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More help for small businesses: Economic injury loans

By Tom Reems April 3, 2020, 01:58 pm MDT

Beyond the Paycheck Protection Program, the other stimulus program for which small businesses are eligible is the Economic Injury Disaster Loan (EIDL) program.

Under this program, the Small Business Administration (SBA) will make loans directly to small businesses that can be used for working capital (including fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster's impact). The SBA makes these loans directly (rather than through banks) and, unfortunately, unlike the Payroll Protection Program, they are not forgivable. The advantage is that they can be used for a much broader category of expenses.

What is the eligibility period?

The EIDL eligibility period ends December 31, 2020.

What businesses are eligible for an EIDL? 

EIDLs are generally available to a business (including a sole proprietorship, independent contractor, self-employed individual, or a qualifying nonprofit organization) if it meets the existing SBA standard for a small business or as an employee headcount that is lower than the greater of: (i) 500 employees; or (ii) the employee-size standard, if any, under the applicable NAICS Code which, depending on the specifics, may be as high as 1,500 employees.

What affiliation considerations are related to "small business" eligibility?

Pursuant to the SBA's "affiliation rules," applicants for EIDL loans must include their affiliates when applying size tests to determine eligibility. Accordingly, employees of other businesses under common control will be counted toward the maximum number of permitted employees. The affiliate rules are difficult to apply, and you should talk to a lawyer to consider how they apply to you.

How much can be borrowed? 

Up to US$2 million.

What collateral and guarantees are required?

No collateral or owner guaranty is required during this emergency period.

What can the EIDL proceeds be used for?

Proceeds can be used for working capital (including fixed debts, payroll, accounts payable, and other bills that cannot be paid because of the disaster's impact). Proceeds may not be used for refinancing of long-term debt, expanding facilities, paying dividends or bonuses, or relocation.

Can loan payments be deferred?

EIDL borrowers may defer payment of remaining principal, interest, and fee balances for at least six months and up to one year after any loan forgiveness. 

What is the maturity and interest of the loan?

EIDLs have variable maturity dates and have a maximum interest rate of 4 percent.

Where can you apply for EIDLs?

The application process is open now. You can apply directly from SBA directly online.

Can I get an advance on my EIDL? 

Yes. An applicant for an EIDL may receive, within three days after applying, an emergency advance of US$10,000. If the application is denied, the applicant is not required to repay the US$10,000 advance. The US$10,000 advance can be used for payroll costs, increased material costs, rent or mortgage payments, or for repaying obligations that cannot be met due to revenue loss.

Can I roll the loan into the Payroll Protection Program?

Companies that have an EIDL may refinance it through the Payroll Protection Program. The loan proceeds from the two loans may not be used to cover the same expenses. There is some uncertainty in the rules about whether the EIDL portion of a loan is forgivable after it is rolled into a Payroll Protection Program loan, and we expect more guidance on this point -- consult your PPP lender and the SBA when applying.

Tom Reems is an attorney at Squire Patton Boggs in Denver. For more information contact thomas.reems@squirepb.com or keith.bradley@squirepb.com in Denver; or pablo.carrillo@squirepb.comkirk.beckhorn@squirepb.com, or karen.harbaugh@squirepb.com in Washington, D.C.

This article does not constitute legal advice and no attorney-client relationship is formed with Squire Patton Boggs by virtue of this article.

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