The passing of the third round of COVID relief provides a much-needed extension to the SBA Disaster Loans program. More funds are being made available, the grant program is being replenished and the SBA has created a new (and hopefully more streamlined) application portal that functions much like their PPP application. Read on for the latest about the EIDL program.
What the December 2020 stimulus package means for the EIDL
As part of the original stimulus support, the U.S. Small Business Administration announced on March 12, 2020, that they would be offering low-interest Economic Injury Disaster Loans of up to $2 million to impacted small businesses. The interest rate on these loans will be 3.75% for small businesses with no available credit options and 2.75% for non-profits. With the passing of a third round of stimulus in December 2020, here’s how the EIDL program is affected.
- The application deadline for the EIDL has been extended through December 31, 2021.
- $20 billion has been allocated for additional emergency grants.
One thing to note, the EIDL emergency grants are being offered separately from the EIDL loan. You will need to apply for the grant money separately in order to receive it. Other than that, the application process for Disaster Loans currently remains the same.
Economic Injury Disaster Loan Eligibility
The CARES Act temporarily expands the eligibility for SBA Economic Disaster Loans (EIDL) with the following additions:
- Business entities with 500 or fewer employees:
- Sole proprietorships, with or without employees
- Independent contractors
- Cooperatives and employee-owned businesses
- Tribal small businesses
- Private non-profits of any size.
The SBA has been allocated an additional $20 billion for targeted emergency grants of up to $10,000 to small businesses and nonprofits affected by COVID-19 within 3-days of applying for an Economic Injury Disaster Loan. The application for the grant is not currently live, most likely to allocate funds to those that applied but did not receive it during the first round of stimulus, but is expected to be made available before the end of the month.
You qualify for the full $10,000 new targeted EIDL grants if the following criteria is met:
- Your business is located in a low-income community.
- You have suffered an economic loss greater than 30%.
- You employ no more than 300 employees.
You must also fit the criteria defined in the original CARES Act to qualify.
If you have already applied for an EIDL and met the qualifications, but did not receive the full grant or had your application denied, should be notified in the coming weeks about receiving the grant. It may be worth checking with your SBA-approved lender on the status of your application to ensure you receive the emergency grant funds.
The advance does not need to be repaid under any circumstance, even if your loan application is denied. The funds may be used to maintain payroll, pay for sick leave, cover increased production costs, or pay for operating expenses such as debts, rent, and mortgage payments. Even if you apply for an EIDL and grant, you are still eligible to apply for a Paycheck Protection Loan (PPL). Keep in mind that if you qualify, the amount forgiven under the PPL will be decreased by the $10,000 grant.
Subsidy for certain loan payments
Less specific to Economic Injury Disaster Loans but still a benefit to small business owners with SBA loans. The SBA is to pay the principal, interest, and any associated fees owed on existing Section 7(a), title V or 7(m) loans for a six-month period starting on the next payment due date. The SBA will begin making payments within 30 days of the due date and the borrower is relieved of the obligation to pay those amounts.
Overview of SBA Economic Injury Disaster Loans (EIDL)
- Direct loan from the US Department of the Treasury, via the Small Business Administration (SBA).
- Eligible applicants include: (1) small businesses; (2) non-profits; (3) owners of rental property.
- Purpose: working capital for temporary loss of revenue.
- Apply here.
- No cost to apply.
- No obligation to accept loan.
- Ineligible applicants: agricultural enterprises; religious organizations; gambling concerns.
- Loan Amount: up to $2,000,000.
- Interest Rate: 3.75% for small business; 2.75% for non-profit.
- Repayment terms up to 30 years, determined on a case-by-case basis.
- Acceptable personal credit history.
- Demonstrate ability to repay.
- Use of Funds: pay fixed debts; payroll, accounts payable; bills. (Not to supplant lost sales or for business expansion.)
- Required for loan amounts that exceed $25,000.
- Applicants will not be declined solely on the basis of a lack of collateral. However, SBA will require whatever collateral is available, which may include liens on real estate.
Disclaimer: As of March 30, 2020, the SBA has simplified the application process with a fully online application that you should apply through. The following are the typical forms that the SBA uses for disaster loans. You can use these as a preview of the type of information that the SBA may ask for as part of the application process.
