President Biden and the SBA Announce Significant Changes to EIDL Program

On September 8, 2021, President Biden announced the expansion of the Small Business Administration’s (“SBA”) Economic Injury Disaster Loan (“EIDL”) under COVID-19. This announcement was followed by an Interim Final Rule (“IFR”) memorializing the changes to the program which has provided low-interest loans to businesses negatively impacted by COVID-19 since March 2020.

This update has several meaningful changes, which will take effect immediately through December 31, 2021, or until funds run out. These changes are as follows:

  • Re-establishes the maximum loan amount to $2 million – although the program was always intended to have a $2 million limitation, the SBA abruptly announced in May 2020 that the cap for any individual business would be $150,000 due to fear of insufficient appropriations. Corporate groups will have a maximum aggregate cap of $10 million.
  • Adjusts the eligibility criteria to include certain NAICS codes ‘hardest hit’ by COVID-19, who have 20 locations or less and do not employ more than 500 employees per location (see below).
  • Adds two new categories of eligible uses for funds – the pre-payment of any business debt or principal and interest payments toward federal debt.
    • This is meaningful for many businesses who have existing debt at higher interest rates than the stated interest rate of the EIDL program.

If your business is interested in applying for the EIDL for the first time or applying to increase the EIDL amount received, the following are important program outlines:

  • EIDL Loan Terms:
    • Loan Amount:
      • Loans up to $500,000 is determined by the following formula: lesser of 2019 gross receipts minus 2019 costs of goods sold multiplied by 2; or $500,000.
      • Loans above $500,000 will allow the borrower to select the loan amount, subject to the SBA’s cash flow analysis as part of the underwriting process.
    • Funding uses: Working capital for operating expenses (including payroll, rent/mortgage, utilities, pre-payment of business debt, payment of business debt incurred at any time, payment of principal, and interest payments on federal loans.
    • Interest rate: Fixed at 3.75% for for-profit businesses, 2.75% for nonprofit organizations.
    • Loan term: 30 years, which includes a 2-year payment deferral plus payments for the remaining 28 years. There are no prepayment penalties.
    • Fees: Include any fees associated with filing lien’s on the businesses assets or real estate, where applicable .
    • Guaranty: Personal guaranty (“PG”) is required for loans above $200,000, except for nonprofit organizations. Any individual owning 20% or more of the applicant’s business must provide the PG. If no individual owns more than 20%, at least one owner must provide a PG.
    • Underwriting criteria: Loans under $500,000 require a minimum credit score of 570, and the borrower must be able to show repayment ability. Loans greater than $500,000 require a minimum credit score of 625.
    • Loan increases: requests for the increase can be done through the COVID EIDL portal – SBA warns NOT to file a second application, as it will delay the processing of any increases.
    • Processing: SBA expects that loans under $500,000 would take approximately 3 weeks, and loans above $500,000 would take approximately 6 weeks.
  • Eligibility Criteria – to be eligible, a business must meet one of the following:
    • Is a business (corporation, sole proprietorship, agricultural enterprise, cooperative or tribal business concern), together with all affiliates, does not employ more than 500 individuals,
    • Is a business that, based on its NAICS code, is considered to be a small business under the SBA Size Standards,
    • Is a business that, together with affiliates, has no more than 20 locations, has less than 500 employees per location, and is defined as one of the ‘hardest hit’ industries. NAICS codes that fall into this category include:
      • 61 Education Services
      • 71 Arts, Entertainment and Recreation
      • 72 Accommodation and Food Services
      • 213 Support Activities for Mining
      • 3121 Beverage manufacturing
      • 315 Apparel Manufacturing
      • 448 Clothing and Clothing Accessories
      • 481 Air Transportation
      • 485 Transit and Ground Passenger Transportation
      • 487 Scenic and Sightseeing Transportation
      • 511 Publishing Industries (except internet)
      • 512 Motion Picture and Sound Recording industries
      • 515 Broadcasting (except internet)
      • 532 Rental and leasing services
      • 832 Personal and Laundry Services
    • Note that affiliation requirements exist and are applicable based on control or in situations in which the business has a 50% or greater ownership interest in another.
  • Application Details:
    • All applications are completed online through the portal (see below).
    • Applications for loans above $500,000 will start being accepted on October 8, 2021
    • SBA will accept applications until December 31, 2021, or until funds are exhausted. The SBA also announced that they expect the number of applications and average loan size to increase with the changes to the program.

The following are links to the SBA guidance, which we recommend reviewing prior to completing the application:

If you have any questions, please reach out to your Withum advisor or contact us for additional information. As always, we will continue to monitor and report on changes.

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