Today, it appears that the Small Business Administration (SBA) has opened the online portal for businesses to request Economic Injury Disaster Loans (EIDL) for up to $2 million. If you thought that meant the process would be any less confusing, think again.
There was no announcement, but as some business owners logged onto their portal this morning, a button called "Request an Increase" was visible. This button takes applicants to the EIDL application for up to $2 million. If you don't see that button, you are not currently eligible for the increase. Eligibility is determined based on 2019 revenue and cost of goods sold (COGS). If you qualify, you must sign and submit a 4506T, which allows the SBA to request a transcript of your tax return from the IRS. Make sure the business address on the 4506T matches the address you used on your 2019 tax return. If it does not, the form will be rejected or "not found." Next, you will receive an email from the SBA asking you to respond with the increased amount you believe you need. Brand new applicants will follow these steps after going to sba.gov and creating an account. Per small businesses that have already filled out the $2 million application, there is no attestation required about the impact COVID has had on your business. If you think you made an error in your application, were denied for “unverifiable information,” or haven’t heard anything, email email@example.com with your application number and denial letter if applicable.
These benefits will expire on December 31st, 2021, or whenever funds run out. The new updates apply to all loans submitted on or after September 8th, 2021, and all loans offered before September 8th, 2021 but approved on or after September 8th, 2021.
The interest and term of these loans are still 3.75% fixed (2.75% for non-profits) for 30 years with no pre-payment penalties. Payments are deferred for 24 months after the original closing date of the loan. (If your first EIDL loan closed in June of 2020, you would start making payments in June 2022 regardless of any increases you may receive.) During deferment, interest is still accruing.
To determine how much you are eligible for, use this equation:
2019 Revenue – 2019 COGS x 2 = Maximum loan amount you qualify for, up to $2 million
*If you have no COGS, subtract 0
In terms of eligibility, a few things have changed. Previously the minimum credit score required was 570, although there were ways to overcome with cashflow analysis. Since the increase, the minimum required is now 625. In addition, affiliation requirements now mirror what we saw for PPP and RRF.
To help more of the hardest-hit businesses, the SBA has extended what is considered a small business to include businesses that have one of the following NAICS Codes and who "have 500 or fewer employees per physical location and, together with affiliates, has no more than 20 locations.” These NAICS codes begin with 61, 71, 72, 213, 3121, 315, 448, 451, 481, 485, 487, 511, 512, 515, 532, or 812. We believe that the new application does not ask for your NAICS code and will be pulled from previous tax returns.
The COVID EIDL eligible uses of proceeds have been expanded to include payments on all forms of business debt. This includes loans owned by a Federal agency (SBA) or a Small Business Investment Company (SBIC). In addition, the proceeds may be used to make monthly debt payments, deferred interest payments, and pre-payment of business debt. However, “pre-payments will not be permitted on any debt owed by a Federal agency.” This ruling will allow loan proceeds to be used for debt that was incurred “before and after submitting the COVID EIDL loan application.”
Personal guarantees are required for loans over $200K by all 20% or more owners and all general partners/managing members. Loans over $25K require business collateral, not personal collateral. If you receive a $2 million loan, but your business only owns $500K of collateral, you do not have to bridge that collateral gap. If your company owns real estate and you borrow more than $500K, the real estate has to be put up as collateral.