- SBA Form 5 – Business Loan Application (complete within online application)
- SBA Form 413 – Personal Financial Statement, required by everyone with ownership of 20% or greater (complete within online application)
- SBA Form 1368 – Monthly Sales figures and forecasts (download form, complete, upload as PDF)
- SBA Form 2202 – Schedule of Liabilities (complete within online application)
- IRS Form 4506-T – Request for Transcript of Tax Return, required for the applicant entity and everyone with ownership of 20% or greater (download form, complete, sign, upload as PDF)
- Additional information may be required, such as business or personal tax returns, year-end and/or interim financial statements, and monthly sales figures.
What do these SBA Disaster Relief Loans mean for your small business?
The goal of these SBA disaster loans is to help businesses cover any unmanageable expenses caused by the COVID-19 outbreak. Fixed debts, payroll, and accounts payable are just a few examples of operational costs you can cover through the use of loan funds.
It can be very easy, especially in a volatile economic environment, to panic and request funding, without a firm strategy in place. Before you apply or receive money of any type, you’ll need to plan where it will be spent and how you will measure success. Doing so will benefit your long-term planning as well as your loan application, as part of the process is documenting what the funds will be used for.
Do you qualify for an SBA Economic Injury Disaster loan?
Before applying, you’ll want to check if you and your business are eligible to receive an SBA loan. Typically your eligibility is based on what your business does to receive income, your character as the owner, the purpose of the loan and where your business operates. All lenders and loan programs have unique requirements, but the following is the general eligibility criteria laid out by the SBA:
- Your credit history is good: Applicants must have a credit history that is acceptable to the SBA.
- You’re able to repay: Being a loan, you must show the ability to repay, which can be showcased through your projected cash flow statements.
- Your business is located in a declared disaster zone: The state or county where your business is physically located must be declared a disaster zone and your losses must be due to the disaster.
- Loans over $25,000 require collateral: The SBA will take real estate as collateral when it is available and loans will not be declined for lack of collateral.
- You must be a registered business, non-profit, or owner of rental property: Your business is officially registered and operates legally under federal and state laws.
- Your business falls under a certain size standard: The amount of employees or average annual receipts falls within the small business size standard for your industry.
- You are not an ineligible business: Not all businesses can apply for Economic Injury Disaster Loans. For example, agricultural businesses, religious organizations, charitable organizations, gambling businesses, and casinos are not eligible.
Updated COVID-19 SBA Disaster Loan Qualifications
With the passing of the Payroll Protection Program, the SBA has since separated COVID-19 related Disaster Loans and expanded the eligibility criteria. The following are now eligible to receive a COVID-19 Economic Injury Disaster Loan:
- You operate a business with no more than 500 employees.
- You are an individual who operates under a sole proprietorship, with or without employees, or as an independent contractor.
- You operate a cooperative with no more than 500 employees.
- You operate on an Employee Stock Ownership Plan (ESOP), as defined in 15 U.S.C. 632, with not more than 500 employees.
- You operate as a tribal small business, as described in 15 U.S.C. 657a(b)(2)(C), with not more than 500 employees.
- You operate as an agricultural cooperative, aquaculture enterprise, nursery, or producer cooperative, that qualifies as small under SBA Size Standards.
- You operate a business with more than 500 employees that is small under SBA Size Standards.
- You operate a private non-profit organization that is a non-governmental agency or entity that currently has an effective ruling letter from the IRS granting tax exemption under sections 501(c),(d), or (e) of the Internal Revenue Code of 1954, or satisfactory evidence from the State that the organization or entity is a non-profit organized or doing business under State law, or as a faith-based organization.
SBA Loan Application Checklist
To qualify for one of these loans, you will need to fill out an SBA loan application and provide specific documentation. The SBA has since streamlined the process through a fully online application, but have been experiencing outages due to the volume of applicants. It may benefit you to prepare the required documents outside of the online form and you most likely have almost everything you need already written up in your business plan and in your accounting software.
For those without a financial forecast or that have an outdated business plan, now is the perfect time to put one together. Not only will pulling together a business plan help you assemble the necessary documents to qualify for a loan, but it can also provide greater insight into your business’s financials. It’s a great time to start forecasting and monitoring your cash flow if you’re not already. It will only help you better weather this economic storm.
Here’s what you need to provide to meet the SBA Economic Injury Disaster Loan application requirements:
Everyone should apply online through the updated online application. These are the typical forms that the SBA uses for disaster loans and can be used as a preview of the type of information that the SBA may ask for as part of the application process. Additionally, having these documents prepared can help streamline your planning and forecasting process once you’ve been approved.
