Updated September 10, 2021 to include new SBA guidance.
Small business owners impacted by the coronavirus crisis may want to consider an SBA Economic Injury Disaster Loan (EIDL). These loans are attractive for several reasons, including:
- Low fixed interest rates: 3.75% or 2.75% for non-profits
- Long-term repayment of up to 30 years
- No prepayment penalties
- Payments deferred (interest accrues)
Here are answers to some common questions from small business owners about Economic Injury Disaster Loans (EIDLs). Note, we have gathered this information from a variety of SBA sources and strive to provide helpful guidance, but do not rely on this as definitive answers to your questions.
If you have questions about your individual situation or application, we recommend you call SBA Disaster Assistance at 1-800-659-2955. The call center is currently open Monday–Sunday, 8a.m. – 8p.m. ET. Resource partners such as SBDCs, SCORE and Women’s Business Centers can help as well.
In addition to the Economic Injury Disaster Loan, we encourage you to check out other resources including:
Who Are These Loans For?
Small businesses must have been affected by the COVID economic crisis. Eligible businesses include:
- A small business that meets SBA COVID EIDL size standards;
- An individual who operates under as a sole proprietorship, with or without employees, or as an independent contractor; or
- A private non-profit or small agricultural cooperative
Note that as of September 8, 2021, the SBA revised its guidance, including which businesses qualify. It clarified that an affiliate is a business that you control or in which you have 50% or more ownership. SBA created additional way to meet program size standards for businesses assigned a NAICS code beginning with 61, 71, 72, 213, 3121, 315, 448, 451, 481, 485, 487, 511, 512, 515, 532, or 812, AND that have no more than 500 employees per physical location AND that have no more than 20 locations AND that meet all other COVID EIDL eligibility requirements.
How Much Can I Ask For?
The maximum loan amount for EIDL is normally $2 million. However, due to demand the SBA initially limited loans to 6-months of economic injury with a maximum loan amount of $150,000. It later raised the limit to 24-months of economic injury with a maximum loan amount of $500,000.
More recently, though, it raised the loan amount to $2 million for businesses that qualify. Note that you will not ask for a specific loan amount on the application. The SBA will determine the loan amount for which you qualify based on the information on your application.
If you previously received a loan when the cap was lower, the SBA may have reached out to your business via email with instructions on how to request additional funds. You can also visit the SBA portal to see whether you have been extended an invitation to apply for a larger loan.
How Does the SBA Decide How Much I Get?
The SBA will calculate economic injury according to a couple of different formulas spelled out in Disaster Loan Standard Operating Procedures. According to the SBA, “economic injury” is defined as:
[A] change in the financial condition of a small business concern, small agricultural cooperative, small aquaculture enterprise, or PNP of any size (excluding religious organizations) attributable to the effect of a specific disaster, resulting in the inability of the concern to meet its obligations as they mature, or to pay ordinary and necessary operating expenses. Economic injury may be reduced working capital, increased expenses, cash shortage due to frozen inventory or receivables, accelerated debt, etc.
How Do I Get the $10,000 Grant?
Note: In addition to this information please review information about the new Targeted EIDL grants for 2021.
The CARES Act included an Economic Injury Disaster Loan emergency grant of up to $10,000 to be made within three days of application. The SBA then limited it to $1,000 per employee. (Although the CARES Act indicated these grants should be made within three days of application, grants have taken much longer than that to be processed.) Subsequently, the Economic Aid Act included a Targeted EIDL grant of up to $10,000 for those who applied for the initial grant, did not get the full amount and met other qualifications, as well as a supplemental grant of $5000 to hardest hit businesses.
These grants may be used for:
- providing paid sick leave to employees unable to work due to the direct effect of the COVID–19;
- maintaining payroll to retain employees during business disruptions or substantial slowdowns;
- meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains;
- making rent or mortgage payments; and
- repaying obligations that cannot be met due to revenue losses.
These grants do not have to be repaid and they are not taxable at the federal level. (Be sure to check with your tax professional regarding taxes at the state level.)
