SBA Places Additional Restrictions on Economic Injury Disaster Loan Program

Nelson Mullins Riley & Scarborough LLP
Contact

Nelson Mullins Riley & Scarborough LLP

In its latest move, the Small Business Administration (SBA) is applying new restrictions to the Economic Injury Disaster Loan (EIDL) program, further limiting the funds available for small businesses affected by the current crisis.

The SBA announced on May 4 that it will be limiting new EIDL loans to agricultural-based businesses only. Additionally, as multiple news outlets have reported, this move is coupled with the SBA’s new imposition of a $150,000 limit on the size of loans, which is significantly less than the original limit of $2 million that is authorized by statute and that the SBA had previously touted to the public.

The SBA has been a major source of assistance for the restoration of commerce and households in areas stricken by natural and human-caused disasters since the agency’s creation in 1953. The EIDL program has historically been used as a disaster relief fund to provide direct loans to small businesses affected by a disaster declaration. The EIDL loans are a critical component to disaster recovery efforts, as the loans provide small businesses that are not able to obtain credit elsewhere with necessary working capital until normal operations resume after a disaster. With the passage of the CARES Act on March 27, 2020, the EIDL program has been expanded to cover businesses affected by the COVID-19 disaster. The Act also loosened application requirements and provided for quicker emergency advances.

With its latest announcement, the SBA has chosen to restrict the pool of eligible EIDL recipients to only those business with an agricultural interest, which is unprecedented—as the EIDL loans have historically been available to non-agricultural businesses. The SBA notes on its website that it is focusing on agricultural businesses primarily “due to limitations in funding availability and the unprecedented submission of applications already received.” The SBA’s latest moves, taken together, signal the priorities of the administration as it figures out a way to deal with the limited pool of funds available to it.

Allocating a scarce resource, which in this case is the congressionally appropriated funds, is not an easy task, and the SBA’s actions have not come without criticism. Critics have grown frustrated with the lack of clear communication and guidelines, which appear to be constantly changing, and with the latest critique coming from three democratic lawmakers. In a letter dated May 9, Senators Charles Schumer (N.Y.), Jeanne Shaheen (N.H.), and Ben Cardin (Md.) wrote to SBA Administrator, Jovita Carranza, to express “significant concerns regarding the implementation of the Economic Injury Disaster Loan (EIDL) Program.”

The Senators note that “[t]his is an existing program that was able to immediately deliver needed capital to businesses, yet throughout the response to the COVID-19 pandemic, SBA has repeatedly made it harder for EIDL to serve struggling small businesses looking to SBA for the capital they need to stay afloat.” The Senators point to specific examples of this “mismanagement,” including the SBA’s decision to close the application portal to all non-agricultural small businesses. They note that while they agree that agricultural businesses need immediate assistance, the Senators explain that the COVID-19 stimulus bills were intended to support new loans to be made available to all eligible small businesses, “not just the newly eligible farms and agricultural businesses. This appropriations level was based on SBA’s own data indicating that it would be sufficient . . . .”

The Senators also disapprove of the decision to abruptly lower the loan cap to $150,000. They note that the SBA is “completely disregarding current law and Congress’s clear intent that, in accordance with the CARES Act, small businesses be allowed to borrow up to $2 million to respond to the COVID-19 pandemic.” By substantially lowering the cap, the Senators allege that the SBA’s “unauthorized policy change will leave the estimated four million pending EIDL applicants in limbo after expecting that SBA would process their loans in a timely manner for the amount permitted under the law.” Finally, the senators proclaim that “SBA has been inexcusably opaque when communicating its policies on EIDL. Beyond this most recent decision to cap loans at $150,000 without notifying the public, or even to acknowledge the policy once it had been unearthed by the media, it has consistently failed to update the four million EIDL applicants on the status of their loans.”

The EIDL program is not the only point of contention involving the SBA. As it has been well-documented, the SBA has also been under scrutiny for its handling of the Paycheck Protection Program, which is the more prominent small business lending program established by the CARES Act. Whether anything will come out of the Senators’ latest criticisms of the SBA remains to be seen.

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.

© Nelson Mullins Riley & Scarborough LLP | Attorney Advertising

Written by:

Nelson Mullins Riley & Scarborough LLP
Contact
more
less

Nelson Mullins Riley & Scarborough LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide