On March 6, 2020, Congress passed an act deeming the COVID-19 pandemic a disaster eligible for the SBA’s Economic Injury Disaster Loan (“EIDL”) Program.  On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, providing significant relief provisions for small businesses, including user-friendly modifications to the EIDL Program.   

This client alert briefly summarizes certain provisions which greatly expand, for the period between January 31 and December 31, 2020 (the “Covered Period”), the number of businesses which may be eligible for loans under the EIDL Program. Given this subject’s urgency and the complexity of this new legislation, this is simply a short summary to provide you a starting point for exploring relief which may be available to you. Check with your attorney at ECJ for the critical details governing any aspect of these new laws which may be helpful to you.

NOTE: Loans under the EIDL Program have more stringent requirements than, and do not offer some of the loan benefits offered under, the CARES Act’s separate Paycheck Protection Program, which is summarized in a separate client alert available here: CARES Act: Paycheck Protection Program Loans

• Eligible Businesses: Businesses (i) directly affected by the COVID-19 crisis, or (ii) that offer services directly to such affected businesses, or (iii) are indirectly related to businesses that are likely to be harmed. The CARES Act waives the EIDL requirement that a business be operating for at least one year, provided that it was in operation on January 31, 2020.  
• Use of Loan Proceeds: For certain qualified costs, including: (i) payroll costs (e.g., vacation, parental, family, medical, sick leave; allowances for dismissal or separation; payments for group health care benefits; and retirement benefits), (ii) fixed payments on debt, (iii) accounts payable, and (iv) other extraordinary expenses caused by the disaster. (NOTE: A business can apply for loans under both the Paycheck Protection Program and the EIDL Program provided their proceeds are not for overlapping expenses, e., no “double dipping”.)
• Maximum Loan Amount: Up to $2 million, with the SBA determining the actual loan amount based on its judgment of need.
• Terms: Interest rate of no more than 3.75% (2.75% for nonprofits); no borrower fees; maturity date up to 30 years.
• Guarantees/Collateral: Guarantees required from any 20% or more owner for loans over $200,000. Collateral required for any loan over $25,000; but a loan won’t be denied for lack of collateral; rather, the business must pledge whatever collateral is available.
• Debt Service Deferral: Debt service payments may be deferred for one year. NOTE: Unlike the Paycheck Protection Program, the EIDL Program has no provision for any loan forgiveness. However, a loan under the Paycheck Protection Program may be used to refinance/repay other debt, including debt under the EIDL Program.
• Underwriting: Must have an acceptable credit history and ability to repay the loan, both as determined by the SBA. The SBA may approve based solely on credit score or may use alternative means, including requiring additional information.
• Emergency Advance: In addition to the modifications to the EIDL Program, the CARES Act also creates a new emergency grant for small businesses and private non-profits.  Within 3 days of making an EIDL application, the SBA will make an emergency advance of up to $10,000, which would not have to be repaid  regardless of approval of the application.
• Where to Apply: Directly through the SBA at: https://disasterloan.SBA.gov/ela

Ken Luer is the Chair of the Business & Corporate Law Department of Ervin Cohen & Jessup LLP and Yasmin Azodi is an Associate in the Business & Corporate Law Department.