How Long Do I Have to Be in Business?
The time in business requirement has been waived. However the business must be in operation by the date of the declared disaster. For COVID-19-related claims that means before January 31, 2020.
Do I Have to Have Employees?
No. Business owners without employees may be eligible.
Are Home-based Businesses Eligible to Apply?
Yes. Being a home-based business does not disqualify you. However you must list a US address on your application. If you normally use a PO Box for business correspondence, make sure to list your physical home address.
How Can I Use EIDL Funds?
EIDL is designed to help business pay normal operating expenses that they would have paid had the disaster not occurred. The SBA says EIDL may be used for working capital and for normal operating expenses, including:
- Inventory, raw materials, variable costs
- Commercial Debt (payment and prepayment)
- Federal Debt (regularly scheduled payments)
You may not use the funds to:
- Expand your business
- Make prepayments on debt that is owned by a federal agency (including SBA) or an SBIC
- Start a new business
Can I Use This to Consolidate Debt?
Previously, EIDL funds were not to be used to refinance long-term debt. However, in revised guidance that went into effect September 8, 2021 the SBA said it will “permit COVID EIDL working capital loan proceeds to be used to pay any type of business debt, including loans owned by a Federal agency (including SBA) or an SBIC…COVID EIDL loan proceeds may be used to make debt payments including monthly payments, payments of deferred interest, and pre-payments, except that prepayments will not be permitted on debt that is owned by a Federal agency (including
SBA) or an SBIC.”
What If I Just Want the Grant?
You do not have to accept the loan. You can accept the grant and decline the loan.
If I Have Access to a Line of Credit Elsewhere Can I Apply?
Yes you can still apply. You can use that funding while you wait for disaster assistance. In fact, if you have access to another source of borrowed capital to bridge the gap between your application with the SBA and when funds are dispersed, we would recommend that.
What Is the Credit Score Requirement?
Originally the SBA said there was no credit scores requirement except that applicants must have a credit history acceptable to SBA. Some borrowers have been denied based on credit scores. Subsequently, the SBA has posted the following guidance:
- $1000-$500,000: Minimum credit score 570
- More than $500,000: Minimum credit score 625
The SBA obtains personal credit scores from Experian.
What If I Don’t Have Great Credit Scores?
If you have damaged credit, apply and include an explanation with your application. Guidelines for those who process SBA Disaster Loan applications state:
“For disaster lending purposes, satisfactory credit history is defined as a history that generally shows payments to creditors as agreed unless otherwise justified…
Generally, a history that consists of minor, isolated instances of adverse credit or late payments is acceptable. Major instances of adverse credit such as unpaid judgments, repossessions, previous foreclosures, charge-offs, and unpaid collections can be overcome provided:
- The applicant explains the lapse; and
- The applicant has other accounts with “as agreed” payment records.
For purposes of evaluating adverse information found on an applicant’s (credit reports), the information should be considered within the totality of circumstances; for example, financial difficulties caused by one-time situations such as divorce, job loss, serious medical illness, etc.
For purposes of disaster lending, medical collections are not considered adverse information.
Non-medical collections or charged off accounts with an aggregate of $10,000 or less and foreclosures or deed-in lieu of foreclosures which occurred more than two years from the date of the loan application are all considered an acceptable credit risk and do not require any additional justification.”
However, SBA Standard Operating Procedures also state that loans cannot be recommended for approval if the credit history is unsatisfactory so there is no guarantee that it won’t result in a denial.
What If I Have Been Through Bankruptcy?
Prior bankruptcy is not an automatic reason for denial. A previous Chapter 7 bankruptcy may be acceptable, especially if it is older, but even recent bankruptcy (within the past two years) may be acceptable if it was due to circumstances beyond the applicant’s control and he or she has maintained a positive credit history since.
If the applicant business (or the owner, if the business is a sole proprietor or an independent contractor) is currently in bankruptcy, the applicant business is eligible if it is operating under an approved plan of reorganization under either a Chapter 5, Chapter 11, Chapter 12 or Chapter 13 bankruptcy. In order to receive COVID EIDL funds, the applicant must provide SBA with evidence of approval for the loan by the court/trustee for the bankruptcy case.
