CARES Act Expands the Availability of Economic Injury Disaster Loans and Provides for Emergency Cash Advances

Cohen Seglias Pallas Greenhall & Furman PC
The economic injury disaster loan program (EIDL) is an existing loan facility operated by the United States Small Business Administration (SBA) under Section 7(b) of the Small Business Administration Act of 1953 (SBA Act). The purpose of the EIDL program is to extend low-interest credit to small businesses that are impacted by disasters. The availability of the EIDL program historically has been based upon the declaration of a disaster in a state or region that is approved by the federal government.

Under the terms of the Coronavirus Preparedness and Response Supplemental Appropriations Act, the coronavirus pandemic was declared a disaster, allowing affected businesses to apply for an EIDL. The recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act) modified the EIDL program, increasing the amount of funds appropriated to the SBA, relaxing the requirements to qualify for an EIDL, and providing for a $10,000 advance from the SBA within three days of a completed application by a qualifying business. This cash advance will not need to be repaid, even if the qualifying business is denied an EIDL.

Small Businesses Qualified to Apply for an EIDL

A business is qualified to apply for an EIDL if it falls within any one of the following categories:

  1. A business that has 500 or fewer employees
  2. Individual who operates under a sole proprietorship or as an independent contractor
  3. Cooperative business with 500 or fewer employees
  4. Employee stock ownership plan, commonly referred to as an ESOP, with 500 or fewer employees
  5. A tribal small business concern, as defined under the SBA Act, with 500 or fewer employees
  6. A business, including a business with more than 500 employees, that is deemed a small business under the SBA Size Standards
  7. A private non-profit organization that is granted tax exemption under 501(c), (d) or (e) of the Internal Revenue Code

In addition, the business must have been in existence as of January 31, 2020.

Emergency Cash Advance

The CARES Act establishes that a qualifying business may request an emergency advance of not more than $10,000 when it applies for an EIDL. The advance payment is disbursed by the SBA within three days from receipt of the EIDL application. The CARES Act requires that the cash advance be used for one of the following purposes: providing sick leave to employees, maintaining payroll, meeting increased costs to obtain materials, making rent or mortgage payments, or repaying obligations that cannot be met due to revenue losses. The applicant is not required to repay the advance, even if the business is subsequently denied an EIDL. However, if the business receives a Paycheck Protection Loan under the CARES Act, the cash advance will be subtracted from the amount of the Paycheck Protection Loan that is eligible for loan forgiveness.

EIDL Payment Terms

The amount of an EIDL can be up to $2,000,000, with the amount based upon the economic injury suffered by the business as a result of the disaster. The interest rate is 3.75% for a small business and 2.75% for a non-profit. The maximum term of an EIDL is 30 years. The SBA will determine the repayment period and monthly payments based upon the applicant’s financial condition. An EIDL will not be forgiven by the SBA. Loans with a principal balance in excess of $25,000 must be secured by some form of collateral. The CARES Act, however, waives the requirements for a personal guaranty when the EIDL is less than $200,000.

Purpose of an EIDL

The proceeds for an EIDL are to be used to meet working capital needs. The EIDL may be used to pay fixed debts, payroll, accounts payable, and other operating expenses that cannot be paid because of the disaster’s impact. EIDL proceeds cannot be used for the following purposes: expanding business operations, paying cash dividends and/or bonuses, or disbursing payments to officers and owners unless those payments are directly related to the performance of services for the business.

Applying for an EIDL

The EIDL program is administered directly by the SBA, and there is no fee to apply. The SBA established a streamlined procedure for a business to apply for an EIDL and request a cash advance through the SBA website.


The loan programs that the federal government is offering small businesses in response to the COVID-19 pandemic are rapidly evolving as the SBA and participating lenders develop procedures for applying for these loans and verifying eligibility. It is anticipated that there will be a very strong demand from businesses seeking to take advantage of these programs. It is recommended that you contact the financial institution that you work with as soon as possible in order to determine if it is participating in CARES Act loan programs and which procedure the financial institution has adopted for loan applicants. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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