April 3, 2020

Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") Economic Injury Disaster Loan Program

By Michael J. Marotte, Esq., Co-Chair of the Corporate and Business Law Practice Group

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) expanded the Small Business Association’s (“SBA”) existing Economic Injury Disaster Loan (“EIDL”) program, providing significant additional benefits to qualified businesses and certain non-profits. Pursuant to the CARES Act, the requirements for an EIDL loan have been substantially relaxed and grant money is available.

The EIDL is different and separate from the Paycheck Protection Program (“PPP”) created by the CARES Act. A business can apply for both a PPP loan and an EIDL loan but you cannot use the proceeds from both loans for the same purpose. In addition, if you accept an EIDL loan, and you subsequently qualify for the PPP loan, you can refinance the EIDL loan with the PPP loan.

In addition to a loan, the EIDL program allows for an emergency grant as an advance in an amount up to $10,000 (see below).  The advance does not need to be repaid even if the business is eventually denied the EIDL loan.  The EIDL application goes directly to the SBA (and not to a participating lender or bank as is the case with the PPP loan application). 

To qualify for an EIDL loan, the business (or private non-profit organization) must have sustained economic injury and be located in a disaster declared county or contiguous county.  Essentially, the borrower must have financial obligations which it cannot meet due to the COVID-19 pandemic. 

To qualify for an EIDL loan, certain criteria must be met.

Who is eligible:

  1. Businesses with fewer than 500 employees (with some exceptions). Note that SBA affiliation rules apply.

  2. Businesses that were in operation on January 31, 2020 (for loans pursuant to the PPP, this trigger date is February 15, 2020)

  3. Businesses that meet the SBA’s industry-based size standard requirements for its applicable NAICS code

  4. Sole proprietors, independent contractors and certain not-for-profits

EIDL loans include the following features:

  • Loans up to $2 million are available

  • There are no upfront fees or early payment penalties charged by SBA
  • The repayment term will be determined by your ability to repay the loan, up to 30 years
  • The disaster loans come with low fixed interest rates of 3.75% (2.75% for non-profits)
  • Up to $200,000 can be approved without a personal guaranty
  • Payments on COVID related loans are deferred for one year
  • Approval can be based on credit score and no first-year tax returns are required; borrowers do not have to prove they could not get credit elsewhere.
  •  No collateral is required for loans of $25,000 or less. For loans of more than $25,000, a general security interest in business assets will be used as collateral
  • The borrowers must allow the SBA to review its tax records

Emergency $10,000 grant:

  • Eligible applicants for an EIDL can receive a $10,000 emergency grant within three days of the submission of an application (through Dec. 31, 2020)
  • There is no obligation to repay the grant. To receive the $10,000 emergency grant, it is not necessary to have an approved EIDL loan. However, if you are able to secure a PPP loan, the $10,000 grant will be subtracted from the forgiveness amount

The SBA has an EIDL “Eligible Entity Verification” portal available online.  You can access it via this link: https://covid19relief.sba.gov/#/.

DISCLAIMER:  This Alert is designed to keep you aware of recent developments in the law. It is not intended to be legal advice, which can only be given after the attorney understands the facts of a particular matter and the goals of the client.