The U.S. Small Business Administration (SBA) announced major modifications to the COVID-19 Economic Injury Disaster Loans (EIDL) program, including raising the loan cap from $500,000 to $2 million and adding business debt payments to the list of ways businesses can use the loan proceeds.
The SBA said it was implementing the changes to make it easier for the small business communities still reeling from the pandemic to be able to access the more than $150 billion in funding available for loans.
The following key changes are effective immediately:
The COVID-19 EIDL program, which runs through Dec. 31, offers 30-year loans with fixed interest rates of 3.75% for small businesses, including sole proprietors and independent contractors, and 2.75% for not-for-profits.
The SBA also expands 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.
The new rule allows COVID-19 EIDL recipients to use loan proceeds to make debt payments including monthly installments, deferred interest, and pre-payment on business debt. The same payments, except for pre-payments, are now permitted on loans from federal agencies (including the SBA) and licensed Small Business Investment Companies (SBICs).
COVID-19 EIDL recipients may use loan proceeds to pay debt incurred both before and after submitting the loan application. Previously, the funds could be used only for working capital needed to sustain the business until it could resume normal operations.
The SBA did add a new regulation limiting entities that are part of a single corporate group to receive a combined total of no more than $10 million in COVID-19 EIDL loans. For purposes of this limit, entities are part of a single corporate group if they are majority owned, directly or indirectly, by a common parent.
The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.