Navigating COVID as a Business Owner

COVID has knocked the majority of businesses for a loop. Even if you are not experiencing decreased sales chances are something in your business has significantly changed. There are programs to help business owners, but what are they and how do they work? Below I break down the programs and their availability:

SBA Economic Injury Disaster Loan (EIDL)

When this article was wrote on April 29th the EIDL program was not accepting new applications

The EIDL loan was the first federal financial program available to business owners affected by COVID. It may also be one of the most frustrating for many business owners, but understanding what the EIDL program is may shed some light on the slow processing times. The EIDL program was not created in response to COVID, it is an existing program that allows small businesses in disaster areas to receive federal loans to rebuild their business. For example businesses in certain counties of Tennessee were eligible for the EIDL program in response to the Tennessee tornadoes. Because the whole U.S. was declared a disaster area in relation to COVID all of the U.S. is now eligible for the EIDL program. This is why the website was crashing in the beginning, the website was never designed to handle such a large volume of applications.

The EIDL application was modified in response to the website issues and was significantly shortened. The shortened application was not complete, the SBA is able to ask for additional supplemental information as part of the loan process.

The EIDL is a loan, no part of the EIDL is forgiven (there is a grant portion I will discuss next). The loan amount is up to $2 million for working capital and the interest rate is 3.75% for for profit businesses and 2.75% for non profit businesses. Collateral is required for loans greater than $25,000. The loan term is up to 30 years and the SBA will check the credit of applicants. Poor credit could disqualify you from the EIDL program. The loan proceeds cannot be used for refinancing prior debt, they must be used for overhead, expenses such as payroll, rent, utilities, paying vendors, etc.

Certain businesses are not eligible for the EIDL program, limitations include company size and industries. Generally companies must have fewer than 500 employees. However there are some industries in which this employee limitation is different. Historically farmers were not eligible for the EIDL program. Congress has clarified that farmers are eligible for the EIDL program and the PPP program.

How do you apply and what should you have ready? When this article was written on April 29th the EIDL program was closed to additional applications. However, the EIDL program may open back up at a later date. The initial application requests some information about the company and it's owners. It will then ask for the revenue and cost of goods sold amounts for a 12 month period ending January 31 of 2020. However you should be ready to supply additional information. Traditionally applying for the EIDL involves the following forms, we recommend reviewing these forms and making sure you have the following information available to you:

  • SBA Form 5 (SBA Form 5C for sole proprietors)

  • IRS Form 4506T, the SBA will compare your tax returns to the information you provide

  • Copies of your most recent tax return

  • Schedule of Liabilities (SBA form 2202)

  • Personal Financial Statement (SBA Form 413)

Economic Injury Disaster Loan Grant

The EIDL program was an existing program prior to COVID, but in response to COVID an additional grant was added to the EIDL program. This amount does not need to be repaid, it is a grant. The grant amount is up to $10,000 and was intended to be distributed to applicants within three business days, but the time frame has changed significantly. The grant was also later clarified to be calculated as $1,000 per employee up to $10,000. To apply for the EIDL grant you must apply for the EIDL loan and check the box that you would like to be considered for up to $10,000. Because the EIDL application is currently not accepting additional submissions the EIDL grant is not either.

SBA Express Bridge Loan

This program is not as thoroughly talked about as the EIDL or the PPP which I will discuss later. This is also a program that was in existence pre-COVID. The SBA recognized that the delay between application of the EIDL loan and the actual funding could put a strain on businesses who need immediate help due to a disaster. In response the Express Bridge Loan was introduced. The idea of the bridge loan is for small businesses to get immediate assistance while they wait for other funding such as the EIDL.

The loan amount is up to $25,000 and is facilitated through a third party lender.

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