As of September 8, 2021, the United States Small Business Administration (“SBA”) significantly expanded the ability of small businesses to apply for low-interest loans through the revised COVID Economic Disaster Lending Program (“EIDL”). The program will end on December 31, 2021 or while funds are exhausted, whichever comes first, suggesting that all applicants wishing to apply should do so as soon as possible.
The COVID EIDL program is an “enhanced” version of the “regular” EIDL program that existed before (and will exist after) the pandemic. The goal of the EIDL program is to help businesses meet operating expenses and financial obligations that would have been met had the pandemic not occurred. It is intended for companies already in operation before the start of the pandemic.
Eligibility: An eligible business must meet the following criteria:
- Company location: The business must be located in the United States or a designated territory.
- Immigration status of owners:
- For-profit businesses (other than sole proprietorships): The business must have a valid IRS-issued tax identification number and each owner, member, shareholder partner of 20% or more of the business must be a U.S. citizen, non-citizen national, or qualified foreigner with a valid social security number.
- Sole proprietorships: U.S. Citizen, Non-National, or Qualified Alien with a valid Social Security Number.
- Note: As written, these requirements do not apply to not-for-profit entities.
- size of the company: The EIDL COVID size standards have been revised to include the following:
- A business that, together with its subsidiaries, has 500 or fewer employees.
- A private, non-profit organization that has an effective ruling letter from the IRS under 501 (c), (d), or (e) of the IRS Code, or satisfactory proof from the relevant state that It is a non-profit organization under state law or is a faith-based organization.
- A company which, together with its affiliates, has more than 500 employees, if it:
- is part of a list of industries identified by NAICS codes, which include educational services (61), arts, entertainment and recreation (71), accommodation and food services (72), support activities for mining (213), industry group (213), beverage manufacturers (3121). scenic and tourist transport, publishing industries (except Internet) (511), film and sound recording industries (512), broadcasting (except Internet) (515), rental and leasing services (532 ) and personal and laundry services (812);
- employs no more than 500 employees per physical location; and
- has no more than 20 locations. The 20 slot limit includes the number of slots affiliates have, if any.
- Membership rules: An affiliate is any company in which a candidate company (i) owns at least 50%, (ii) is entitled to at least 50% of profit distributions, or (iii) has the contractual authority to control the management of the company. Membership is determined on the basis of the agreements in force on January 31, 2020. Note: As written, this does not include parent entities, only subsidiaries.
- Credit score: For-profit businesses must have a minimum credit score that depends on the loan amount requested. For loans of $ 500,000 or less, a minimum score of 570 is required. For loans over $ 500,000, a minimum score of 625 is required.
- Ineligible businesses include:
- Companies not in activity by January 31, 2020 at the latest (“in activity” includes companies that were in the organization phase but had not yet opened their doors).
- Businesses in certain industries, including a business that derives more than one-third of its gross annual income from gambling, a business engaged in the distribution of tiered sales, loans, investment or development or investment real estate (other than rental properties), most state-owned nonprofits, businesses whose owners had a history of criminal activity, businesses that had income and did not report taxes of 2019 and others. Note: It is not clear exactly how the real estate disposition exclusion applies, as some of the industries specifically targeted to be supported by this program (and who are the beneficiaries of the exception to the 500 employee rule) may also involve an investment or real estate development. . We would expect this inconsistency to be explained as this program progresses.
- Companies that have filed for Chapter 7 bankruptcy are in Chapter 11 liquidation and / or are permanently closed. Note: Businesses operating under a reorganization plan approved under Chapters 5, 11, 12 or 13 are eligible.
- If the business has experienced a change of ownership greater than 50% since the start of the pandemic, the business is not eligible for the EIDL loan unless the change concerns a close family member or partner, or the sales contract existed before January 31, 2020.
- PPP: If the company had received a PPP loan, that alone does not disqualify the company from the program. The company can use EIDL funds to repay the PPP loan (or other loans obtained from the government).
EIDL loan conditions:
- Loan limit: The maximum loan amount has been increased from $ 500,000 to $ 2 million per business. The overall loan limit for entities within the same corporate group (defined on the basis of majority ownership) has been raised to $ 10 million. Businesses that have obtained previous EIDL loans can apply for an increase in their loan amount.
- Interest: For for-profit companies, the interest rate will be 3.75% over a fixed 30-year amortization period. For nonprofits, the interest rate will be 2.75% over a fixed 30-year amortization period.
- Amortization: Payments are deferred for the first 24 months from the original loan closing date, during which payments will accumulate, and then principal and interest payments must be made on the remainder of the loan. There are no penalties or prepayment charges. In addition, the requirement for credit elsewhere will be removed.
- Use of funds: The EIDL loan can be used to finance working capital necessary to operate the business and for expenses necessary to mitigate the specific economic harm caused by the pandemic. This includes expenses and debts such as working capital, past business debts (for example, mortgages and credit card debts), payroll, maintenance of health care benefits, rent, rent, maintenance, utilities and fixed debt payments. EIDL loans cannot be used to expand the business. The EIDL loan can be used to fund continued renovations, but not new renovations to expand the business or to pay off debts owed to a federal agency.
- Rising: The SBA will allocate the loan amount on the basis of the following criteria.
- If the loan amount requested is $ 500,000 or less: For applicants active before January 1, 2019, the lesser of (i) double the company’s 2019 gross income less 2019 cost of goods or (ii) $ 500,000 (whichever is less). If the business was not in business on January 1, 2019, the SBA will calculate the maximum loan amount.
- If the loan amount requested is greater than $ 500,000: The SBA will take out the loan on the basis of a cash flow analysis. The maximum loan amount is $ 2 million per business.
- Guarantee: A personal guarantee is required for all loans over $ 200,000 by all owners at 20% or more and all general partners and executive members, regardless of percentage of ownership. If no owner owns more than 20%, at least one natural or legal person must provide a full guarantee. No collateral is required for non-profit organizations or ESOPs.
- Collateral: No collateral is required for loans up to $ 25,000. For loans over $ 25,000, the SBA uses a general collateral agreement to secure the collateral. The designated collateral consists of existing business assets, such as machinery, equipment, fixtures, furniture or similar goods. Businesses don’t need to find new guarantees, and guarantees do not include real estate or personal guarantees. The collateral will be subordinated to the previous debt (including mortgages). For loans over $ 500,000, the SBA also requires the best mortgage available (that is, subject to any existing mortgage in place) on real estate owned by the borrowing company.
- Pardonable: The EIDL loan is non-repayable, however, as long as the borrower receives an EIDL advance (which can be up to $ 15,000), this amount does not need to be repaid (although it can be deducted from any amount that may be subject to a discount under the PPP).
- Exclusive period and calendar: From September 8e, 2021, the SBA accepts applications for loans below and above $ 500,000. The SBA will begin approving loans over $ 500,000 on October 8, 2021. The SBA plans to review applications within three weeks for applications under $ 500,000 and within six weeks for applications over 500. $ 000. For applicants who plan to apply for less than $ 500,000 and then request a subsequent raise if approved for the initial application, the timeframe should be approximately nine weeks in total, resulting from the addition of three weeks for the initial request and six weeks for the subsequent request. request.
How to register:
- Existing recipients: for existing recipients, the company must use the same portal connection. For businesses that have previously submitted a 4506-T form for an SBA loan or grant, the business must submit a new version of the 4506-T form to apply for the revised EIDL loan program or for a loan increase. The recipient will then receive a link by email and can follow the instructions from there.
- New candidates: To apply for the loan, businesses must submit a signed and dated 4506-T form. This form authorizes the IRS to release business tax transcripts to the SBA in order to verify business income.