EIDL UPDATES FROM SBA
Here is a summary of the most recent EIDL guidance issued from the SBA on 9/8/21, which supersedes all previous EIDL guidance.
Click here for the link to the SBA website regarding this.
Basic Terms
EIDL loans are: non-forgivable, up to $2 million, and 30yr fixed rate (3.75% for businesses, 2.75% for private nonprofits).
Payments are deferred for first 2 years (interest will accrue), and made over the following 28 years. No penalty for prepayment.
Collateral is required for loans over $25k.
A personal guaranty is required for all loans over $200k (except loans to nonprofits). Personal guaranty will be required on these loans generally from anyone with 20%+ interest in the business, all general partners, all managing members, owner of 20%+ of voting stock, etc.
SBA retains a security interest in business assets for loans of $25,001-$500,000. SBA retains a security interest in business assets and a best available mortgage in real estate for loans of $500,001+.
How much can be Borrowed?
Loans up to $500k: SBA determines a max amount based on when business began operations, borrower chooses up to max amount approved by SBA.
For businesses in operation prior to 1/1/19, maximum eligible loan is calculated as the lessor of: a) $500,000; or b) 2019 gross receipts (or gross sales) minus 2019 cost of goods sold, multiplied by two.
For business that began operation during 2019 or 2020, SBA will determine maximum loan amount.
What are eligible uses of loan proceeds
Funds can be used to: make regular payments for operating expenses; pay or pre-pay nonfederal debt incurred at any time, past or future; pay regularly scheduled federal debt payments; cover payroll, rent/mortgage, utilities, other ordinary business expenses.
Funds cannot be used to: expand your business, prepay federal debt, or start a new business.
General Eligibility for Loan
Business must be wholly owned by US citizens and have an IRS-issued TIN. Sole proprietorships with US citizen owner SSN are also fine.
Business must have less than 500 employees, including affiliate employees (where affiliate is defined as an entity in which the EIDL loan applicant has at least 50% ownership, a right to 50%+ of profits in the affiliate, or contractual authority to control the direction of the affiliate).
Businesses with more than 500 employees (including affiliates) may be eligible if they fall within certain industries.
See here at pg. 7 for the list.
Conditions that Prohibit Eligibility
Business was not in operation on or before Jan. 31, 2020.
Business doesn’t meet size standards described above.
Business deals primarily with cannabis, life insurance, gambling, multi-level real estate investment or development, loan packaging, political or lobbying activities, or live adult performances (strip clubs).
Any 20%+ owner of the applicant is incarcerated, has a felony involving dishonesty in the last 5 years, has been suspended or barred from receiving federal loans, etc.
See here at pg. 7-8 for the full list.
Documents Needed to Apply
2019/2020 tax return
P&L and balance sheet for most recent tax year if tax return un-filed
IRS Form 4506-T
Nonprofits: three most recent years of activity statements or tax-exempt certifications
Sole proprietorships: board resolution or certificate of authority
Loans over $500k: SBA Form 2202 – Schedule of Liabilities, list of all real estate owned, and SBA Form 413 – Personal Financial Statement for owners, general partners, etc.
Other Wrinkles
Sale of business after loan may require full repayment of the loan at time of sale.
Business must keep tax returns and financial records for all loan funds spent for 3 years.
Deadline to file for EIDL is December 31, 2021, or until funds are exhausted. Funds will likely be exhausted prior to 12/31.
If applicant is in bankruptcy, only eligible for EIDL loan if: operating under an approved plan of reorganization under Chapter 5, 11, 12, or 13 and capable of providing proof of approved plan.
Our legal team will continue to keep their eyes on any updates. Be sure to check back often for any updates to this important information from the SBA and subscribe below to make sure you’re always up to speed on any important updates.