CARES Act: What is the Economic Injury Disaster Loan?

The novel coronavirus pandemic has changed everything. Conditions are changing daily, and business owners don’t know if they’ll have customers or if they’ll even be allowed to operate from one week to the next.  In this time of uncertainty, many businesses are at risk of having to fold or let employees go. It’s nearly impossible to be prepared for a crisis like this one, and whatever savings you may have may not last when the business comes to a standstill.  The CARES Act is part of a package of new coronavirus legislation designed to support businesses going through exactly those challenges. The goal is to make funding available for businesses to stay afloat and keep paying their employees until the business returns to normal.  One of the ways for businesses to access this funding is through Economic Injury Disaster Loans.   

What are Economic Injury Disaster Loans (EIDLs)?

EIDLs are low-interest loans of up to $2 million available to businesses affected by a publicly declared disaster. The Small Business Administration makes these loans available during and after disasters to help businesses and private nonprofits pay bills they would have been able to pay regularly if the disaster hadn’t impacted them.  The amount of the loan depends on the economic damage suffered by the organization. The new $2 trillion coronavirus relief bill signed into law also includes the opportunity for a $10,000 emergency advance grant for any business or private nonprofit that applies for a loan.   

Who Can Apply for an EIDL?

Any business or private nonprofit with fewer than 500 employees can apply for an Economic Injury Disaster Loan if they have suffered economic damage because of the crisis surrounding COVID-19.   Some businesses larger than 500 employees may be eligible depending on the standards for their particular industry. EIDLs are largely targeted at small businesses, which include sole proprietorships, partnerships, and self-employed individuals.  

How Do I Apply?

Small business owners looking to apply for an EIDL can fill out an application for disaster loan assistance on the SBA website. Bear in mind that the process can be quite complex, and involve a lot of organization and patience on the behalf of whoever is applying. We recommend speaking to an accountant to ensure you're properly prepared and to help the application process go as smoothly as possible.

How Long Does the Approval Process Take?

The approval process for an EIDL may take weeks or, even more likely, months. For that reason, the SBA offers the $10,000 advance to help affected small businesses deal with emergency costs immediately. The $10,000 emergency grant does not need to be repaid, even if you are ultimately denied the loan.   The advance will be disbursed once your business’ basic eligibility for the loan is confirmed. While the SBA aims to make this money available within days of an initial application, the flood of new applications may make this process slower than expected. 

What’s the Difference Between an EIDL and a Paycheck Protection Loan?

EIDLs are entirely separate from the Paycheck Protection Program, which is the other main initiative of the CARES Act for assisting small businesses. The EIDL and Paycheck Protection Program share significant overlap, but PPP loans are more targeted and open to more businesses and industries.  While PPP loans are administered through approved private banks, EIDLs come directly from the Small Business Administration. Interest rates are somewhat lower for PPP loans, but the loan terms and amounts for PPP loans are largely tied to company payroll costs.  Existing EIDLs can be refinanced into PPP loans if a business meets the requirements. PPP loans include the possibility of forgiveness for money spent on payroll within eight weeks of the receipt of the loan. 

What Should I Know Before Applying?

Before you apply for an EIDL, take the time to study the terms of the loan and compare them to the loans available through the Paycheck Protection Program. You want to be sure to find the best possible opportunity for your business.  The emergency grants and PPP loans come from specific dollar amounts set aside by Congress through the CARES Act, so access to them may be limited. It will be up to the government to add more funds to those accounts if they run out. 

Don’t Let Disaster Sink Your Business

Through legislation like the CARES Act and the earlier Families First Coronavirus Response Act, the government is making the means available for you to save your business and survive this crisis.  If you’re uncertain about which disaster assistance program may best serve your company’s needs, don’t hesitate to get financial assistance from a professional accounting service. Now is the time to buckle down and make a plan to weather this storm.