The applicant business is NOT eligible if it:
- Filed for either a Chapter 5, Chapter 11, Chapter 12 or Chapter 13 bankruptcy but no plan of reorganization has been approved, or
- Filed for a Chapter 7 bankruptcy, is undergoing a liquidating Chapter 11, and/or is permanently closed.
Will My Business Credit Be Checked?
The SBA requires a business credit check from Dun & Bradstreet or a similar commercial credit agency for approved loan amounts of $200,000 or more, unless your business is a sole proprietorship.
Tip: You can check your business credit with a free Nav account. Doing so will not affect your credit scores.
What Credit Problems Will Disqualify Me?
In addition to the guidelines above you may not qualify if:
- You are more than sixty (60) days delinquent on child support obligations.
- You have judgements against you for federal debts and you have not worked out a satisfactory repayment plan.
- You have federal tax liens of more than $10,000. (You may still qualify but you must provide a satisfactory explanation and be able to repay the tax debt. It’s recommended you work out a payment plan with the IRS as soon as possible.)
What Do I Do If My Credit Is Frozen?
It’s recommended that you lift a credit freeze before you apply. For these loans, personal credit checks go through Experian. Make sure you have alerts set up to detect any new activity on your credit reports so you can freeze your files again once your credit has been checked.
How Fast Can I Get Funding?
Overall, the SBA’s goal is to process completed applications within 21 days but this is an unprecedented disaster of national scope and few loans are being processed that quickly. If you are requesting a loan increase or loan amount above $500,000, keep in mind the SBA has implemented a window to review smaller loan applications. The SBA says larger loan requests will “receive a decision after October 8th or within 1.5 months of application submission.”
What If I Shut Down And Don’t Know When I Will Reopen?
You can request additional funds in the future if needed.
Is There a Deadline to Spend the Funds?
There is none specified, however, the SBA does state that these loan “proceeds can only be used for working capital necessary to carry the concern until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury.” In other words, they are to be used to help the business recover from the disaster.
Do I Have to Be Turned Down By A Bank First?
No. While you certainly should be looking at all financing options available, including Paycheck Protection Program loans, you won’t have to supply credit rejection letters in order to apply. The “credit elsewhere” test the SBA normally performs has been waived for these loans.
Is There A Prepayment Penalty?
No. You can pay off the loan early without a penalty.
Can Landlords With Investment Properties Qualify?
Yes, you may be eligible.
What Documents Do I Need?
The SBA has streamlined the initial online application. Additional documentation may be needed as well.
If you were “in operation” before Jan. 1, 2020:
- 2019 Federal Income Taxes, including all schedules, for the applicant business (required)
- 2020 Federal Income Taxes, including all schedules, for the applicant business (if available)
- If the most recent Federal income tax return has not been filed, a year-end profit-and-loss statement and balance sheet for that tax year
- For nonprofit organizations, a complete copy of the organization’s IRS tax-exempt certifications and complete copies of the three most recent years of “Statement of Activities”
- IRS Form 4506-T (You will complete this online when you apply)
If your business is not a sole proprietorship, you will be required to provide a Board resolution or certificate of authority providing authority to commit the business to the COVID EIDL loan after your loan is approved before loan closing. You may use your own Board resolution or ODA Form P-022 –Resolution and Certification Form.
If you started being “in operation” on or between Jan. 1, 2020 and Jan. 31, 2020, review the guidelines in the SBA FAQs.
Additional information that must be submitted for loans greater than $500,000:
- SBA Form 2202 – Schedule of Liabilities
- List of Real Estate Owned
- SBA Form 413 – Personal Financial Statement for general partners, managing members, and all owners of 20% or more of the applicant business (Not required for nonprofit organizations)
Additional information that may be requested after you submit your application:
- Copy of government-issued photo identification of each principal owning 20 percent or more of the applicant business
- Current year-to-date profit-and-loss statement
- For loans less than or equal to $500,000: Schedule of Liabilities listing all fixed debts (SBA Form 2202 may be used)
How Can I Get Help With the Application?
