Overview of Enhancements
Here’s What You Need to Know:
The upgraded COVID-19 Economic Injury Disaster Loan (EIDL) program runs from September 8, 2021, through year end. Unlike PPP, this is a loan to be paid back but it is also laden with numerous incentives and benefits to the borrower. It offers 30-year terms, an initial deferred payment option and has a fixed interest rate of 3.75% for small businesses including sole proprietors and independent contractors, and 2.75% for non-profits.
The EIDL program is open to new loans and add-ons to existing loans. See the SBA program FAQs for a clear walkthrough of eligibility requirements, covenants and conditions.
- Quadrupling Loan Cap (More Money): The original loan cap has been increased from $500,000 to $2 million. However, the SBA will focus on processing loans under $500,000 through October 8, 2021. After that date, larger loans are available.
- Upgrading Use of Proceeds (More Options): In addition to any normal operating expense, EIDL proceeds can now be used to service debt payments and even prepay federal business debt.
- Extending Deferred Payment Period (More Liquidity): The original and quite generous deferral allowed a borrower the option of waiting 18-months before making interest and principal payments. That option is now 24 months, providing even more near-term liquidity.
- Qualifying More Businesses (Larger Employee Limit for Select Industries): The current 500 or fewer employee limitation is modified for specific industries deemed hardest hit under the pandemic. Under the new rule, certain companies with fewer than 500 employees per location and fewer than 20 locations may now qualify. The qualifying businesses have a NAICS code beginning with 61, 71, 72, 213, 3121, 315, 448, 451, 481, 485, 487, 511, 512, 515, 532, or 812
What About Collateral & Personal Guarantees?
- For any loan over $25,000, a UCC lien against business assets is required. The SBA is not stepping in front of any existing secured creditor. It is merely acting as any lender would to ensure its right of claim.
- For loans over $500,000, the SBA seeks best available mortgage on any real estate holdings. This should not interfere with any existing mortgages. Like any bank, the SBA is simply seeking additional security.
- As with almost all SBA loans, individuals or entities owning 20% or more are asked to provide a personal guaranty. If no 20% owner exists, at least one guarantor is required.
- It is our recommendation that those providing the guaranty, consider whether seeking some value for the risk is warranted from either the company and/or other owners who are not participating in the guaranty but clearly benefiting from the guarantor’s commitment.
Need more help?
Contact Harney Partners. We have a 30+ year history of serving companies as a financial advisor in a host of technical and operational areas.
Links & Sources of Guidance
- COVID EIDL Sep 8, 2021, Program Updates
- FAQ for COVID EIDL Loans as of Sep 8 2021
- COVID-19 ECONOMIC INJURY DISASTER LOAN APPLICATION
- What happens if my loan application is denied?
- How can my business spend my economic injury disaster loan?
