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economic injury disaster loans

The good news about the Economic Injury Disaster Loan (EIDL) program is that the interim stimulus bill replenished the program’s depleted coffers with $60 billion in additional funding. The bad news: because the Small Business Administration (SBA) still had a lot of applications in the pipeline when the money ran out, it reopened the EIDL program only to agricultural businesses, who just became eligible for the loans and grants. (Colorado, South Dakota and Texas have reopened their EIDL programs to non-farm businesses in certain counties affected by drought, flooding and adverse weather, respectively).

Long before the coronavirus pandemic, the EIDL program was providing financial support to small businesses and private non-profit organizations that encounter certain declared disasters. But the Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded the program to make it easier for borrowers affected by COVID-19 fallout to get a loan. The legislation also authorized $10,000 advances that are forgivable if the proceeds are spent on payroll.

If you were able to submit your EIDL application before the SBA stopped taking them, it is in a first-come, first-served line. If you haven’t applied yet, you’ll need to submit your applications directly to the SBA once and if the program reopens. In the meantime, note that you may be eligible for other aid programs in addition to the EIDL. Check out our guide to business relief and state-by-state guides to relief programs. Now may also be a good time to talk to a financial advisor.

What Is an Economic Injury Disaster Loan (EIDL)?

An EIDL is a loan of up to $2 million (though the New York Times reported that the SBA is unofficially capping the amount at $150,000 due to the high volume of applications it has received). With a maturity of up to 30 years, EIDLs are designed to help carry businesses through tough times caused by a disaster, such as the COVID-19 pandemic. These funds are intended to cover payroll and other operating expenses that the business could have otherwise met in a non-disaster economy. Funds cannot be used for refinancing, making loan payments on other federal debts, to repair physical damages, to pay IRS tax penalties or to pay out dividends.

Specific loan amounts depend on the amount of economic injury that a business has suffered. This amount is determined by the SBA on a case-by-case basis after a business applies. Recently, however, the SBA announced that due to the surge of applications, it is limiting disbursements to $15,000 for two months – and it is reportedly capping total loan amounts at $150,000.

Interest rates on EIDLs can be as high as 3.75% for companies and 2.75% for nonprofits. Principal and interest payments of EIDLs can be deferred for up to one year. Typically, EIDLs are available to businesses and private nonprofits.

Emergency EIDL Grants and Advances

The new bill includes another $10 billion for the SBA to provide businesses with quickly accessible advances of $10,000. Businesses that use these funds to help pay for paid leave, payroll, COVID-19 related costs and more will see the advance become a grant. Once this happens, the business will no longer need to pay back the advance they received. In addition to the cap for initial disbursements, the SBA recently announced that the advance is limited to $1,000 per employee, meaning you need at least 10 employees to receive the full $10,000 advance.

Emergency EIDL grants are available within three days of submitting an application to the SBA.

Grants can be used by small businesses for a number of purposes. These include providing paid sick leave, payroll, meeting production costs, paying rent or mortgages on business spaces and anything else to help with the continuity of the business.

In order to be eligible, companies must have been in business by Jan. 31, 2020. These grants are available to all businesses and organizations that are eligible for EIDLs.

Who Is and Isn’t Eligible for an EIDL?

economic injury disaster loans

In the past, EIDLs have been available only to small businesses and private nonprofit organizations. They are also accessible on a solely case-by-case basis to businesses affected by more specific business disasters in a particular state or city.

Thanks to the CARES Act, EIDLs are now available to small businesses with 500 employees or less, nonprofits, tribal businesses, cooperatives, employee stock ownership plans (ESOPs), sole proprietors and independent contractors. The new bill adds farmers and ranchers whose enterprises employ 500 or fewer people.

There are some specific things that may disqualify a business for EIDL eligibility. Applicants will be turned away if they:

  • Are engaged in illegal activities
  • Derive revenue from sexual depictions or products
  • Derive more than a third of their annual revenue from gambling activities
  • Are in the business of lobbying
  • Are a government entity

How to Apply for an EIDL

Once the program reopens, applying for an EIDL is quite straightforward. You’ll need to visit the SBA website first and note what type of business you’re operating. You then need to verify that you aren’t disqualified for a loan based on the eligibility criteria above.

Following this, applicants must compile and enter basic information about their business, such as operating expenses, revenue, business names, contact information and employee information. You’ll then note whether you’d like to receive a grant, along with listing your bank account details. The SBA typically takes 18 to 21 days to process the loan and then two to five days to disburse the funds.

Effect of the Coronavirus on EIDLs

The CARES Act was signed into law by President Trump on March 27. This bill provides economic stimulus in multiple ways, including for EIDLs. The bill allocated $562 million to the EIDL program, which quickly ran out. The program has since received another cash infusion of $60 billion.

The EIDL program has been expanded to be available to more kinds of businesses. It also provides cash advances up to $10,000 that are forgivable.

The Paycheck Protection Program (PPP) and EIDLs

The Paycheck Protection Program (PPP) has a total $659 billion worth of funding  allocated by the last two stimulus bills. The program provides eligible businesses, sole proprietors, independent contractors and self-employed individuals with potentially forgivable loans of 2.5 times their average monthly payroll costs (excluding compensation in excess of $100,000 per employee), up to $10 million.

The PPP will forgive businesses up to eight weeks’ worth of its payroll costs. It will also forgive eight weeks of non-payroll costs (i.e., rent, mortgage interest and utilities), up to 25% of the loan amount. Loans terms include a 1% interest rate, a two-year maturity period and a six-month payment deferral.

The PPP ties into the EIDL program because businesses and organizations that received EIDLs between January 31, 2020 and April 3, 2020 have the option to refinance their EIDL into a PPP loan if they used the EIDL to cover payroll costs. If the business received an emergency EIDL grant, that amount would be subtracted from the forgiven PPP loan amount.

Bottom Line

economic injury disaster loans

Economic Injury Disaster Loans, or EIDLs, are meant to help businesses and organizations get through any type of economic crisis or disaster. The low-interest loan  enables businesses to continue functioning as they weather an economic storm.

In the case of the coronavirus pandemic, the EIDL program has been expanded. EIDL advances, which can become grants, along with the ability for borrowers to refinance their EIDLs into PPP loans, seek to help more businesses keep their doors open and employees on their payroll.

Tips for Small Business Planning

Photo credit: ©iStock.com/10255185_880, ©iStock.com/sorbetto, ©iStock.com/shutter_m

Sam Lipscomb, CEPF® Sam Lipscomb is a writer for SmartAsset. His work spans a wide variety of personal finance topics with expertise including retirement, investing and savings. He is particularly well versed in credit cards. Sam has been featured in The Economist and on The Points Guy. He is a Certified Educator in Personal Finance (CEPF®). Sam graduated from Kenyon College with a degree in Economics and enjoys being a go-to resource for family and friends when it comes to personal finance. Originally from Washington, DC, Sam loves all things aviation and is a Cleveland sports fan. He currently lives in New York.
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