The U.S. Small Business Administration (SBA) announced major modifications to the 2020 COVID-19 Economic Injury Disaster Loan (EIDL) program on September 8, 2021, including raising the maximum loans available from $500,000 to $2 million.
The changes are intended to make it easier for small businesses such as restaurants, gyms and hotels to get access to more than $150 billion available for loans. The COVID-19 EIDL program, which will be in place until the end of 2021, and offers 30-year loans with fixed interest rates of 3.75 percent for small businesses, including sole proprietors and independent contractors, and 2.75 percent for not-for-profits.
The now-dormant Restaurant Revitalization Fund (RRF), which appropriated $28.6 billion in April 2021 to provide grants to the restaurant industry, was referenced in the SBA announcement. RRF funding was quickly exhausted after the RRF program received 278,000+ applications seeking more than $72 billion in assistance, leaving 177,000+ businesses without assistance, which the SBA cited as evidence of the funding needs of businesses in an economy still dealing with COVID-19.
The modifications to the COVID-19 EIDL program are effective immediately and include those listed below. The new EIDL program will:
- Increase the maximum COVID-19 EIDL loan from $500,000 to $2 million.
- Permit loan proceeds to be used for normal operating expenses and working capital, including payroll, purchases of equipment and payment of commercial debt incurred both before and after a borrower’s loan application submission, and payment on federal business debt.
- Implement an extended deferred payment period for the first two years after loan disbursement, rather than EIDL’s original 18-month deferment period. Interest will accrue during the deferment period and principal and interest payments must be made for the 28 remaining years.
- Establish a 30-day exclusivity window to ensure “Main Street” businesses have additional time to access EIDL funds. There will be a 30-day exclusivity period for the approval and disbursement of loans of $500,000 or less. Approval and disbursement of loans over $500,000 will begin after this 30-day period expires.
- Simplify affiliation requirements. The COVID-19 EIDL application process for small businesses adopts the affiliation requirements of the $28.6 billion RRF. An affiliated business or affiliate is “a business in which an eligible entity has an equity interest or right to profit distributions of not less than 50 percent, or in which an eligible entity has the contractual authority to control the direction of the business, provided that such affiliation [is] determined as of any arrangements or agreements in existence as of January 31, 2020.”
- Expand COVID-19 EIDL eligibility from organizations with no more than 500 employees to businesses in the hardest-hit industries that have 500 or fewer employees per physical location, provided the business, together with its affiliates, has no more than 20 locations.
Time will tell if these EIDL funds the businesses with the greatest need.