- Gross Revenues: Covering the previous twelve months prior to the date of the disaster (January 31, 2020).
- Cost of Goods Sold: Covering the previous twelve months prior to the date of the disaster (January 31, 2020).
- A Business Loan Application: This is SBA Form 5, but it’ll be easier to fill out using their online application.
- Personal Background and Financial Statement: Think of this as a verifiable snapshot of your personal background, including previous addresses, surnames, and any other important information you need to address upfront. The required form is SBA Form 413.
- Past Sales and Sales/Expense Forecasts: A vital piece of your application, where you establish the amount of money your company will need due to economic loss. Generally, this is shown by a decrease in income from operations or working capital, resulting in the inability to meet your obligations or standard operating payments. It may be helpful to develop a brief narrative to share alongside your filled out SBA Form 1368.
- Schedule of Liabilities: Again, you can fill this out as part of your online application. This will be an overview of all of your debts and other liabilities. If you’re not using the online application, fill out SBA Form 2202.
- Historical Tax Returns: This is required for each person that has ownership in the business of 20% or more. Fill out IRS Form 4506-T.
Additional information that may be requested:
- Historical Financial Statements: Your application may need to include historical financial statements. You should be able to export these from your accounting software, or if you use a financial reporting tool like LivePlan, you’ll be able to export them from there:
- A Profit and Loss statement (income statement) that shows monthly detail for at least the last 6 months and summaries of the past 3 years.
- A Cash Flow Statement that shows your historical cash flow for the past 3 years.
- A Balance Sheet that shows your current assets and liabilities.
- Projected Financial Statements (Forecasts) and budgets for 2020: This is where your business plan comes into play. You’ll want to produce budgets and forecasts for 2020 – ideally a best-case, expected case, and worst-case scenario for your company. This will show lenders that you’ve thought about how your business works and how you plan on using a potential loan.
- Ownership and Affiliations: A list of names and addresses of any subsidiaries and affiliates that you have a controlling interest in.
- Business Certificate/License: Your original business license or certification.
- Loan Application History: Records of loans that you’ve applied for in the past.
- Federal Income Tax Returns: Signed documents for the past three-years of personal and business income tax returns.
- Résumés: Detailed professional history of the company owner, leader or members of the leadership team.
- Business Overview and History: A brief history of your company, challenges experienced and how the loan will help your business. You’ll most likely be able to pull this information, from the company and management summary of your business plan.
- Business Lease: A copy of your business lease signed by your landlord or proof of ownership.
Get help from an advisor in your area
Free assistance with reconstructing financial records, preparing financial statements and submitting the loan application is available from any of SBA’s partners: Small Business Development Centers (SBDCs), SCORE, Women’s Business Centers (WBC), and Veteran’s Business Outreach Centers and local Chambers of Commerce.
For the nearest office, visit: https://www.sba.gov/local-assistance
Secure funding using your business plan
When you apply for a business loan, even a disaster relief loan, having clear financial and operational documents is important. If you keep your business plan alive and current, it will help you avoid putting these together on the spot. You’ll also be able to use your business plan as a management tool to track the financial health of your business.
If you find the idea of writing or updating your business plan to be a daunting task, you may consider trying out LivePlan. It’s business planning software that walks you through a step-by-step planning process and is equipped with automatic financials that don’t require complex spreadsheets or formulas. In uncertain times, such as these, you’ll be able to easily run multiple forecasting scenarios to better track your actuals against your business plan, and get the insights you need to make smart, strategic decisions.
Learn how the team at Palo Alto Software developed this living business planning tool with small businesses in mind during the last economic recession.
Additional Business Planning Resources:
While we recommend using a tool like LivePlan to make business planning simple, we also have plenty of free resources to help you get started:
Business Growth and Management Guide: Resources and templates to help you make good strategic business decisions, track financial performance and refine your strategy as you go.
How to Write a Business Plan: Writing a business plan doesn’t have to be difficult. Jump into writing your business plan today with our step-by-step guide.
Download a Free Business Planning Template: Start writing your business plan with our investor approved business plan template.
500+ Sample Plan Library: Unsure of where to start when updating or writing your business plan? Check out our library of over 500 industry-based sample plans for a better idea of what’s required for your specific business.