, Tax Information Authorization (for 20% owners and those who own 50% of affiliate businesses)
  • Recent federal income tax returns (for the owners and the business)
  • Company balance sheet (showing fixed debt obligations)
  • Profit and loss (P&L) statements (showing monthly sales for the last three years)
  • Personal financial information (for 20% or more owners)
  • Proof that the business and owners are current on all tax obligations
  • Proof that the owners are current on any child support obligations

The EIDL loan program involves a three-step process and the loan terms, including a determination of the loan amount, are made on a case-by-case basis based on an evaluation of the applicant’s financial information and each borrower’s capacity for making monthly loan repayments. Borrowers should receive funds approximately two weeks after the loan is approved.

If you have any questions, please feel free to contact your Marks Paneth advisor. You may also visit our Pandemic Resource Center for additional updates and guidance on the coronavirus (COVID-19).