COVID-19 is a devastating virus. It has stolen lives, ruined businesses, and is well on the way to decimating entire economies. While history can’t be rewritten for some, for others, the future of their business may hinge on assistance from the Small Business Administration’s Economic Injury Disaster Loan (EIDL). These loans are based on economic injury, and the repayment terms are based on the business owner’s ability to pay.
There are two prominent stimulus programs for small businesses. One is the EIDL, and the other is the Paycheck Protection Program. Many of you may wonder if one supersedes the other. Hopefully, after reading this blog, you’ll have a greater understanding of how to apply for an EIDL, what is the difference between EIDL and PPP, and how to get professional assistance with your stimulus opportunities.
What Is the Difference Between EIDL and PPP?
There are several notable differences between an Economic Injury Disaster Loan and a Payroll Protection Program loan, including maximum loan amounts, lenders, repayment terms, collateral, and prescribed use for the funds. An EIDL is the only form of assistance from the SBA that is not limited to small businesses, so it is possible to qualify for both loans if you have up to 500 employees. Indeed, companies should apply for both. However, if you want to apply for a Paycheck Protection Program loan, you have to move quickly as the deadline is August 8.
There are also several interdependencies. For instance, an EIDL can come with a $10,000 advance grant that does not have to be paid back with the loan. If you then receive PPP funds, the $10,000 grant would be subtracted from the PPP forgiveness amount. You also are restricted from using the funds for the same purposes.
Who Is Eligible for an EIDL?
Businesses or private non-profit organizations located in a county declared a disaster or a contiguous county are eligible to apply. Business owners can take advantage of this stimulus benefit even if they have not sustained physical damage. It is designed to relieve applicants from economic injury due to the pandemic by allowing the business to maintain working capital, not to replace lost sales or revenue.
Though the maximum number of employees for a qualifying business is capped at 500, there are exceptions for some restaurants and hospitality businesses. These types of establishments may qualify if they have fewer than 500 per location, rather than overall. Churches may also apply even if they haven’t requested tax-exempt status from the Internal Revenue Service, as long as they qualify for 501(c)(3) status. Self-employed individuals, sole proprietorships, gig-economy workers, and independent contractors are all considered small businesses, as well.
There are a few considerations to bear in mind. Unfortunately, if you have unpaid child support, or you are in default on an existing or former SBA loan or any other federal loan, you will not be eligible to apply for an EIDL. The only exception is for taxes. Some expenditures cannot be paid with an EIDL, including:
- Acquisition of fixed assets
- Dividends and bonuses
- Expansion of facilities
- Owner disbursements, except when directly related to the performance of services
- Refinancing long term debt
- Repair or replacement of physical damages
- Repayment of stockholder or principal loans
How Much Can I Borrow?
Based on the severity of economic injury to the business, the loan can be approved up to a maximum of $2 million. Though the payment amount and frequency can vary, the term of the loan is capped at 30 years, and the interest rate cannot exceed 4%. There are no upfront payments required, and there are no penalties for early payment. Though this loan is not forgivable, some business owners may be eligible for the $10,000 advance grant that does not have to be repaid.
How Do I Apply for an EIDL?
To apply for an Economic Injury Disaster Loan, the SBA has created a portal specifically for this. You can check to see that your business is in a qualified disaster area, apply for the loan, and monitor your approval status. To begin your application, you must first set up an account and log in. While the application process is self-service, due to all the qualifications, restrictions, and dependencies, it is highly advisable to consult a qualified, experienced professional to apply for an EIDL.
SBA Form 5 is the application for all businesses except sole proprietors. Form 5C is the Sole Proprietor Loan Application. The SBA has supplied step-by-step instructions to help applicants through the process. There is no collateral required for EIDL loans of $25,000 or less, and personal guarantees for loans up to $200,000 are waived through December 31, 2020.
All business must supply the following:
- Personal Financial Statement
- Statement of Liabilities
- IRS 4506T form
Once you have completed the forms and attested to the truthfulness of the data you supplied, you will be able to submit the application. You can check back on the status of your application on the same site. Typically, a decision is made within 21 days from the date of the application, and funds are usually disbursed within five business days. Each applicant is assigned a loan officer for service.
Let the Experienced Professionals at Silver Tax Group Help
When your business is in crisis, the last thing you need is to try to decipher the eligibility requirements and use restrictions for EIDL or PPP loans. Failure to provide the correct or complete information could result in tax ramifications. Instead of wasting time trying to fill out unfamiliar forms, why not enlist the help of a professional?
Whether you require help getting stimulus assistance or resolving tax issues, the experienced team at Silver Tax Group is here for you. Our team has more than four decades of federal tax defense experience to help you. We work with government agencies every day to make sure our clients are fairly represented and adequately protected. For more information on our services or to find out how we can assist you, contact our office today.