You can contact the SBA by calling 1-800-659-2955 or by email at firstname.lastname@example.org. Warning: There may be a long wait time.
Another great option is to contact your local SBDC, Women’s Business Center or SCORE office for free assistance.
You may also be able to hire a professional to help you, though the SBA emphasizes that you do not have to pay anyone to complete this application.
Is A Personal Guarantee Required?
While SBA loans normally carry a personal guarantee, they have been waived for COVID Disaster Loans, up to $200,000. Loans of $200,000 or more require a personal guarantee.
Is Collateral Required?
A UCC-1 filing will be placed for loans above $25,000. Loans of $500,000 or more will also require business real estate to be pledged, if available. However, the borrower will not be denied solely because there is no collateral.
What Tax Returns Do I Have To Provide?
You will likely have to submit IRS Form 4506-T “Tax Information Authorization” which allows the SBA to obtain transcripts of Federal income tax returns. Tax returns are required for each principal owning 20% or more of the applicant business, each general partner or managing member, and each affiliate when any owner has more than 50 percent ownership in the affiliate business. Affiliates include business parents, subsidiaries, and/or other businesses with common ownership or management. Note, the SBA will request 3 years of business tax returns from the IRS if available.
Am I Eligible If I Already Have a Disaster Loan from a Previous Disaster?
Yes, but there is a total limit of $5 million of SBA assistance.
What If I Have Two Businesses In Different States?
According to the SBA, the way you apply is determined by how you file your federal taxes. For example:
- If you operate three locations but report all sales in one federal tax return, you should complete one application for all of your locations; or
- If you operate three locations and file a separate federal tax return for each location, you should complete a separate application for each location.
If you are a sole proprietor with multiple businesses:
- If you report your business’s revenues on a single Schedule C, you should complete one application;
- If each of your businesses has its own tax identification number and you file separate Schedules C, you should complete a separate application for each business.
What Happens After I Apply?
Your loan application will be processed by a case manager. They may reach out to you at some point so make sure you provide a phone number you will answer and an email address you check regularly.
I Applied Before Funds Ran Out. Do I Apply Again?
If you applied before funding was exhausted, the SBA may automatically reach out. If not, you may apply again. SBA is processing loan applications on a first-come, first served basis.
Business owners in the Nav SBA Cares Act Loan Insights Facebook group are sharing updates on their EIDL applications. You may want to join to learn from their experiences.
When Will I Have to Start Making Payments?
Payments will be deferred for two years. However, interest accrues. Payments of principal and interest are made over the remaining 28 years. There is no penalty for prepayment.
How Do I Check the Status of My EIDL Application?
You can check the status of your application any time by logging into your account in the SBA portal. Monitor your email for updates (check your spam folder as well) for emails from @sba.gov, and monitor your bank account to see if the grant has been deposited.
What If I Get Turned Down?
You have up to six months to request a reconsideration. According to the SBA, you should send your application number and information required to overcome the reason for decline via email to email@example.com or mail to the U.S. Small Business Administration Disaster Assistance Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, Texas, 76155.
The Bottom Line
This loan application can be confusing but don’t let that stop you from applying. Here are two tips:
- You can go through the online application to see what information you’ll need before you actually apply. Just don’t submit it.
- You can ask for help. If you have questions, our best advice is that you try to get answers from SBA Disaster Assistance or an SBA resource partner such as your SBDC, Women’s Business Center or SCORE chapter. Many of these offices are hosting webinars, office hours, and other events to help answer questions. If you can’t get a specific answer, apply and just do the best you can.
We will continue to monitor this program and provide updates.
Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions. We encourage you to consult with your lawyers, CPAs and Financial Advisors. To review your real-time funding options with one of Nav’s lending experts, please contact us.
This article was originally written on March 25, 2020 and updated on February 2, 2023.