June 23, 2020
The sudden and sharp changes made to contain the COVID-19 pandemic caught many Atlanta businesses by surprise. In a short period of time stay at home orders and forced business closures drastically changed the economic landscape. The convergence of these events created a level of uncertainty rarely experienced by business owners. To help businesses survive, the Small Business Administration (SBA) announced businesses could apply for an Economic Injury Disaster Loan (EIDL) and emergency grants. While originally meant to help those impacted by natural disasters, the criteria were changed allowing businesses to apply immediately. The program was initially successful as 70,000 loans for more than $4B dollars was issued while 148,000 emergency advances were issued for more than $468M. Although funding lapsed Congress allocated an additional $60B to program, but new applications were not accepted. On June 15, 2020, the SBA announced that new applications would be accepted. This change provides Georgia businesses with a new opportunity. To help clients, prospects, and others, Wilson Lewis has provided a summary of highlights below.
EIDL Eligibility
The program is available to small businesses, sole proprietors, cooperatives, ESOPs, agricultural companies, and tribal businesses with less than 500 employees. Nonprofit organizations designated as a 501(c), 501(d), or 501(e) and faith-based organizations with less than 500 employees are also eligible to apply. It is important to note that any business involved in illegal activities, generates more than 1/3 of its revenue from legal gambling, provides lobbying services, is a state, local or municipal government or has principal with more than 50% ownership who is 60 days delinquent with child support are ineligible.
Only those with operations prior to January 31, 2020, may apply. An applicant must be a U.S. based business including Washington D.C. or other US territory and must be able to demonstrate loss of revenue from the COVID-19 pandemic.
EIDL Terms
The maximum loan amount is $150,000 which was reduced from the original $2M with an interest rate of 3.75% for businesses and a reduced 2.75% for nonprofits. The loan term is 30 years and features various collateral guidelines depending on loan size. Loans for less than $25,000 do not require any personal guarantees. Loan approval is based on an applicant’s ability to repay the loan and corresponding credit score. Finally, the initial payment is due 12 months after disbursement and there are no prepayment penalties.
Qualifying Loan Expenses
The SBA requires that loan funds should be used to carry the business until normal operations can be restored and only expenses necessary to relieve the economic injury (COVID-19) may be incurred. The rules are very broad and offer more flexibility than the popular PPP. However certain expenses such as the payment of dividends and bonuses, repayment of stockholder loans, expansion of facilities, acquisition of fixed assets, refinancing of long-term debt, or paying down of debt-related of another federal loan is prohibited.
Application Documentation
While the requirements change between applicant and loan size, the SBA has stated specific documentation should be presented with the application. This includes information on gross revenues, cost of goods sold, lost rent (as applicable), cost of operating expenses (for nonprofits), the total number of employees, and other reimbursement received (such as business interruption payments). The documentation should be from the 12-month period prior to January 31, 2020.
EIDL Emergency Advance
Since the EIDL is administered by the Department of Treasury the application approval process can take some time. To help those in immediate need, an emergency advance equal to $1,000 per employee up to $10,000 is available for applicants. A key benefit of the advance is that it does not need to be repaid if the loan application is denied. The advance can be used to meet a number of expenses including maintaining payroll, costs to provide leave and other employee benefits, rent, mortgage, or other lease and operational obligations.
Contact Us
As the focus shifts from survival to recovery, many businesses may want to explore the EIDL as a funding source. Although conditions are improving as the state continues to reopen, businesses need to consider how future events may impact their business. If you have questions about the EIDL or need assistance with another COVID-19 issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.