March 29, 2020 Update – Provisions of this relief measure were updated when the CARES Act was signed into law by President Trump on March 27, 2020
The CARES Act includes $10 billion in funding for a provision to provide advances of $10,000 to small businesses and nonprofits that apply for EIDLs within three days of applying for the loan. The EIDL emergency grant does not need to be repaid, even if the grantee is subsequently denied an EIDL, and may be used to provide paid sick leave to employees, maintaining payroll, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments. See Tronconi Segarra & Associates post on Emergency Grants here
The entities eligible for an Economic Injury Disaster Loan now include the following with 500 or fewer employees:
- Sole proprietors, with or without employees
- Independent contractors
- Cooperatives and employee owned businesses
- Tribal small businesses
- Small business concerns and small agricultural cooperatives that meet the applicable “size standard” for SBA are also eligible, as well as most private non-profits of any size.
Please visit https://www.sba.gov/size-standards/ to find out if your business meets SBA’s small business size standards. You will need the 6-digit North American Industry Classification Code for your business and your business’s 3-year average annual revenue.
Waiver of Requirements
The CARES Act waives requirements that (1) borrowers provide personal guarantees for loans up to $200,000 (2) that the eligible business be in operation for the one-year period prior to the disaster and (3) the borrower demonstrates that it is unable to obtain credit elsewhere. However, unless changed by the SBA, it appears that the requirement for collateral on EIDL loans over $25,000 would still apply, and, in processing a borrower’s application, the SBA must make a determination that the applicant has the ability to repay the loan. The SBA can also approve applicants for small-dollar loans based solely on the credit score of the applicant or other means of determining the applicant’s ability to repay the loan, without requiring the submission of tax returns.
If I get an EIDL and/or an Emergency Economic Injury Grant, can I get a PPP loan?
Whether you’ve already received an EIDL unrelated to COVID-19 or you receive a COVID19 related EIDL and/or Emergency Grant between January 31, 2020 and June 30, 2020, you may also apply for a PPP loan. If you ultimately receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven in the PPP. However, you cannot use your EIDL for the same purpose as your PPP loan. For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April. Click on the above links to see Tronconi Segarra & Associates posts on the Paycheck Protection Program and Emergency Grants.
The U.S. Small Business Administration (“SBA”) is offering small businesses[i] and most private, not-for-profit organizations suffering substantial economic injury as a result of COVID-19 in designated states and territories, low-interest, federal disaster loans for “working capital.” Working capital is considered as money to be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the impact of COVID-19. The disaster loans are not intended to replace lost sales or profits or for expansion. All eligibel businesses and private non-profits suffering economic injury in all 50 states, the District of Columbia and U.S. territories are currently eligible to apply for a low-interest loan due to COVID-19.
- The SBA Economic Injury Disaster Loans (“EIDLs”) offer up to $2 million for alleviating economic injury caused by the disaster. The actual amount of each loan is limited to the economic injury determined by SBA, less business interruption insurance and other recoveries up to the administrative lending limit. SBA also considers potential contributions that are available from the business and/or its owner(s) or affiliates.
- SBA offers EIDLs with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based on the financial condition of each borrower.
- The interest rate for the EIDLs is 3.75% for small businesses, while the interest rate for non-profits is 2.75%.
- There are a number of requirements for applicants seeking EIDLs from SBA including:
- Credit History – Applicants must have a credit history acceptable to SBA.
- Repayment – Applicants must show the ability to repay the loan.
- Collateral – Collateral is required for all EIDLs over $25,000. SBA accepts real estate as collateral when it is available. SBA will not decline a loan for lack of collateral, but SBA will require the borrower to pledge collateral that is available.
- Noncompliance – Applicants who have not complied with the terms of previous SBA loans may not be eligible.
- Applicants must compete and provide the following information to SBA:
- Completed SBA loan application (SBA Form 5 or 5C for sole proprietors)
- Tax Information Authorization (IRS Form 4506-T) – for the applicant, principals and affiliates
- Complete copies of the most recent Federal Income Tax Return
- Schedule of Liabilities (SBA Form 2202)
- Personal Financial Statement (SBA Form 413)
SBA is recommending applicants file electronically at https://disasterloan.sba.gov/ela/, although paper applications and forms are available. The EIDL funds come directly from the U.S. Treasury; applicants do not need to go through a bank to apply. There is no cost to apply and no obligation to take the loan if offered.
Additional information may be requested by SBA including the following:
- Complete copies, including all schedules, of the most recent Federal income tax return for principals, general partners or managing member and affiliates.
- If the most recent Federal income tax return has not been filed, a year-end profit-and-loss statement and balance sheet for that tax year.
- A current year-to-date profit-and-loss statement.
- Additional filing requirements (SBA Form 1368) providing monthly sales figures.
- If the applicant’s loan request is denied, the applicant will be given up to six months in which to provide new information and submit a written request for reconsideration.
- Applicants can contact the SBA customer service center at 1-800-659-2955 or email for more information on SBA disaster assistance.
Our team of CPAs and accountants at Tronconi Segarra & Associates LLP can be a great resource to assist your small business with its EIDL application and with providing and preparing the forms, returns and financial statements required by the SBA as part of the application process, allowing you to continue to focus on operating your business.
Please call or email your Tronconi Segarra & Associates advisor or email our Response Team at to discuss the SBA EIDL assistance program or other COVID-19 relief measures being implemented by Federal, State and Local authorities.[i]A size standard, which is usually stated in number of employees or average annual receipts, represents the largest size that a business (including its subsidiaries and affiliates) may be to remain classified as a small business for SBA programs. The definition of “small” varies by industry.