Note: The implementation of COVID-19 relief programs is a fluid situation with new details released daily. We strive to keep this information as up-to-date as possible and will highlight important changes you should be aware of.
The U.S. Small Business Administration (SBA) has designated COVID-19 as a qualifying event for the provision of Economic Injury Disaster Loans (EIDL) for businesses and private non-profits in declared zones.
Updates as of April 7, 2020:
- The Economic Injury Disaster Loan Advance amount (up to $10K) is determined by the number of employees
- You do not have to take the EIDL loan after receiving emergency advance
- We are awaiting clarification on the forgiveness terms for the advance
- Advances should start distributing this week: $1000 per employee up to $10,000
- Anyone who applied for the EIDL before March 31 under the old format should reapply if:
- They were previously denied. The CARES Act loosened criteria and these applicants may now be eligible
- Small businesses are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000. If you’d like the advance, you should reapply.
- The new format does not require any supporting documentation and is designed to be simple and take fear and frustration out of the application process
What is the EIDL?
The EIDL is a low-interest, fixed-rate loan that can provide up to $2 million in assistance for a small business. SBA’s Economic Injury Disaster Loan (EIDLs) funds come directly from the U.S. Treasury. Applicants do not go through a bank to apply, and instead, apply directly to SBA’s Disaster Assistance Program.
Actual loan amounts are based on the amount of economic injury. These loans provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing because of COVID-19. The EIDL helps meet the necessary financial obligations that your business or private non-profit organization could have met had the disaster not occurred. EIDLs do not replace lost sales or revenue.
Is my business eligible to apply for the EIDL?
The EIDL provides up to $2 million of financial assistance to small businesses or private, non-profit organizations that suffer substantial economic injury as a direct result of the declared disaster. This includes:
- Businesses directly affected by the disaster
- Businesses that offer services directly related to the businesses in the declaration
- Other businesses indirectly related to the industry that are likely to be harmed by losses in their community (Example: Manufacturer of widgets may be eligible as well as the wholesaler and retailer of the product.
Depending on your industry, a small business could be defined as business with a maximum of 250 employees or a maximum of 1,500 employees. The business can be a sole proprietorship, LLC, corporation, or private non-profit. To see if your business qualifies, see the SBA’s definition of a small business here.
Organizations that are not eligible include religious and charitable organizations, gambling concerns (Ex: Concerns that derive more than 1/3 of their annual gross revenue from legal gambling activities), and casinos and racetracks (Ex: Businesses whose purpose for being is gambling (e.g., casinos, racetracks, poker parlors, etc.) are not eligible for EIDL assistance regardless of 1/3 criteria above.
What can the funds be used for?
These working capital loans may be used to pay:
- fixed debts
- accounts payable and
- other bills that can’t be paid because of the disaster’s impact.
The working capital loan may not be used for refinancing, expansion, growth of any kind, or infrastructure improvements.
What is the lending criteria?
- Repayment – As with all loans, you will need to prove that you have the ability to repay the loan.
- Collateral – When applying for loans greater than $25,000, the business must provide collateral The SBA requires borrowers to pledge what is available including real estate. Loans under $25,000 can be unsecured.
What are the terms?
The interest rate is 3.75% for small businesses without credit available elsewhere.
SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
When can I apply?
Applications for Economic Injury Disaster Loans are now open in Michigan. Click here to access the loan application.
How do I navigate the application system?
- Download the necessary forms from the SBA’s EIDL application site.
- Fill out the forms & save on your computer.
- Upload the forms to the application site.
- A Disaster Loan Assistance Officer may ask you to fill out additional forms, located on the application website.
Tips for Applying:
- Include the disaster in your application – specifically name “COVID-19” or “Coronavirus”
- If a business is new and has had little or no sales yet, include a business plan with owner investment and projected sales
- If a business is seasonal, include an explanation in your narrative
- If a business owner has multiple businesses, submit ONE application PER COUNTY
- Do not rush through the application. Check and recheck the filing requirements to ensure that all the needed information is completed prior to submission. The biggest reason for delays in processing is due to missing information.
- Be sure to use the same contact information (business name and the name of all owners) that you use on your federal tax returns. Double-check that they match.
- If your tax returns reference other businesses that you own, you must also submit those tax returns in order to avoid a processing delay.
- If more funds are needed, applicants can submit supporting documents and a request for an increase. If less funds are needed, applicants can request a reduction in the loan amount.
- If the loan request is denied, the applicant will be given up to six months in which to provide new information and submit a written request for reconsideration.
- Applications are available online on the SBA’s Disaster Loan Assistance site.
- There is no cost to apply for the loan.
- If your loan is approved you are not obligated to accept the funds
- The EIDL is not your only option. The Michigan SBDC team can help you determine the best course of action for your business.
The Michigan SBDC is here to assist you through these unprecedented times. Please contact us if you need help determining if the EIDL is right for your business, need assistance in completing the application, or have questions regarding the economic recovery process.